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Paul Zimmerman
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California Enacts Sweeping Amendments to the Insurance Code

Assembly Bill 1511 was recently enacted in California. The omnibus bill, which is a consolidation of multiple legislative efforts, amends, among other things, certain provisions of the California Insurance Code relating to (1) notices of renewal or nonrenewal concerning residential property insurance policies, (2) insurer investments, (3) claims against insurers, (4) the Insurance Commissioner’s authority in enjoining persons who violate the Insurance Code, (5) the Insurance Adjuster Act, and (5) the State Compensation Insurance Fund.

By way of this alert, Michelman & Robinson, LLP provides an overview of the law that goes into effect on January 1, 2022.

Offers of Renewal and Notices of Non-Renewal

The bill amends Section 678 of the Insurance Code as it relates to notices of renewal and nonrenewal. The provision now states that on and after July 1, 2022, current mailing requirements and response time periods apply to timely offers of renewal or notices of nonrenewal of residential property insurance. Those requirements oblige insurers to mail offers of renewal or notices of nonrenewal at least 45 days before a policy is set to expire but extends this period to 75 days for policies expiring on or after July 1, 2020. The amendment serves to lock in these mailing requirements—which also include specified extensions for mailing to recipients in California, outside of California but within the U.S., and outside the country—on and after July 1, 2022. Of note, the bill applies the current mailing and notice requirements to workers compensation policies in addition to residential property insurance.

Insurer Investments

Pursuant to the bill, limitations are increased through January 1, 2027, on domestic incorporated insurers making discretionary investments, including the purchase of, or loans upon, properties and securities.

As amended, the law now provides that investments under Section 1210 of the Insurance Code shall not exceed, in the aggregate, the lesser of either: (1) 5% of the insurer’s admitted assets or (2) 50% of the excess of admitted assets over the sum of capital paid up, liabilities, and the surplus required by Section 700.02 of the Insurance Code (determined by the insurer’s last preceding annual statement of conditions and affairs).

Insurance Adjuster Act

The bill also amends portions of the Insurance Adjuster Act by adding two new parties that are to be exempt from surety bond filing requirements: (1) licensed insurance adjusters, or an employee of a licensee who adjusts claims under the direction of a licensee qualified as a manager and who has filed a surety bond or certificate of insurance, and (2) licensed insurance adjuster, employees of a licensee, or a qualified manager who adjusts claims for an association, organization, partnership, limited liability company, or corporation that has filed a surety bond or certificate of insurance.

Furthermore, the bill specifies that a surety bond or certificate of insurance must provide the names of all licensed insurance adjusters, employees, and qualified managers who perform duties thereunder. A relevant form shall be provided by the Insurance Commissioner and any changes must be made within 30 days. If the requisite names are not provided, the licensure shall be immediately suspended.

State Compensation Insurance Fund

AB 1511 extends the investment authorization that the board of directors of the State Compensation Insurance Fund has to invest until January 1, 2027. The Insurance Fund may also make discretionary investments in properties and securities and invest in money market mutual funds until that same date.

Updated Fraud Warning

The bill requires that the fraud warning included on certain forms for applications of liability insurance policies and changes to existing policies be updated. According to the amendment, the applicable statement must read: “Any person who knowingly presents false or fraudulent information to obtain or amend insurance coverage or to make a claim for the payment of a loss is guilty of a crime and may be subject to fines and confinement in state prison.” This language must be preceded by the following (or similar) verbiage: “For your protection California law requires the following to appear on this form.”

We understand that the American Property Casualty Insurance Association has received clarification from the Department of Insurance regarding the updated fraud warning requirement. Please let us know if you are interested in the details the Department has provided.

Replacement Value

Finally, AB 1511 amends Section 10103.7 of the Insurance Code relating to replacement values. Old law required insurers to pay replacement value of structures and contents, even if an insured did not actually replace anything. The law as amended continues to require insurers to pay replacement value, but removed the term “contents” from the statute. That being said, the amendment still requires insurers to offer payment under contents coverage for personal property not less than 30% of the policy limit applicable to the covered structure.

Conclusion

Without question, AB 1511 is far reaching and touches a myriad of provisions contained in the Insurance Code. Should you have any questions regarding the changes that take effect in January 2022, do not hesitate to contact David Hauge at dhauge@mrllp.com or Sam Licker at slicker@mrllp.com. Both may be reached by phone at 310.299.5500.

This blog post is not offered, and should not be relied on, as legal advice. You should consult an attorney for advice in specific situations.