BILL ANALYSIS
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|SENATE RULES COMMITTEE | AB 1050|
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THIRD READING
Bill No: AB 1050
Author: Wright (D)
Amended: 9/1/99 in Senate
Vote: 27
SENATE INSURANCE COMMITTEE : 5-1, 7/14/99
AYES: Escutia, Figueroa, Johnston, Leslie, Schiff
NOES: Speier
NOT VOTING: Hughes, Johnson, Lewis, Sher
SENATE INSURANCE COMMITTEE : 8-0, 8/18/99
AYES: Speier, Escutia, Figueroa, Hughes, Johnston, Leslie,
Schiff, Sher
NOT VOTING: Johnson, Lewis
ASSEMBLY FLOOR : 68-5, 6/1/99 - See last page for vote
SENATE APPROPRIATIONS COMMITTEE : 10-3, 8/30/99
AYES: Johnston, Alpert, Bowen, Burton, Escutia, Karnette,
Leslie, McPherson, Perata, Vasconcellos
NOES: Johnson, Kelley, Mountjoy
SUBJECT : Insurance: fraudulent claims
SOURCE : Author
DIGEST : This bill enacts the Organized Crime Prevention
and Victim Protection Act of 1999 which increases funding
for, and imposes additional requirements related to,
prevention of auto insurance fraud.
CONTINUED
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ANALYSIS : Existing law:
1. Creates State Department of Insurance's (DOI) Bureau
of Fraudulent Claims (now the Fraud Division), which
investigates cases of insurance fraud reported by
insurers and administers local grant programs to
district attorneys to prosecute automobile insurance
fraud.
2. Sets an annual fee to be paid by insurers of $1 per
insured vehicle to fund the investigation and
prosecution of auto insurance fraud, which is
distributed by the IC to DOI, the California Highway
Patrol and the district attorneys to investigate and
prosecute automobile insurance fraud.
3. Creates within the Bureau of Fraudulent Claims an
advisory committee on auto insurance fraud.
4. Provides that any interested person may bring a civil
action for insurance fraud and provides that the person
shall receive 15 to 25 percent of the proceeds of the
settlement if the prosecuting authority proceeds with
the case; if the prosecuting authority declines to
proceed, the person is eligible to receive 25 to 30
percent of the proceeds from the settlement.
This bill:
1. Provides that civil penalties are for each fraudulent
claim presented to an insurance company by a defendant
being sued for the civil penalties.
2. Additionally increases the amount of proceeds of a
settlement given to insurers bringing an action for
fraud in three ways:
A. Gives insurers 30 percent to 40 percent of a
settlement if a district attorney (DA) or the
commissioner proceeds with an action originally
brought by an insurer, and there is a settlement.
The current range given to insurers in these
circumstances is 15 percent to 25 percent.
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B. Gives insurers 40 to 50 percent of a settlement
that is obtained by an insurer, after the DA and
commissioner decline to proceed. The current range
is 25 percent to 30 percent.
3. Creates a statute of limitation of eight years from
the date of the fraud.
4. Requires a DA to notify the State Department of Motor
Vehicles (DMV) of any criminal complaint alleging auto
insurance fraud, and requires specified notice of the
complaint to the victims and affected insurers. States
the legislative intent of this section of the bill to
have retroactive effect to insurance claims or actions
existing on 1/1/2000.
5. Requires that insurers not surcharge policyholders if
there's no evidence the policyholder was involved in
the fraud, and requires 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.
6. Requires 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.
Allows the Insurance Commissioner to discontinue
distributions of funds allocated to counties determined
to be unable or unwilling to investigate and prosecute
auto insurance fraud claims.
7. Establishes, until January 1, 2007, between three to
six grants to be given to DAs for the purpose of
prosecuting and eliminating organized auto fraud
activity, as defined, in their jurisdictions, and
permits more than one DA to apply under a single grant.
Would fund the grants through an additional fee of 50
cents per auto policy per year to be paid by insurers,
with a sunset on this fee of January 1, 2007.
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In awarding the grants, the Commissioner will consider
each county's level of general criminal activity,
population density, automobile insurance claims
frequency, number of suspected fraudulent claims, and
prior and current evidence of organized automobile
fraud activity.
Grants priority to counties with the potential to have
the greatest impact on organized auto fraud activity.
Continued funding of a grant shall be contingent upon a
grantee's successful performance as determined by an
annual review by the commissioner. Any redirection of
grant funds is to be made only for good cause.
Requires the State Department of California Highway
Patrol "to submit to the commissioner, for
informational purposes only, an annual report on its
expenditure of funds in the same format as is required
of grantees under the bill."
Splits the fee giving 42.5 percent to the district
attorney, 42.5 percent to the Bureau of Fraudulent
Claims and 15 percent to the California Department of
Highway Patrol.
8. Requires DOI investigators to be assigned to work with
a grantee.
9. Requires the commissioner to adopt emergency
regulations to establish the criteria under which
grants will be awarded. The criteria would be: 1)
suggested ratios of investigator's attorneys that the
commissioner believes would result in an effective use
of funds given grants anticipated to be made; 2)
allowable percentages and types of administrative
expenses; 3) benchmarks suitable for measuring
objectives in a grant; 4) standard data and reporting
formats for reports; and 5) any other criteria deemed
by the commissioner to be necessary to efficiently and
effectively administer the program.
10. Establishes the act as the Organized Crime Prevention
and Victim Protection Act of 1999, and makes various
findings relative to insurance fraud rings and their
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impact upon the public.
Background
The State Department of Insurance Fraud Division was
initially established in 1978. During the initial 10 years
of the Fraud Division's existence, its investigators were
able to develop good cases, but often found district
attorneys unable to devote resources to their prosecution.
After several years of increasing problems in prosecuting
automobile insurance fraud, 1988 legislation provided a
means to increase enforcement resources. SB 2344 (Lockyer)
created an insurer assessment and directed a portion of the
funds collected to district attorneys for fraud
prosecution. The initial assessment was $0.30 per insured
vehicle, raised to $0.50 per vehicle in 1990 and raised
again to $1 per vehicle in 1991.
In 1994 legislation changed the formula for distributing
the funds collected to provide limited funding to the
California Highway Patrol, and 1997 legislation eliminated
the Automobile Insurance Claims Depository and directed
those funds to the Fraud Division to enhance auto fraud
investigations. The annual $1 per vehicle assessment
collects between $16 and $18 million. Currently, the Fraud
Division has eight offices statewide and 34 district
attorney offices participate in the program. Since the
implementation of the local assistance program in 1990 for
district attorneys, the annual number of prosecutions is
now more than four times the number documented for the
entire previous decade.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT : (Verified 9/1/99)
Allstate Insurance Company
Association of California Insurance Companies
Personal Insurance Federation of California
ARGUMENTS IN SUPPORT : The author introduced this bill to
address four different, yet related, issues in the area of
automobile insurance fraud prosecution. First, it makes
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technical changes to ensure the $1 per vehicle insurer
surcharge is properly spent. Second, it corrects problems
in the law that result in innocent victims of auto fraud
being "surcharged" by insurance companies and having points
added to their DMV record. Third, it provides through an
increased insurer assessment for a focused program directed
against auto fraud rings in urban areas that represent the
biggest portion of auto fraud claims. Finally, in the case
of civil prosecutions of insurance fraud, increases the
proceeds that go to the insurer who has brought a civil
action. Since the insurer has done the work on the case,
the author believes it should be eligible to the proceeds.
The author also believes this provision will encourage more
insurers to pursue civil actions.
ASSEMBLY FLOOR : 68-5, 6/1/99
AYES: Aanestad, Ackerman, Alquist, Aroner, Bates, Battin,
Baugh, Bock, Briggs, Calderon, Campbell, Cardenas,
Cardoza, Cedillo, Corbett, Correa, Cox, Cunneen, Davis,
Ducheny, Dutra, Firebaugh, Florez, Floyd, Frusetta,
Gallegos, Havice, Hertzberg, Honda, House, Jackson,
Keeley, Knox, Kuehl, Lempert, Leonard, Longville,
Lowenthal, Machado, Maddox, Maldonado, Margett, Mazzoni,
Migden, Nakano, Olberg, Oller, Robert Pacheco, Papan,
Pescetti, Romero, Runner, Scott, Shelley, Soto,
Steinberg, Strickland, Strom-Martin, Thomson, Torlakson,
Vincent, Washington, Wayne, Wesson, Wildman, Wright,
Zettel, Villaraigosa
NOES: Ashburn, Dickerson, Leach, McClintock, Thompson
NOT VOTING: Baldwin, Brewer, Granlund, Kaloogian, Rod
Pacheco, Reyes, Wiggins
DLW:kb 9/1/99 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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