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Thursday, 21 April 2011 16:07

California Senate Bill 631 Would Give Insurance Commissioner More Penalty Powers

In February this year, California Senator Noreen Evans introduced legislation expanding the Insurance Commissioner’s restitution authority which at present is only allowed in limited circumstances. Simply put, SB 631 would grant explicit authority to the state Insurance Commissioner to order restitution as part of an administrative enforcement action against an insurance company. The new powers could be used to punish broker-agents and other licensees in all instances where the Commissioner finds any violation of the California Insurance Code.

The expanded authority would protect consumers from what Senator Evans described as the “David and Goliath” dynamics that can occur when a consumer seeks repayment of monetary losses or out-of-pocket costs associated with wrongful insurance company conduct.

SB 631 would allow the Commissioner to “impose upon an insurer, licensee, or other entity or person subject to the commissioner’s authority specified remedies, either by way of settlement or following a hearing, whenever the commissioner finds that there has been a violation of an applicable insurance provision.”

“The status quo allows insurance companies to violate the law and then simply nudge consumers away from regaining the monetary losses they experienced,” said Senator Evans. “Restitution-granting authority already exists in several other state departments. Senate Bill 631extends this same authority to the Insurance Commissioner and simultaneously provides built-in safeguard for all parties.”

Evans said the bill also provides safeguards for insurers should they disagree with the restitution order by the Insurance Commissioner, because under SB 631 insurers may still seek a judicial appeal and go to court. Should a consumer wish to directly pursue judicial action against an insurer, rather than receiving restitution through the Insurance Commissioner, the bill still allows them to do so, she added.

“The Department of Insurance is required by law to protect consumers against misconduct from insurers,” Insurance Commissioner Dave Jones has said. “However, the Insurance Commissioner does not have the authority to order insurers to restore out-of-pocket expenses or money wrongfully obtained due to insurer misconduct. This needs to change, and it needs to change now.”

Senator Evans’ office issued an SB 631 Fact Sheet that provides further information on the proposed legislation. According to the Fact Sheet, insurance consumers occasionally suffer monetary losses at the hands of their insurance providers, for example, when they receive less money than they are entitled to on a claim. Currently, when an insurer breaks the law and causes monetary damages to a consumer, the only path to remedy for consumers is to sue insurers in court, which is time-consuming, expensive, and further burdens the courts.

Insurance advocacy group Insurance Brokers and Agents of the West (IBA West), representing some 14,000 agents and brokers, said it is concerned because persons entitled to receive restitution are defined so broadly as to include insurance companies—meaning broker or agents could conceivably be required to pay restitution to their own insurers in the event of even minor violations of Insurance Code or regulatory provisions. The association also is concerned that the bill lacks “meaningful” limits on the Commissioner’s ability to impose financially devastating punishments.

The bill was most recently amended on March 24 and a hearing in the Senate Insurance Committee has been scheduled for April 27.

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