AB 2404 In Detail

Governor Arnold Schwarzenegger signed AB 2404 by Assemblyman Jerry Hill this past Monday.  As reported earlier, the bill was sponsored by the California Department of Insurance and supported by IBA West. The genesis of the legislation came from an IBA West member whose client was assessed an extraordinarily high fee for cancelling a policy.
 
AB 2404, among other provisions, requires insurers to disclose prior to or concurrent with an application for insurance, any cancellation fees or penalties other than provisions to refund the premium on a pro rata basis.  In addition, the bill authorizes the Insurance Commissioner to postpone a market conduct exam for up to three years if certain conditions are met.
 
Specifically, this bill:
 

  • Requires any insurance policy which provides for a refund of premium on other than on a pro rata basis, including the assessment of cancellation fees, to separately disclose that fact in writing, including the actual fees or penalties to be applied, which may be stated in the form of percentages of the premium.
     
  • Requires this disclosure to be given prior to, or at the same time as the application and prior to each renewal to which the policy provision applies.  Disclosure is not be required if the policy provision permits but does not require the insurer to refund premium other than on a pro rata basis, and the insurer refunds premium on a pro rata basis.  The disclosure requirement shall be prospective and shall apply only to policies issued, or renewed on or after January 1, 2012.
     
  • Provides that when an application is made by telephone, the disclosure must be mailed to the applicant or insured person within three business days but would permit the disclosure to be made electronically in lieu of mailing if consented to by the recipient pursuant to existing law.
     
  • Specifies that the provisions of this bill do not apply to cancellations of a financed insurance policy or when the insured person stops payments to the lender.
     
  • Authorizes the Insurance Commissioner to forgo a market conduct examination for a period of up to three years if information from a market analysis indicates all of the following: a) prior examination results showed no significant negative findings; b) consumer complaint numbers for the insurer are in the lowest quartile of complaints, for insurers in that line of business; and c) market analysis identifies no other issues of significant concern.


 
AB 2404 passed the Assembly with a vote of 75-1 and the Senate with a vote of 26-10.

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