Insurance Claims Practices. Civil Remedy
Sections 2, 3, 4, 6, 8, and 9 of this law proposed by Assembly Bill 1309 of the 1999-2000 Regular Session (Chapter 721, Statutes of 1999) are submitted to the people as a referendum in accordance with the provisions of Section 9 of Article II of the California Constitution.
This proposed law amends and adds sections to various codes; therefore, existing provisions proposed to be deleted are printed in Bold/Underlined type and new provisions proposed to be added are printed in italic type to indicate that they are new.
SEC. 2. Section 2870 of the Civil Code, as added by Senate Bill 1237 of the 1999-2000 Regular Session, is amended to read:
2870. (a) For purposes of this title, the following definitions shall apply:
(1) "Third-party claimant" or "claimant" shall mean each person individual seeking recovery of benefits against an insured under a liability insurance policy or a self-funded liability protection program, fund, or plan, whether for personal bodily injury or ; wrongful death , ; or other economic loss, or both property damage resulting from an incident involving a motor vehicle; including, without limitation, damages resulting from loss of consortium or loss of care, comfort, society and the like resulting from wrongful death.
(2) "Insured" shall mean a natural person or entity named as an insured in a liability insurance policy or a private self-funded liability protection program, fund, or plan; a natural person or entity who is identified as an additional insured under a liability insurance policy or a private self-funded liability protection program, fund, or plan; a natural person or entity who is an additional insured under the definitions of insured persons set forth in a liability insurance policy or a private self-funded liability protection program, fund, or plan; a natural person or entity who is defined, by law, as an insured under a liability insurance policy or a private self-funded liability protection program, fund, or plan; or cooperative corporations or interindemnity arrangements provided for under Section 1280.7 of the Insurance Code.
(3) "Insurer" shall include mean any liability insurer licensed pursuant to, or subject to regulation under, the Insurance Code who which provides liability coverage insurance to an insured against whom the a third-party claimant makes a claim for personal bodily injury, wrongful death, or other economic loss, or for property damage resulting from an incident involving a motor vehicle, and the third-party administrator of any private self-funded liability protection program, fund, or plan; or cooperative corporations or interindemnity arrangements provided for under Section 1280.7 of the Insurance Code. However, "insurer" does not include the self-funded liability protection program, fund, or plan, itself, an insurer named as the insurer under a policy of workers' compensation insurance, nor a self-insured public entity, a private administrator for a public entity, or a public entity insured by a private insurer or carrier. For purposes of this section, "public entity" has the meaning set forth in Section 811.2 of the Government Code.
(4) "Liability insurance" shall mean that portion of a personal or commercial insurance policy or a private self-funded liability protection program, fund or plan, which provides liability coverage for bodily injury, or for property damage resulting from an incident involving a motor vehicle.
(5) "Bodily injury" shall mean actual physical injury, sickness, or disease sustained by a person, including death therefrom. "Bodily injury" shall not mean (a) emotional distress, of any kind, resulting from economic loss, or (b) emotional distress resulting from a cause other than economic loss unless accompanied by actual physical manifestations of such emotional distress.
SEC. 3. Section 2871 of the Civil Code, as added by Senate Bill 1237 of the 1999-2000 Regular Session, is amended to read:
2871. (a) (1) Every insurer, as defined in paragraph (3) of subdivision (a) of Section 2870, doing business in the State of California shall act in good faith toward and deal fairly with third-party claimants. A third-party claimant may bring an action against an insurer doing business in the State of California to recover damages, including general, special, and exemplary damages, for commission of any unfair claims settlement practice specified in paragraph (1), (2), (3), (5), (8), (9), (10), (11), (12), (13), (14), or (15) of subdivision (h) of Section 790.03 of the Insurance Code as it relates to a third-party claimant.
(2) (A) In considering a third-party claim an insurer shall make an honest, intelligent and knowledgeable evaluation of the claim on its merits. However, an insurer shall not be considered to have violated its obligation to act in good faith and deal fairly with a third-party claimant because of the insurer's honest mistake in judgment in connection with the settlement of a claim.
(B) The fact that an insurer did not settle a claim is not necessarily proof of bad faith.
(b) A third-party claimant shall not be entitled to assert the remedies set forth in subdivision (a) unless the third-party claimant (1) obtains in the underlying action a final judgment after trial, a judgment after default, or an arbitration award arising from a contractual predispute binding arbitration clause or agreement, and (2) the third-party claimant makes a written demand by certified mail to settle the claim in the underlying action, and the claimant's judgment or arbitration award in that prior proceeding exceeded the amount of the final written demand on all claims by the third-party claimant made before the trial, entry of default or arbitration listed above. A The final written demand sent by certified mail may not exceed the applicable policy limits and shall be deemed rejected if not responded to within 30 days of receipt of the final written demand. Subject to subdivision (h) of Section 790.03 of the Insurance Code, the verdict's amount may be considered as evidence of bad faith, but shall not be the sole consideration.
(c) The remedies set forth in this title shall apply to any insurer who violates the standards set forth in subdivision (a) in its handling, processing, or settlement of the claims made by a third-party claimant under the insured's insurance protection.
(d) A professional liability insurer for medical, health care, or legal malpractice is not liable under this title if all both of the following conditions apply:
(1) The consent of the policyholder to settlement is a prerequisite to settlement under the terms of the insurance policy or by statute.
(2) The insurance company has assessed the case against the policyholder as to potential liability and damages known at that time and has fully informed the policyholder of that assessment.
(3) The policyholder's refusal to consent is not based on intentionally erroneous or misleading information provided by the insurer. .
(2) The policyholder withholds consent to settlement.
(e) A person injured in an accident arising out of the operation or use of a motor vehicle, who at the time of the accident was operating a motor vehicle in violation of Section 23152 or 23153 of the Vehicle Code, and was convicted of that offense, may not assert a cause of action under this section.
(f) Any time period within which an action must be commenced pursuant to any applicable statute of limitations shall not begin until the underlying claim has been resolved through a final judgment. In the event of an appeal by either party, resolution of the appeal shall be a prerequisite to a claim under this title.
(g) Nothing in this title shall abrogate or limit any theory of liability or remedy otherwise available at law including, but not limited to, tort remedies for the breach of implied covenant and fair dealing or any theory of liability or remedy based on Comunale v. Traders & General Ins. Co. (1958) 50 Cal.2d 654 or Crisci v. Security Ins. Co. (1967) 66 Cal.2d 425. Nothing in this section shall relieve an insurer of its obligation of good faith and fair dealing to its own insured. However, the insurer cannot wrongfully use its obligation to its own insured to violate its duties under this section.
(h) The provisions of this title shall apply, prospectively, to events or accidents covered by the applicable insurance policy that occur on or after January 1, 2000. The provisions of this title are prospective and are only applicable as follows:
(1) To accidents, events, occurrences, or losses that occur on or after January 1, 2000.
(2) To conduct by any insurer, its agents or employees concerning accidents, events, occurrences, or losses that occur on or after January 1, 2000.
SEC. 4. Section 1778 of the Code of Civil Procedure, as added by Senate Bill 1237 of the 1999-2000 Regular Session, is amended to read:
1778. If the insurer requests or agrees to submit a claim to arbitration under Section 1777 the insurer shall be conclusively presumed to have complied with the duties under subdivision (a) of Section 2871 of the Civil Code.
SEC. 6. Section 1872.91 is added to the Insurance Code, to read:
1872.91. (a) The State Auditor shall prepare a report analyzing and evaluating the effect of the Fair Insurance Responsibility Act of 2000 (FAIR) on California insurance claims practices and rates. The report shall identify changes in claim practices and patterns caused by the enactment of FAIR. The report shall be delivered to the Governor and the Legislature on or before January 1, 2005. The report shall be funded from existing resources of the State Auditor. The report shall include, but not be limited to, an analysis of the following:
(1) The number of complaints to the Department of Insurance regarding unfair claims settlement practices.
(2) The number and type of actions taken by the Department of Insurance in response to those complaints.
(3) The number of cases in which the parties enter into voluntary binding arbitration under Title 11.65 (commencing with Section 1776) of Part 3 of the Code of Civil Procedure, and the disposition of those cases, including whether the use of retired judges as arbitrators has provided an adequate pool of arbitrators.
(4) The number of cases that proceed to trial and the disposition of these cases, including appeals.
(5) The number of actions filed under Title 13.7 (commencing with Section 2870) of Part 4 of Division 3 of the Civil Code, and the disposition of these cases, including appeals.
(6) An analysis of the disposition of cases of third-party claimants who are not eligible to file a bad faith action and whether these claimants have been subject to unfair claims settlement practices.
(b) As part of the study, the State Auditor shall conduct a statistical closed claim study to compare auto insurance claims closed in 1999 and 2003. The study shall provide at least the same kinds of information as the August 1990 study, "Automobile Claims, A study of Closed Claim Payments Patterns in California," prepared by the Statistical Analysis Bureau. The Insurance Commissioner shall cooperate with the State Auditor in this study, and shall provide information requested by the State Auditor. The study shall identify the component costs of claims, including, but not limited to, the items listed in subdivision (c) by coverage for major settlement methods, including each of the following:
(1) Closed without payment, no litigation.
(2) Closed with payment, no litigation.
(3) Closed without payment, litigated.
(4) Closed with payment after mediation.
(5) Closed with payment after judicial arbitration.
(6) Closed with payment after voluntary binding arbitration.
(7) Closed with payment after trial, including appeals.
(c) The part of the study required in subdivision (b) shall include the following items, shown separately by coverage:
(1) Number of claims.
(2) Amount of losses or claim payouts, including both economic damages shown separately by category and noneconomic damages.
(3) Punitive damages or bad faith awards, when applicable.
(4) Defense costs.
(5) Other claim or loss adjustment expenses.
(6) Time period between filing of claim and final settlement.
SEC. 8. The provisions of Sections 2, 3, and 5 of this act, the provisions of Title 13.7 (commencing with Section 2870) of Part 4 of Division 3 of the Civil Code, and the provisions of Title 11.65 (commencing with Section 1776) of Part 3 of the Code of Civil Procedure, are severable. If any of those provisions or any of their applications is held invalid, that invalidity shall not affect other provisions or applications that can be given effect without the invalid provision or application.
SEC. 9. Sections 2, 3, 5, and 7 of this act shall not become operative unless Senate Bill 1237 of the 1999-2000 Regular Session is enacted, becomes operative, and this act is chaptered after Senate Bill 1237.