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The 2003 legislative session in Sacramento spawned a number of laws affecting insurance coverage issues in California. Newly enacted laws of particular interest involve health insurance, homeowners’ insurance, workers’ compensation, life insurance and commercial property insurance. Perhaps most striking about the session’s legislative results is that the new laws do not follow a general trend, but are in some instances directly opposed to each other. Some enactments, particularly in the area of homeowners’ insurance and health care, appear to be aimed at expanding coverage and protecting insured individuals. The most aggressive of these is SB 2, known as the universal health care plan, which mandates that many California employers provide health care coverage to their employees. On the other hand, new laws on workers’ compensation seem to have little to do with protecting employers or employees, but rather aim at reducing skyrocketing costs of insurance. The new workers’ compensation laws are expected to take a step toward reducing the huge rate increases businesses have been experiencing. But given the high cost of SB 2, these savings may be completely offset by the cost of providing mandated health insurance. HOMEOWNERS’ INSURANCE Two bills enacted in 2003 — AB 1049 and AB 1191 — deal with the provision of homeowners’ insurance in California. Both increase protection for homeowners and are designed to promote the ability of policyholders to obtain information from their insurers. AB 1049, which amends �791.12 of the Insurance Code, prohibits insurers from denying or canceling homeowners’ policies due to inquiries concerning coverage. Information can be obtained as to whether a homeowner has made a claim on past policies through the Comprehensive Loss Underwriting Exchange (CLUE), a centralized database of information about American consumers’ insurance claims and inquiry history. The new law makes it illegal to refuse to offer a policy to a customer or charge a higher rate because the CLUE database includes information about past inquiries. Similarly, an insurer cannot cancel or refuse to renew a policy because the policyholder inquired as to the terms of his or her coverage. AB 1191, sponsored by the Foundation for Taxpayer and Consumer Rights, also affords homeowners more protection by requiring insurers to explain cancellations. Insurers are already required, under certain property insurance policies, to deliver to the insured an offer of renewal or notice of nonrenewal before the expiration of the policy. This law, codified at ��678 and 679.9 of the Insurance Code, requires insurers to inform the insured in writing of any change in the policy premium. Further, the insurer must make clear whom consumers should contact with additional questions regarding the premium, as well as how to do so. If an insurer fails to give an offer of renewal or notice of nonrenewal during the policy period, the policy under its initial terms remains in effect until 45 days after the insurer does mail such notice. These bills were intended to be part of a larger, more comprehensive package dealing with homeowners’ insurance, including SB 691 and SB 64, neither of which was ultimately enacted. Those bills would have prevented insurers from using customers’ credit scores in setting homeowners’ insurance rates while adding new regulations to protect homeowners from alleged unfair underwriting practices. LIFE INSURANCE California, like many other states, historically allowed employers to purchase corporate owned life insurance (COLI) policies, also known as “dead peasant policies,” insuring the lives of their employees. COLI policies are distinct from the life insurance policies provided to employees as part of their benefits in that COLI policies name the employer, rather than the employee’s family, as the beneficiary. In fact, the employee and his or her family are often not even aware of the existence of the policy. Corporate-owned life insurance policies offer several financial benefits to companies. Companies can borrow against the policies, and the proceeds from the insurance policies are not considered taxable income to the entity that receives it. Until recently, the premiums for COLI policies were considered a tax-deductible business expense. Many employers throughout California used COLI policies as a way to pay for employee retirement and benefit plans. A public policy debate has surrounded the use of COLI policies, however, given the inequality of the proposition that a corporation may receive a larger payout of death benefits than does the deceased’s family. AB 226 addressed that public policy debate by prohibiting insurers from selling a policy on the life of a California employee to a California employer naming the employer as a beneficiary. The law, codified at �10110.4 of the Insurance Code, only applies to non-exempt employees (exempt employees under California Labor Code �515 are employees who earn a salary and are not entitled to overtime pay). Any COLI policy in place prior to the enactment of the law remains in force until the date of the next premium payment or five years after the enactment of the law (no later than Jan. 1, 2010). COLI policies issued subsequent to the enactment of the law are void. HEALTH CARE SB 2, also known as the Health Insurance Act of 2003, was passed on Sept. 12 and signed by former Gov. Gray Davis on Oct. 5. It requires that California employers pay a fee to the state to provide health insurance unless the employer provides coverage directly, in which case the fee is waived. SB 2 covers employees in California who have worked for an employer for three months and have worked at least 100 hours a month. The law’s requirements differ slightly depending on the number of employees. Large employers, defined as those with at least 200 employees — are required to participate in the program starting Jan. 1, 2006, and must cover workers and their dependents. Medium-sized employers — those with 50 to 199 employees — do not have to participate until Jan. 1, 2007, and must only cover workers. Small employers, with 20 to 49 employees, are exempt under certain circumstances while businesses with fewer than 20 employees are exempt. Under the provisions of SB 2, employers are required to pay a fee to a state fund for each worker they employ. Employers offering health coverage that meets the minimum requirements of the law receive a credit against the fee. When the employer provides coverage directly, the employer and the employee may share the cost of coverage. When the cost is shared, employers must contribute at least 80 percent of the cost, with workers providing the remaining amount. Low-income workers’ contributions are capped at 5 percent. The number of employers affected by this law is relatively small. Ninety-nine percent of employers with 200 or more employees already provide health insurance to their workers while 94 percent of employers with 50 to 199 employees do so. However, some of these employers may be required to increase their employer contribution to meet the 80 percent requirement. SB 2 was hotly debated, and its passage galvanized a coalition of business groups, calling themselves Californians Against Government Run Health Care, to collect and submit an estimated 620,000 signatures to qualify for a referendum to repeal SB 2. The referendum effort, however, was halted in December when Sacramento Superior Court Judge Lloyd Connelly ruled that the petitions used by the coalition were invalid because they gave inadequate notice of what a March referendum on the law would do. That decision has been appealed, with arguments scheduled before the First District Court of Appeal on Jan. 15. WORKERS’ COMPENSATION Two major bills enacted in 2003 — AB 227 and SB 228 — dealt with workers’ compensation. AB 227, funded entirely by employer assessments, makes a number of reforms to the existing workers’ compensation system: • The California Insurance Guarantee Association is permitted to request that up to $1.5 billion in bonds be issued to provide funds for the payment of covered claims and expenses. • The maximum fines levied for workers’ compensation fraud are increased from $50,000 to $150,000. • The insurance commissioner is required to create and maintain on the Department of Insurance Web site a chart comparing insurance rates for the 50 insurance companies with the highest volume of business. • Supplemental job displacement benefits are created. Workers who do not return to work for their employer within 60 days of the end of their temporary disability period receive an additional lump sum benefit, dependent on their level of disability. This benefit must be used for retraining, skill enhancement, job placement assistance or employment-related tools. SB 228 requires the Commission on Health and Safety and Workers’ Compensation to conduct a survey on national standards of care to create medical treatment utilization guidelines, which must be submitted to the administrative director of the division on workers’ compensation. A presumption of correctness is attached to these guidelines. The law repeals the physician’s presumption of correctness. The administrative director must also adopt a medical billing and provider fraud protocol. Pharmacies that dispense prescription drugs related to workers’ compensation claims must dispense generic drugs unless a brand name drug has been specifically prescribed. The law reduces the time to pay medical bills from 60 to 45 days and increases penalties for late payment from 10 percent to 15 percent. The establishment of procedures and regulations for electronic payment is also required. ADDITIONAL PROTECTIONS FOR REPRODUCTIVE RIGHTS FACILITIES AND FOR SAME-SEX COUPLES Former Gov. Davis signed two civil rights-oriented pieces of legislation in 2003 that have an impact on the insurance industry: AB 996, which addresses insurance coverage for reproductive health facilities, and AB 205, which expands the rights afforded to same-sex domestic partners. Under existing California law, a commercial property insurance policy for a religious, educational or nonprofit insured may not be canceled and the insurer may not refuse to renew if the reason for such action is that a claim was made on the policy to recover a loss resulting from a hate crime. AB 996 amends �676.1 of the Insurance Code to expand the reach of this law to “anti-reproductive-rights crimes” against reproductive health facilities. The legislation also provides that an insurer may not charge excessive premiums or unfairly discriminate against policyholders because the insured made a claim for a loss resulting from a hate crime or anti-reproductive-rights crime. AB 205 enacts the California Domestic Partner Rights and Responsibilities Act of 2003. Beginning on Jan. 1, 2005, the bill extends all the rights and duties of marriage to same-sex couples registered as domestic partners. The legislation revises various sections of the Family Code and Government Code. California domestic partnership law already provided certain rights for same-sex domestic partners with respect to insurance coverage. For example, domestic partners have been entitled to unemployment insurance and health insurance as well as continued health insurance coverage for domestic partners and children of deceased and retired state employees. The new law goes further, proclaiming that “[r]egistered domestic partners shall have the same rights, protections and benefits, and shall be subject to the same responsibilities, obligations and duties under law � as are granted to and imposed upon spouses.” Areas covered by AB 205 include government benefits, funeral concerns, parenting status, property ownership, taxes, health issues and financial concerns. As of this writing, two lawsuits have been filed challenging the validity of AB 205. A proposed referendum to force a statewide electorate vote on AB 205 failed to qualify for the ballot. Regarding the overall 2003 legislative season, clearly there is some conflict in the goals of the legislation, given their effort to expand coverage and reduce costs. Whether both of these objectives can be realized simultaneously is unclear, especially in light of the fact that interest groups on both sides have been working hard to swing the legislation in their favor and will in all likelihood continue to do so in the coming year. Bruce D. Celebrezze, a partner at Sedgwick, Detert, Moran & Arnold, leads the firm’s San Francisco-based insurance coverage and bad faith litigation group. His e-mail address is [email protected]. Erin Adrian and Randall Berdan, who are associates at the firm, contributed to this article.

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