Year-End Report - Legislative Wrap Up for 2010

It’s that time of year again—time to look back at the legislation considered by the Legislature in the 2009-2010 legislative session.  Norwood & Associates has completed the annual Year-End Report for IBA West members.  Over the next few weeks, we will be publishing sections of the report in the IBA West Insider. We hope you find this information helpful in assessing the legislation impacting your business.  If you would like more information on any of the bills featured in the report or if you would like a hard copy of the report, please do not hesitate to contact us at info@ibawest.com
 
Introduction
 
The second year of the 2009-2010 legislative session was much like the first year -- plagued with an enormous budget deficit.
 
The 2010 session kicked off with California facing a $20.7 billion deficit.  The Governor released his budget in January and immediately called a Special Session under Proposition 58 to confront the budget shortfall.  Under Proposition 58, the Governor can call an emergency session to require lawmakers to act within 45 days on his proposals to resolve the budget emergency or pass their own combination of cuts and revenue increases. 
 
Right off the bat, the business community found itself playing defense against various proposals to close the deficit.  Among the proposals put forth by the Governor was the Emergency Response Initiative (ERI), which would have imposed a 4.8% tax on all commercial and residential fire and multiperil insurance policies.  Another proposal, circulated by Senate President Pro Tempore Darrell Steinberg, would have enacted a 3% withholding on fees paid by companies, public agencies and nonprofits to independent contractors for services rendered.  Almost all payments to service providers who receive a Form 1099-MISC would have been subject to the withholding requirement.  Yet another proposal under consideration was to expand the state sales tax to service businesses.
 
In addition to these proposals, the Governor and Legislature considered recommendations put forward by the Commission on 21st Century Economy.   Among other things, the Commission recommended the creation of a new business net receipts tax (BNRT).  This new tax, to be set initially at 4%, would apply to the net receipts of all businesses, with limited exemptions for contracting out to other businesses.  Only businesses with less than $500,000 of gross annual receipts would be exempt.  Imposition of the BNRT would be in trade for reducing the state sales tax, lowering personal income taxes, and eliminating the state corporate tax.  Not only would the BNRT be extended to apply to services, but it also would tax sales on transactions from businesses located outside the state.
 
In the end, all of these proposals were defeated and the budget was passed with much of the usual gimmicks and piecemeal budget solutions.  The Legislature finally passed the budget on October 8, 2010 – over a hundred days late.  No broad based tax increases for California’s individuals or businesses were approved as part of the budget.  A key component of the budget agreement was the delay of the implementation of the Net Operation Loss corporate tax reduction.  This agreement included provisions to address the underreporting penalty for corporate tax and the cost of performance corporate tax.
 
On the legislative front, there were few major policy issues that dominated the year.  As with last year, budget constraints served to suppress the number of bills introduced.  Many of the bills that were introduced with state cost implications were stalled in the Appropriations Committees or vetoed by the Governor.
 
Healthcare, and the implementation of the federal health care reform, was one of the most controversial issues considered by the Legislature.  On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (PPACA).  Among other provisions, the new federal law makes statutory changes affecting the regulation of and payment for certain types of private health insurance.  Under the PPACA, each state is required to establish an American Health Benefit Exchange and a Small Business Health Options Program Exchange by 2014 for individuals and small employers with 50 to 100 employees.  After 2017, the PPACA allows states to have the option of opening the small business exchange to employers with more than 100 employees.
 
The Legislature passed, and the Governor signed, two bills to begin the process of implementing the PPACA.  AB 1602 by Assembly Speaker John Perez and SB 900 by Senator Alquist jointly establish California’s Health Insurance Exchange and prescribe the necessary actions for implementation.  A number of provisions in each of these bills was subject to amendments added in the last days of the legislative session and will likely require further clean-up legislation in the coming years.
 
Mortgage-related legislation was again a focus in the financial services sector.  Although the Legislature passed several reform measures in 2009, public policy leaders believed more work was to be done to prevent the still staggering number of foreclosures in California.  Legislators introduced measures addressing foreclosure procedures, real estate agents, reverse mortgage companies and appraisal managements companies.
 
Both candidates for Insurance Commissioner – Assemblymen Dave Jones (D-Sacramento) and Mike Villines (R-Clovis) – introduced numerous insurance related measures.  Villines’ legislative package focused mostly on the health care front, while Jones’ package included a broad range of topics from pet insurance, car sharing, annuity suitability and legislation challenging health insurers on high premiums, co-payments and cancellations of policies.
 
On the political front, this year was an election year for 100 members of the Legislature and all statewide offices.  The primary election was quite eventful this year, with five races so close that the results were not final for weeks after the election.  One of these races, and the one most important to the business community, was Senate District 40.  In SD 40, two Democrats -- one sitting legislator, Assemblywoman Mary Salas, and a former legislator, Assemblyman Juan Vargas – went head to head in a battle for the Senate seat.  All in all, interested parties spent over $6 million in just this one election.  After weeks of counting absentee and provisional ballots and one re-count Juan Vargas won election by a mere 22 votes.
 
2010 was the year of special elections.  The appointment of Republican Abel Maldonado to Lieutenant Governor opened up Senate District 15 for a special election in June.  Assemblyman Sam Blakeslee (R-San Luis Obispo) and former Assemblyman John Laird both threw their hat in the ring, sparking a big fight for the business interests to protect the Republican seat and prevent Democrats from getting one step closer to obtaining the two-thirds vote in the Senate.  Interested parties spent approximately $5 million in this race and Republican Sam Blakeslee emerged victorious in the August run-off.  A third special election just began in November in Senate District 1 to replace the late Senator Dave Cox.  Assemblyman Ted Gaines defeated Assemblyman Roger Niello in the Republican primary.  Gaines will face Democrat staff member, Ken Cooley, on January 4th next year.  In 2011, there will be two additional special elections--one in Senate District 28 to replace the late Senator Jenny Oropeza and one in Senate District 17 to replace Senator George Runner who was elected to the Board of Equalization.
 
While the rest of the nation rode a Republican wave in the General election, California bucked the trend and elected Democrats to all statewide posts.  No Congressional seats changed hands and Democrats picked up one seat in the Assembly.
 
As 2011 begins, California will have Jerry Brown at the helm of a Democratically controlled Legislature facing a projected $28 billion deficit.  The passage of Propositions 22, 25 and 26 create some new opportunities and challenges for the Legislature to address this year’s budget deficit and an estimated $20 billion budget deficit each year through 2014.  Proposition 22 limited the ability of the Legislature to borrow money from local agencies to balance the state budget.  Proposition 25 allows the state budget to be passed by a majority vote, rather than a two-thirds vote, thereby foiling the ability of Republicans to block the budget.  However, Proposition 25 does not change the two-thirds vote to enact new taxes, a key element in the Democratic arsenal to address the budget deficit.  Proposition 26 requires a two-thirds vote to enact new fees.  Up until the passage of Proposition 26, the Legislature could enact new fees (or surcharges) by a majority vote.   In fact, one Democratic budget solution this year was a so-called majority vote budget which reduced taxes but increased fees.
 
According to Governor-elect Brown, the budget deficit will take priority over everything else in the coming year.  As indicated earlier, the number of bills introduced by legislators has fallen the last two years as there is little money to implement new proposals.  That having been said, expect literally every bill that has been vetoed by Governor Schwarzenegger over the last few years to be introduced again in 2011.  The challenge will be for Democratic leaders to protect their own Governor from some of these proposals.  The combination of pent up demand from labor, trial lawyers and public advocacy groups to pass bills and the unparalleled budget challenges will make for an interesting and exciting 2011.
 
Agents & Brokers
 
AB 784 (Gaines): This bill would have provided that a non-admitted insurer that is affiliated with a California domestic insurer shall not be deemed to be transacting insurance in California as long as all California business written by the non-admitted insurer is transacted by and through a surplus lines broker licensed in California. The bill would have also authorized a non-admitted insurer to receive administrative services rendered in California by its California domestic insurer affiliate or any other affiliate as long as the administrative services do not relate to the placement or transaction of any California risk or constitute management of the non-admitted insurer. Lastly, AB 784 would have permitted a non-admitted insurer and its California domestic affiliate to have common directors and officers as long as the non-admitted insurer maintains a resident operating manager in its home state.
 
Status: This two-year bill died in the Assembly Insurance Committee. A hearing was never conducted on this measure.
 
AB 1352 (Blakeslee): This bill was a spot bill relative to the continuing education of insurance agents and brokers.
 
Status: This two-year bill was introduced and died at the desk.  No action was taken on this measure.
 
AB 1449 (De Leon):  This bill would have made the requirement for an agent, broker, solicitor, solicitor firm, or sales representative to assist an applicant in providing accurate and complete answers to health questions when applying for a health plan specific to individual health care coverage.  In addition, AB 1449 would have provided that civil penalties are to be assessed on a person who willfully lied about a material fact on an application for an individual health plan would be paid to the Managed Care Administrative Fines and Penalties Fund. 
 
Status: This two-year bill was held on the Suspense File in the Senate Appropriations Committee.
 
AB 1521 (Jones): This bill, as introduced in January, threatened to bring the issue of fiduciary obligations onto insurance brokers and mandatory disclosure of producer compensation back to the spotlight in the Legislature.  AB 1521 initially would have imposed on an agent or broker submitting an application to a plan or insurer that results in the offer, sale, or purchase of health care coverage, a fiduciary duty to the offeree or purchaser of that coverage. In addition, the agent or broker would have been required to disclose to the offeree or purchaser, prior to the sale or purchase of coverage, any compensation received by the entity as fees, commissions, or any other remuneration or thing of value. Any compensation other than that amount disclosed would have been prohibited under this bill.

Agent groups, led by Insurance Brokers and Agents of the West, California Insurance Wholesalers Association, Surplus Line Association and National Association of Insurance and Financial Advisors of California, strongly opposed AB 1521 and sought to educate Assemblyman Jones on the history of this issue and the arguments against the imposition of fiduciary duties and mandatory disclosure of commissions.  These efforts were successful in obtaining amendments to the bill in the Assembly Insurance Committee that removed all agent/broker opposition; thereby securing another victory for the groups on this important issue.
 
In its final form, AB 1521 would prohibit a health care service plan or a health insurer from varying the amount of compensation paid to an insurance agent or broker for the sale of an individual health plan contract or insurance policy depending on the health status, claims experience, industry, or occupation of the individual.
 
This bill would also provide that the compensation paid to a solicitor upon the transfer or renewal of an individual contract or policy would be based upon the renewal rate for the contract or policy under which the individual would be covered after the renewal or transfer occurs. Unless an individual is applying for transfer to a different contract or policy under the same health plan or insurer without medical underwriting, this bill would require health plans and health insurers to notify an individual applying to change to a different individual contract or policy that the application could result in a review of the applicant's medical history, an offer of a higher premium, or a denial of coverage.
 
Status:  Last year, AB 1521 was held on the Suspense File of the Senate Appropriations Committee.  The bill was not acted upon in 2010; therefore, the measure died in the committee pursuant to legislative deadlines.
 
AB 2717 (Skinner): This bill revises standards and procedures that apply to the Insurance Commissioner’s approval of special "senior designations" (used by insurance producers in connection with sales of financial and insurance products to seniors) to enhance their credibility.  This bill would allow strengthened oversight by the Commissioner and make designation rules easier for producers to comply with.  AB 2717 was co-sponsored by the Department of Insurance and the National Association of Insurance and Financial Advisors-California and was necessary to address issues in the implementation of AB 2150 (Berg) Chapter 327, Statutes of 2008.
 
Votes: Assembly 77-0, Senate 34-0
Status:  Signed by the Governor.  Chapter 606, Statutes of 2010.
 
Automobile Insurance
 
AB 953 (Eng): This bill, sponsored by the California Association of Collectors,  permits the disclosure of residence address information in Department of Motor Vehicles records to an authorized contractor of an insurance company.  Information could only be disclosed for the purpose of obtaining the address of another motorist or vehicle owner involved in an accident with the company's insured.  AB 953 requires that, among other things, all information obtained from the Department of Motor Vehicles by an authorized contractor of an insurance company shall be subject to the use or disclosure limitations and data security requirements that exist for any principal under applicable state and federal law.  Insurance companies are responsible for any misuse of the information by the contractor. Lastly, AB 953 would subjects the contractor to the requirement that the information obtained from the Department of Motor Vehicles be destroyed once the contractor has used the information for the authorized purpose.
 
Votes: Assembly 74-0, Senate 34-0
Status: Signed by the Governor.  Chapter 353, Statutes of 2010.
 
AB 1205 (Logue): This bill would have exempted from the requirement to wear a helmet, motorcycle  drivers who are 18 or older and have either completed a motorcyclist safety training program meeting standards established by the California Highway Patrol or been issued a class M1 license or endorsement, or a comparable license from another jurisdiction, for two years or more.
 
Status: This two-year bill failed passage in the Assembly Transportation Committee last year.  No action was taken in 2010; therefore, the bill died in the committee pursuant to legislative deadlines.
 
AB 1597 (Jones): This bill would extend the California Low Cost Automobile Insurance  Program sunset from 2001 to 2016 and to make various statutory changes to conform its operations to standard California administrative practices and facilitate greater efficiency and more customer-friendly operations for the public and producers alike.
 
Votes:  Assembly 74-3, Senate 31-2
Status:  Signed by the Governor.  Chapter 234, Statutes of 2010.
 
AB 1601 (Hill): This bill, effective January 1, 2012, authorizes the court to revoke a person’s driver’s license for 10 years after a third or subsequent driving under the influence conviction and to delay a license suspension or revocation until a person is no longer incarcerated.
 
Votes: Assembly 77-0, Senate 32-1
Status:  Signed by the Governor.  Chapter 301, Statutes of 2010.
 
AB 1608 (Garrick): Existing law imposes on an insurer a $0.30 special purpose assessment on each vehicle insured under an insurance policy issued in this state by the insurer. This bill would have instead required that the amount of the special purpose assessment be determined by the Insurance Commissioner, and that the amount shall not exceed $0.30 per insured vehicle. The bill would have required that 66.7% of the special purpose assessment be used to fund specified consumer service functions of the Department of Insurance, relating to motor vehicle insurance. The remaining 33.3% of the special purpose assessment would have been used to fund the improvement of certain consumer functions of the department, relating to motor vehicle insurance.
 
Status: This bill was introduced and referred to the Assembly Insurance Committee.  A hearing was never conducted.
 
AB 1871 (Jones): This bill authorizes personal car sharing by allowing individuals to let their cars be used in vehicle sharing pools without the risk of losing their own automobile insurance coverage.
 
AB 1871 makes clear that personal vehicle sharing does not constitute a commercial use of the vehicle. The law also makes sure that the individual car owner is not held liable for losses that arise when the vehicle is used for personal vehicle sharing.
 
Votes: Assembly 74-0, Senate 35-0
Status: Signed by the Governor.  Chapter 454, Statutes of 2010.
 
AB 1928 (Torlakson): This bill clarifies that the Department of Motor Vehicles shall administratively review and uphold license suspensions when a person has been found to have been driving with a blood-alcohol concentration of 0.01 percent or more while on probation for a 'driving under the influence', or driving a commercial vehicle with a blood-alcohol concentration of 0.04 percent or more.
 
Votes: Assembly 74-0, Senate 34-0
Status: Signed by the Governor.  Chapter 244, Statutes of 2010.
 
AB 1952 (Niello): This bill requires persons under the age of 21 to complete a motorcyclist safety program prior to obtaining an instruction permit to operate a two-wheel motorcycle, motor-driven cycle, motorized scooter, motorized bicycle, moped, or bicycle with an attached motor, and requires that the permittee hold the instruction permit for a minimum of six months prior to obtaining a motorcycle license.
 
Votes: Assembly 78-0, Senate 31-3
Status: Signed by the Governor.  Chapter 586, Statutes of 2010.
 
AB 2059 (C. Calderon): This bill would have temporarily provided a mechanism for service of legal process on non-residents who cause injuries involving rental cars in California.
 
AB 2059 would have, until January 1, 2014, required a rental company to accept service of process on behalf of a renter who resides out of this country for any claim related to harm, loss, or damage related to the use of the rental vehicle, if the rental company provides supplemental liability insurance coverage as part of, or associated with, the rental agreement. The bill would have further required that any plaintiff who elects to deliver process to the rental company pursuant to these provisions agree to limit his or her recovery against the renter or rental company to the limits of the protection provided by the insurance coverage.
 
Votes:  Assembly 48-26, Senate 24-12
Status: Vetoed by the Governor. 
 
AB 2745 (Ammiano): Under current law, automobile insurers are prohibited from denying or discriminating against individuals for insurance coverage for certain conditions.  One of the conditions is geographic area.
 
This bill would have redefined geographic area as a portion of this state of not less than 15 square miles defined by description in the rating manual of an insurer or in the rating manual of a rating bureau of which the insurer is a member or subscriber.
 
Status:  This bill was introduced and referred to the Assembly Insurance Committee.  A hearing was never conducted.
 
SB 60 (Cedillo): This bill would have required the State of California to comply with the federal Real ID Act of 2005, a measure that establishes standards for the issuance of driver’s licenses and identification cards that may be used by federal agencies for official purposes.  In complying with the Real ID Act, this bill would have required the Department of Motor Vehicles to issue two types of drivers' licenses and identification cards:  cards that may be used for official federal purposes, and for persons who are not able to demonstrate legal presence status, cards that do not.
 
Status: This two-year bill passed the Senate; however, it died in the Assembly Transportation Committee.  A hearing was scheduled in the committee but it was later cancelled by the author.
 
SB 177 (Lowenthal): This bill would have provides that a child who is six years of age or younger or who weighs less than 60 pounds may be seated in the front seat of a vehicle when all of the back seats are already occupied by children under age eight.
 
Status: This two-year bill passed the Assembly; however, it died in the Assembly Transportation Committee.  A hearing was scheduled in the committee but it was later cancelled by the author.
 
SB 350 (Yee): This bill, sponsored by Certified Automotive Parts Association, would have prohibited an insurer from requiring the use of non-original equipment manufacturer (non-OEM) aftermarket crash parts (ACPs) unless all of the following requirements are met:
 
1)      The non-OEM ACPs are at least equal to the original equipment manufacturer (OEM) parts in terms of kind, quality, safety, fit, and performance.
 
2)      The insurer specifying the use of non-OEM ACPs shall pay the cost of any modifications to the parts that may become necessary to affect the repair.
 
3)      The insurer specifying the use of non-OEM ACPs shall warrant that those parts are of like kind, quality, safety, fit, and performance as OEM ACPs.
 
4)      All original and non-OEM ACPs, manufactured on or after January 1, 2011, when supplied by auto body repair shops, as specified, shall carry sufficient permanent, nonremovable identification so as to identify the manufacturer.  This identification shall be accessible to the greatest extent possible after installation.
 
Status:  This bill died in the Assembly Business & Professions Committee this year after the bill faced some opposition from the insurance industry.  The author and sponsor, realizing they could not take any amendments to remove the opposition, chose not to pursue the bill and it died in the committee pursuant to legislative rules.
 
SB 427 (Negrete McLeod): This bill would have increased the penalty from $1,000 to $5,000 under the Automotive Repair Act for an automotive repair dealer who prepares a written estimate for repairs that includes replacement of a deployed airbag that is part of an inflatable restraint system and who fails to repair and fully restore the airbag to original operating conditions.
 
The bill would have also redefined "aftermarket crash part" to mean a replacement for any crash part and defined "crash part" as any of the non-mechanical sheet metal or plastic parts which generally constitute the exterior of a motor vehicle, including inner and outer panels and exterior lighting, and shall also include the airbag in a motor vehicle's inflatable restraint system.
 
Votes: Assembly 67-8, Senate 23-11
Status:  Vetoed by the Governor. 
 
SB 1105 (Denham): This bill would have modified the existing 30 cent per vehicle insured  special assessment and required two-thirds of the assessment to go to automobile insurance-related consumer service functions of the Department of Insurance and one-third to automobile insurance-related activities in the Department's rating and underwriting services bureau, the claims services bureau and the investigations bureau. In addition, SB 1105 would have permitted the assessment to be determined by the Commissioner in an amount not to exceed thirty cents.
 
Status:  This bill died in the Senate Banking, Finance & Insurance Committee.  A hearing was scheduled and then cancelled by the author.
 
SB 1475 (Simitian): This bill would have increased the penalties for using cell phones or texting while driving a motor vehicle, and prohibits the use of handheld cell phones for conversing or for texting while riding a bicycle.  The penalties for using a cell phone or texting while driving would have been increased from the current $20 fine to $50 for the first offense and $100 for each subsequent offense.
 
Status:  This bill was held on the Suspense File in the Assembly Appropriations Committee.