BILL ANALYSIS
SENATE COMMITTEE ON INSURANCE
Senator Jackie Speier, Chair
AB 1050 (Wright) Hearing Date: July 14,
As Amended: July 2, 1999
Fiscal: Yes
Urgency: No
Assembly Insurance: 4/21/99 (10-1)
Assembly Judiciary: 5/11/99 (13-1)
Assembly Floor: 6/1/99 (68-5)
SUMMARY
Would increase the existing auto fraud fee from $1.00 per
auto policy per year to $1.50 per policy per year and
directs that the additional 50 cents fund three to six new
grants to fight auto insurance fraud rings, makes various
changes to the existing recovery rights and
responsibilities of insurers seeking civil penalties for
fraud, and amends Proposition 103 by requiring rebates to
consumers whose premiums increase due to fraudulent
accidents allegedly perpetrated against the consumers.
DIGEST
Existing law
1. Permits insurers to file actions seeking civil
penalties and assessments from persons knowingly
engaged in employing runners, cappers, steerers or
other persons in order to procure clients or to obtain
services from a Workers' Compensation policy or a
contract of insurance.
2. Provides for specified percentages of settlement
proceeds to be paid to those insurers bringing the
civil action, and permits reasonable attorneys fees and
costs to also be awarded.
3. Provides for a three year statute of limitations from
the date of discovery of the fraud.
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4. Makes it a crime to file or aid in filing a false
insurance claim.
5. Requires each insurer to pay an annual fee of $1 per
policy per vehicle, a portion of which is then made
available for purposes of funding grants to District
Attorneys (DA's) to fight auto insurance fraud, and
portions of which are also allocated to the Department
of Insurance (DOI) and the California Highway Patrol
(CHP) for purposes of auto insurance fraud
investigation and prosecution.
6. Establishes an advisory committee to the Bureau of
Fraudulent Claims to make recommendations to improve
the cost effectiveness of fraud grants given to DA's.
7. Requires the Medical Board of California, the Board of
Chiropractic Examiners, and the State Bar to
investigate and report suspected fraud, and to report
to the legislature annually on their investigations.
This bill
1. Would increase the amount of proceeds of a settlement
given to insurers by providing that civil penalties are
for each fraudulent claim presented to an insurance
company by a defendant.
2. Would additionally increase the amount of
proceeds of a settlement given to insurers bringing an
action for fraud in three ways.
a. Would give insurers 30% to 40% of a
settlement if the Attorney General (AG), a District
Attorney (DA) or the Commissioner proceed with an
action originally brought by an insurer, and there is a
settlement. The current range given to insurers in
these circumstances is 15% to 25%.
b. If an insurer has paid money to a defendant
or an attorney acting on behalf of a defendant, then
the insurer will be entitled to up to double the amount
paid if that amount exceeds 40% of the proceeds of the
settlement. Stated simply, the insurer would receive
over 80% of any award.
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c. Would give insurers 40% to 50% of a settlement
that is obtained by an insurer, after the AG, DA and
Commissioner decline to proceed. The current range is
25% to 30%.
4. Would create a statute of repose of 8 years from the
date of the fraud.
5. Would require a DA to notify the Department of Motor
Vehicles (DMV) of any criminal complaint alleging auto
insurance fraud, and would require specified notice of
the complaint to the victims and affected insurers.
6. Would require that insurers not surcharge
policyholders if there's no evidence the policyholder
was involved in the fraud, and would require a rebate
of any premium surcharges levied on the policy of a
victim of auto fraud when auto accidents allegedly
caused by fraud have triggered the insurance
surcharges.
7. Would require the Commissioner to conduct a fiscal
audit every three years of fraud programs funded by the
existing annual $1 per policy levy, with the costs of
the audit shared by the Commissioner and the district
attorney
8. Would specify the information to be included in the
annual performance reports indicated in #7, above.
9. Would establish, until January 1, 2006, between 3 to 6
grants to be given to DA's for the purpose of
prosecuting and eliminating auto insurance fraud rings
in their jurisdictions, would permit more than one DA
to apply under a single grant, and would fund the
grants through an additional fee of 50 cents per auto
policy per year to be paid by insurers.
10. Would fund additional DOI fraud investigators out of
the additional 50 cent per policy fee, would require
investigators to be assigned to work with a grantee,
and would require the assigned investigator(s) to
establish an office in the office of a grantee.
11. Would establish an additional advisory committee to
the Bureau of Fraudulent Claims to advise the Bureau.
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The additional advisory committee would recommend ways
to evaluate funding requests from DA's seeking the new
fraud ring grants. The additional advisory committee
would also advise the Bureau on ways to evaluate the
effectiveness of existing grants given to DA's.
12. Would establish the Act as the Organized Crime
Prevention and Victim Protection Act of 1999, and make
various findings relative to insurance fraud rings and
their impact upon the public.
COMMENTS
1. Purpose of the bill . To increase the amount of money
being expended to fight auto insurance fraud, to target
it to areas of the state with substantial fraud
activity, and to create standards for evaluating the
effectiveness of the use of the money.
2. Background: When a DA files a criminal complaint
alleging a staged accident, and a consumer has been
both the victim of the accident and had a premium
surcharge levied as a result of the accident, the bill
would require insurers to rebate the premium surcharge.
By requiring premium rebates based upon a criminal
complaint filed by a DA, Legislative Counsel has
determined that the bill would amend Proposition 103.
In an oral opinion given to staff, Legislative Counsel
stated that Proposition 103 presupposes that premiums
are based upon facts. In the opinion of Legislative
Counsel, criminal complaints by DA's are not facts,
they are merely allegations. Hence the bill amends
Proposition 103.
3. Support . In statements of support, insurers generally
make the following points: 1) Investigation and
prosecution of auto fraud helps to reduce the costs of
auto insurance; 2) The bill provides additional
resources targeted at urban areas where auto insurance
fraud is most prevalent; 3) The bill establishes
better communication between insurers and law
enforcement in fraud fighting efforts; 4) The
Personal Insurance Federation (PIF) indicates that the
bill establishes accountability for the outcomes of
both the current fraud grants and the additional grants
created by the bill by requiring an audit every three
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years of the existing grants, and by creating a second
advisory committee to the DOI. Public Counsel, a pro
bono legal office in Los Angeles County, expressed
support for the bill because it will help to lower auto
insurance premiums in inner city neighborhoods. The
Legal Aid Foundation of Los Angeles expressed support
for the portion of the bill that requires a rebate of
any surcharge levied upon a victim of a staged auto
accident.
4. Opposition . The Alliance of American Insurers (AAI)
opposes the bill because it believes that the current
assessment that raises between $16 million and $18
million annually is more than adequate for the
Department of Insurance and the District Attorneys.
AAI supports management audits of DA offices as a way
to make the existing fraud programs more efficient,
rather than giving additional funds to DA's. AAI
believes that the existing program is not "doing the
job" intended by the Legislature when the fee was
established a decade ago.
5. California District Attorney's Association (CDAA):
CDAA supports the bill if amended. CDAA recommends
that up to fifteen grants be authorized, believing that
three to six grants is "overly-restrictive," given the
lengthy sunset (January 1, 2006). CDAA believes that,
over time, new circumstances may arise which would
require additional grants. CDAA also suggests that the
term "automobile insurance fraud ring" be clarified,
and has suggested clarifying language (see Amendments
needed #v, below). CDAA suggests that the bill be
amended to specify that a copy of the civil lawsuit
filed by private parties be sent specifically to the
Attorney General, DA's, and the commissioner (see
Amendments needed, #v below).
6. Amendments needed :
i) The author's office is preparing technical and
clarifying amendments to be presented in committee.
These amendments are as follows:
Page 14, line 2, after "fraud" insert "or fraudulent
collision", on page 18, line 29, after "a" insert
"coordinated", strike all references to automobile
fraud rings and accept the substitute language for a
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fraud ring that has been proposal by the CDAA, and on
page 19 at line 16, after "under" add "to any
appropriate prosecutorial entity".
ii) The author's office has agreed to delete lines 35
to 40 on page 9 of the bill. In certain circumstances,
this language would give insurers over 80% of all
proceeds when a DA has prosecuted a case. This would
roughly approximate the outcome that the Assembly
Judiciary Committee explicitly refused to accept when
it amended the bill to delete similar language as the
bill passed out of that committee. The Assembly
Judiciary Committee and the author's office agree that
this language should be removed from the bill before
this committee.
iii) The author's office has indicated to committee
staff that a DA may receive two three year grants in a
row. Should the sunset date be exactly six years from
the effective date of the legislation? Time will be
needed to get the grant program going. Would it
perhaps be better to set the sunset date at 7 years
(January 1, 2007)?;
iv) Section 1872.81: The author's office has
indicated to committee staff a willingness to strike
this section of the bill, and to give these tasks to
the commissioner to accomplish through emergency
regulations. The existing list contains ambiguous
language and even if these tasks are given to the
commissioner they should be clarified. AB 1050 states
that the bill's advisory committee is to "?make
recommendations to the Commissioner regarding criteria
for the grants to district attorneys?" and additional
language places both the existing grants and the 3 to 6
new grants into this mandate (page 17, lines 3-12). An
advisory committee already exists for the existing
grants, and another is not needed. Substitute language
should be crafted as follows in order to clarify the
language and to make sure the new advisory committee
only reviews the new proposed grants: "There is created
within the Bureau of Fraudulent Claims an advisory
committee to make recommendations to the Commissioner
regarding criteria for the evaluating the effectiveness
of grants to district attorneys under Section 1874.8."?
Also, on page 17 on line 17, this language would
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clarify the intent: "(1) Recommendations for an
effective ratio of investigators to attorneys, taking
into consideration the enforcement plan proposed by the
district attorney applicant."?
v) Starting on page 18 at line 27, the bill makes
repeated reference to grants to eliminate fraud rings.
The CDAA has recommended a definition as follows:
"An automobile fraud ring is two or more persons who
conspire, aid, and abet, or act together to commit
economic auto theft, violated Insurance Code sections
549, 550, 551, 750, or Business and Professions Code
sections 650 and 6152 as they relate to auto insurance
claims." CDAA also suggests additional language to
ensure that DA's, the Attorney General, and
commissioner are all notified of the filing of a civil
fraud suit by private parties."
CDAA also recommends this language to ensure that
the DA's, the Attorney General and the commissioner are
notified of civil actions:
"A copy of the complaint and written disclosure of
substantially all material evidence and information the
person possesses shall be served on the state Attorney
General, district attorney, and commissioner."
vi) Should the bill be amended to allow more than 120
days for the new advisory committee, or the
commissioner, to develop grant standards for the new
grants?
7. Questions: 1) The committee has previously passed SB
940 (Speier) that also increases the auto fraud fee by
50 cents per policy. The bill maintained the existing
apportionment of funds rather than directing new funds
toward three to six grants. The two bills could be
made consistent if the 50 cent per policy increase were
removed from AB 1050, and the 50 cent per policy
increase in SB 940 were allowed to be allocated as set
forth in AB 1050. Would the author agree to remove the
50 cent per policy increase from AB 1050? 2) There are
approximately 20 million auto insurance policies in
force and therefore this bill may raise up to $10
million annually for new efforts to combat auto
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insurance fraud. Does the Legislature want to lock in
the number of grants to six, as proposed in the bill,
perhaps set a higher number, such as fifteen, as
suggested by CDAA? 3) On page 19 at lines 13-14, the
bill requires DOI investigators to be assigned to work
in the same office as a DA receiving one of the new
fraud grants. Is this requirement going to impede
investigations into fraud by overly constricting the
work arrangements of investigators and DA's? 4) The
bill almost doubles the amount of proceeds that
insurers receive from fraud settlements. Does this
create a disincentive for DA's to take these cases? Is
the percentage offered to insurers excessive? What do
other States offer insurers?
POSITIONS
Support
California State Automobile Association
Personal Insurance Federation
Public Counsel
Legal Aid Foundation of Los Angeles
Association of California Insurance Companies
Los Angeles County District Attorney's Office
Support if Amended
California District Attorneys Association
Oppose
Alliance of American Insurers
Consultant: Brian Perkins