CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 1538

Author:(Weber)

As Amended Ver:April 25, 2019

Majority vote

SUMMARY:

Provides that a first-party automobile physical damage claimant may opt to receive a monetary payment based on the value of the damage to the vehicle in lieu of having the vehicle repaired. Specifically, this bill:

1. Provides that an existing provision of law (Insurance Code Section 560) that addresses the right to, and procedure governing payment of, automobile physical damage or collision insurance payments does not interfere with:
   1. a consumer's right to select the repair shop of the consumer's choice; or
   2. a consumer's right to choose a cash payment in the amount the repairs would cost in lieu of proceeding to repair the insured damage.
2. Provides that this provision of law does not prevent an insurer from restricting payment in cases of suspected insurance fraud, nor does it prevent an insurer from jointly naming a loss payee or lienholder on the check or draft.
3. Provides that this provision of law does not require an insurer to agree to an insured's request that the vehicle not be repaired if the damage to the vehicle is sufficiently serious that safety features that are part of the vehicle's operating systems have been compromised.

The Senate Amendments:

Redraft the provision that allows an insurer to insist on repairing the vehicle in cases where safety concerns exist as a result of the damage.

COMMENTS:

According to the Author:

According to the author, most insurers do not limit a first-party claimant's opportunity to collect a monetary settlement based on the cash value (less deductible) of the cost to repair the damaged vehicle. The Department of Insurance (DOI) asserts that most of the companies that have a "no cash-out" provision in its policy are selling in the so-called "non-standard" market (the nonstandard market, at least in California where we have the Proposition 103 "Good Driver" right to select your insurer, is a smallish niche of companies that typically are not well known, and that write policies for drivers with bad driving records that mainstream insurers prefer to avoid), and the policyholders are typically low-income drivers with poor driving records, who therefore cannot access the better coverage provided by most name-brand companies. The author asserts that these policyholders are not well-served by a rule that requires the repairs actually be made.

Arguments in Support:

The author argues that consumer choice should prevail over insurer internal policy.

Arguments in Opposition:

None reported.

FISCAL COMMENTS:

Unknown.

VOTES:

ASM INSURANCE: 14-0-0

YES: Daly, Mayes, Berman, Bigelow, Calderon, Chen, Chu, Cooley, Cooper, Frazier, Gipson, Grayson, Kamlager-Dove, Voepel

ASSEMBLY FLOOR: 72-0-8

YES: Aguiar-Curry, Bauer-Kahan, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Limón, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, O'Donnell, Obernolte, Patterson, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

ABS, ABST OR NV: Arambula, Berman, Chiu, Cooley, Frazier, Eduardo Garcia, Levine, Low

SENATE FLOOR: 39-0-1

YES: Allen, Archuleta, Atkins, Bates, Beall, Borgeas, Bradford, Caballero, Dahle, Dodd, Durazo, Galgiani, Glazer, Lena Gonzalez, Grove, Hertzberg, Hill, Hueso, Hurtado, Jackson, Jones, Leyva, McGuire, Mitchell, Monning, Moorlach, Morrell, Nielsen, Pan, Portantino, Roth, Rubio, Skinner, Stern, Stone, Umberg, Wieckowski, Wiener, Wilk

ABS, ABST OR NV: Chang

UPDATED:

VERSION: April 25, 2019

CONSULTANT: Mark Rakich / INS. / (916) 319-2086 FN: 0001202

 THIRD READING  

Bill No: AB 1538

Author: Weber (D)

Amended: 4/25/19 in Senate

Vote: 21

SENATE INSURANCE COMMITTEE: 13-0, 6/12/19

AYES: Rubio, Jones, Archuleta, Bates, Borgeas, Dodd, Galgiani, Glazer, Hueso, Mitchell, Moorlach, Portantino, Roth

ASSEMBLY FLOOR: 72-0, 4/11/19 (Consent) - See last page for vote

SUBJECT: Automobile collision coverage: payment for repairs

SOURCE: California Department of Insurance

DIGEST:

This bill clarifies that insurance payment procedures do not limit the right of a consumer to select their preferred auto body repair shop, and makes explicit the right of the insured to receive a cash settlement in lieu of repair, subject to certain fraud and safety exceptions.

ANALYSIS:

Existing law:

1. Provides for the regulation of the insurance industry, including enforcement of the Unfair Practices Act, by the Insurance Commissioner.
2. Prohibits insurers from requiring that an automobile be repaired at a specific automotive repair dealer. (Ins. Code § 758.5)
3. Provides that insurers issuing automobile collision or comprehensive policies follow specified procedures to pay body shops for auto repairs. Specifically, insurers shall:
   1. Pay the body shop, or the insured and the shop jointly, by check; or
   2. With the consent of the body shop, pay the shop by electronic funds transfer within 10 days of receipt of an itemized bill or invoice for satisfactorily completed repairs authorized by the insurer.
4. Provides that this payment procedure include all cases where the insured has received actual notice that the body shop is doing work pursuant to a contract approved by the insurance company. In this case, the payment shall include the name of the body shop. (Ins. Code § 560)

This bill:

1. Provides that the payment procedures do not limit the right of the insured to select their preferred auto body repair shop, or the right of the insured to decline repairing the vehicle.
2. Provides that an insurer may restrict payment in cases of suspected fraud.
3. Allows an insurer to require repair as a condition for payment when the damage compromises safety features of the vehicles operating systems.

Background

In general, when a consumer makes a claim against their auto insurance policy after an accident, they can choose to repair the vehicle at the body shop of their choice, or receive a monetary settlement as compensation (minus the deductible amount) instead of having the insurer pay a body shop to fix the vehicle. A consumer opting to “cash out” might have the skills to perform the repair themselves at a lower cost, or may wish to avoid paying their deductible and instead put the cash payment towards a new vehicle. Most insurers, but not all, do not limit the ability of a consumer to cash out.

The California Department of Insurance (CDI) asserts that most companies that have a “no cash out” provision in its policy are selling in the “non-standard” market, which is comprised mostly of niche insurers selling policies to consumers with bad driving records that mainstream insurers avoid. The author asserts these policyholders are typically low income and/or non-English speakers, and that requiring repair for payment disadvantages this population.

Financed Vehicles. When a consumer does not own their car outright but instead has a loan or lease on it, the claim payout may be restricted because the lien holder has an interest in their asset being repaired. Many lenders require they be placed on the auto insurance policy as a loss payee so that the insurer will issue any check for repairs (or total loss) to both the consumer and lien holder.

Fraud. When a consumer cashes out, the insurer is considered to have met its obligation to pay repair costs for the damage and do not consider it fraud if the money is not used to repair the vehicle. Fraud arises if, in the future, the consumer files another claim for the same damage. Additionally, the insurer may deduct for previous unrepaired damage if the car is again damaged in the same area or if damage to the car results in a total loss. Evading this deduction would also constitute fraud. Insurers that do not allow for a cash settlement express concerns that repeated staged accident schemes have been used to collect damage settlements but not repair the vehicle. This bill contains a provision that makes it clear that an insurer is not required to provide a cash settlement in cases of suspected fraud.

Safety. Automobiles are increasingly complex, and automakers and regulators alike depend on an array of sensors and computer processes to protect drivers, passengers, bicyclists, and pedestrians from collision. The original leap in auto safety, seatbelts, focused on protecting the occupants in the event of an accident. Since the advent of anti-lock brakes and increasingly complex systems of traction and stability control, modern safety features have focused on using technology to avoid the collision altogether, often by attempting to account for or eliminate human error. Today, these features include automatic braking, lane keeping assist, blind spot monitoring, driver fatigue monitoring, audible warning sensors, back up cameras, and others.

It may be easy to know when some safety systems are damaged in an auto accident, while others may require disassembly to confirm damage. Risk mitigating factors are an important part of insurance, and can be demonstrated by the varying cost of insurance for different types of vehicles. For instance, because air bags reduce the risk of serious injury (and therefore the potential of higher dollar medical bills), an insurer will often charge less for a policy covering a car with air bags than a car without. The same is true of safety features that reduce the risk of accident. If a consumer can opt not to repair a vehicle with compromised safety features, the risk the insurer faces for insuring that vehicle may increase, and no longer be accurately represented in the rate charged. Recent amendments have clarified that insurers are not required to provide a cash settlement if the damage has compromised the “safety features that are part of the vehicle’s operating systems.”

Comments

According to the author, “AB 1538 would clarify that consumers have the right to choose a cash payment in lieu of repairing a damaged vehicle under an automobile insurance policy.”

FISCAL EFFECT: Appropriation: No Fiscal Com.: No Local: No

SUPPORT: (Verified 6/13/19)

California Department of Insurance (source)

Consumer Action

Consumer Attorneys of California

Consumer Federation of California

OPPOSITION: (Verified 6/13/19)

None received

ARGUMENTS IN SUPPORT: Consumer Attorneys of California writes, “If a consumer is in an accident that causes moderate damage to their vehicle that would cost $2,000 to repair and the consumer has a $500 deductible, insurers with a “no cash-out” provision will refuse to issue the $1,500 payment it owes to the consumer unless they show proof that the repairs are being made. CDI has found that a small handful of insurers who have these types of “no-cash-out” provisions today are smaller companies who service the nonstandard market, which is typically comprised of lower-income individuals and non-English speakers. However, nearly all other insurers currently give consumers the option to “cash-out” their claims and pay the $1,500 balance even if the consumer chooses not to repair their car.

ASSEMBLY FLOOR: 72-0, 4/11/19

AYES: Aguiar-Curry, Bauer-Kahan, Bigelow, Bloom, Boerner Horvath, Bonta, Brough, Burke, Calderon, Carrillo, Cervantes, Chau, Chen, Choi, Chu, Cooper, Cunningham, Dahle, Daly, Diep, Eggman, Flora, Fong, Friedman, Gabriel, Gallagher, Cristina Garcia, Gipson, Gloria, Gonzalez, Gray, Grayson, Holden, Irwin, Jones-Sawyer, Kalra, Kamlager-Dove, Kiley, Lackey, Limón, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Muratsuchi, Nazarian, Obernolte, O'Donnell, Patterson, Petrie-Norris, Quirk, Quirk-Silva, Ramos, Reyes, Luz Rivas, Robert Rivas, Rodriguez, Blanca Rubio, Salas, Santiago, Smith, Mark Stone, Ting, Voepel, Waldron, Weber, Wicks, Wood, Rendon

NO VOTE RECORDED: Arambula, Berman, Chiu, Cooley, Frazier, Eduardo Garcia, Levine, Low

Prepared by: Brian Flemmer / INS. / (916) 651-4110

6/14/19 11:09:06

**** END ****

SENATE COMMITTEE ON INSURANCE

Senator Susan Rubio, Chair

2019 - 2020 Regular

Bill No: AB 1538 Hearing Date: June 12, 2019

SUBJECT: Automobile collision coverage: payment for repairs

DIGEST:

1. AB 1538 clarifies that insurance payment procedures do not limit the right of a consumer to select their preferred auto body repair shop, and makes explicit the right of the insured to receive a cash settlement in lieu of repair, subject to certain fraud and safety exceptions.

ANALYSIS:

Existing law:

1. Provides for the regulation of the insurance industry, including enforcement of the Unfair Practices Act, by the Insurance Commissioner.
2. Prohibits insurers from requiring that an automobile be repaired at a specific automotive repair dealer. (Ins. Code § 758.5)
3. Provides that insurers issuing automobile collision or comprehensive policies follow specified procedures to pay body shops for auto repairs. Specifically, insurers shall:
   1. Pay the body shop, or the insured and the shop jointly, by check; or
   2. With the consent of the body shop, pay the shop by electronic funds transfer within 10 days of receipt of an itemized bill or invoice for satisfactorily completed repairs authorized by the insurer.
4. Provides that this payment procedure include all cases where the insured has received actual notice that the body shop is doing work pursuant to a contract approved by the insurance company. In this case, the payment shall include the name of the body shop. (Ins. Code § 560)

This bill:

1. Provides that the payment procedures do not limit the right of the insured to select their preferred auto body repair shop, or the right of the insured to decline repairing the vehicle.
2. Provides that an insurer may restrict payment in cases of suspected fraud.
3. Allows an insurer to require repair as a condition for payment when the damage compromises safety features of the vehicles operating systems.

Background

According to the author, “AB 1538 would clarify that consumers have the right to choose a cash payment in lieu of repairing a damaged vehicle under an automobile insurance policy.”

In general, when a consumer makes a claim against their auto insurance policy after an accident, they can choose to repair the vehicle at the body shop of their choice, or receive a monetary settlement as compensation (minus the deductible amount) instead of having the insurer pay a body shop to fix the vehicle. A consumer opting to “cash out” might have the skills to perform the repair themselves at a lower cost, or may wish to avoid paying their deductible and instead put the cash payment towards a new vehicle. Most insurers, but not all, do not limit the ability of a consumer to cash out.

The California Department of Insurance (CDI) asserts that most companies that have a “no cash out” provision in its policy are selling in the “non-standard” market, which is comprised mostly of niche insurers selling policies to consumers with bad driving records that mainstream insurers avoid. The author asserts these policyholders are typically low income and/or non-English speakers, and that requiring repair for payment disadvantages this population.

Financed Vehicles. When a consumer does not own their car outright but instead has a loan or lease on it, the claim payout may be restricted because the lien holder has an interest in their asset being repaired. Many lenders require they be placed on the auto insurance policy as a loss payee so that the insurer will issue any check for repairs (or total loss) to both the consumer and lien holder.

Fraud. When a consumer cashes out, the insurer is considered to have met its obligation to pay repair costs for the damage and do not consider it fraud if the money is not used to repair the vehicle. Fraud arises if, in the future, the consumer files another claim for the same damage. Additionally, the insurer may deduct for previous unrepaired damage if the car is again damaged in the same area or if damage to the car results in a total loss. Evading this deduction would also constitute fraud. Insurers that do not allow for a cash settlement express concerns that repeated staged accident schemes have been used to collect damage settlements but not repair the vehicle. This bill contains a provision that makes it clear that an insurer is not required to provide a cash settlement in cases of suspected fraud.

Safety. Automobiles are increasingly complex, and automakers and regulators alike depend on an array of sensors and computer processes to protect drivers, passengers, bicyclists, and pedestrians from collision. The original leap in auto safety, seatbelts, focused on protecting the occupants in the event of an accident. Since the advent of anti-lock brakes and increasingly complex systems of traction and stability control, modern safety features have focused on using technology to avoid the collision altogether, often by attempting to account for or eliminate human error. Today, these features include automatic braking, lane keeping assist, blind spot monitoring, driver fatigue monitoring, audible warning sensors, back up cameras, and others.

It may be easy to know when some safety systems are damaged in an auto accident, while others may require disassembly to confirm damage. Risk mitigating factors are an important part of insurance, and can be demonstrated by the varying cost of insurance for different types of vehicles. For instance, because air bags reduce the risk of serious injury (and therefore the potential of higher dollar medical bills), an insurer will often charge less for a policy covering a car with air bags than a car without. The same is true of safety features that reduce the risk of accident. If a consumer can opt not to repair a vehicle with compromised safety features, the risk the insurer faces for insuring that vehicle may increase, and no longer be accurately represented in the rate charged. Recent amendments have clarified that insurers are not required to provide a cash settlement if the damage has compromised the “safety features that are part of the vehicle’s operating systems.”

Related/Prior Legislation

AB 328 (Calderon, Chapter 433, Statutes of 2009) authorizes insurance companies to pay claims by electronic funds transfers.

AB 337 (Ralph, Chapter 798, Statutes of 1971) provides that insurers under automobile collision policies shall make loss payments payable to either the repairer or to the insured party and the repairer jointly, not later than 10 days after receipt of the bill for the authorized work performed.

ARGUMENTS IN SUPPORT:

Consumer Attorneys of California writes, “If a consumer is in an accident that causes moderate damage to their vehicle that would cost $2,000 to repair and the consumer has a $500 deductible, insurers with a “no cash-out” provision will refuse to issue the $1,500 payment it owes to the consumer unless they show proof that the repairs are being made. CDI has found that a small handful of insurers who have these types of “no-cash-out” provisions today are smaller companies who service the nonstandard market, which is typically comprised of lower-income individuals and non-English speakers. However, nearly all other insurers currently give consumers the option to “cash-out” their claims and pay the $1,500 balance even if the consumer chooses not to repair their car.

SUPPORT:

California Department of Insurance (source)

Consumer Action

Consumer Attorneys of California

Consumer Federation of California

OPPOSITION:

None received

-- END --

Date of Hearing: April 3, 2019

ASSEMBLY COMMITTEE ON INSURANCE

Tom Daly, Chair

ABPCA Bill Id:AB 1538 (

Author:Weber) – As Amended Ver:March 28, 2019

SUBJECT: Automobile collision coverage: payment for repairs

SUMMARY: Provides that a first-party automobile physical damage claimant may opt to receive a monetary payment based on the value of the damage to the vehicle in lieu of having the vehicle repaired. Specifically, this bill:

1. Provides that an existing provision of law (Insurance Code Section 560) that addresses the right to, and procedure governing payment of, automobile physical damage or collision insurance payments does not interfere with:
   1. a consumer’s right to select the repair shop of the consumer’s choice; or
   2. a consumer’s right to choose a cash payment in the amount the repairs would cost in lieu of proceeding to repair the insured damage.
2. Provides that this provision of law does not prevent an insurer from restricting payment in cases of suspected insurance fraud, nor does it prevent an insurer from jointly naming a loss payee or lienholder on the check or draft.
3. Provides that this provision of law does not require an insurer to agree to an insured’s request that the vehicle not be repaired if the damage to the vehicle is sufficiently serious that safety features that are part of the vehicle’s operating systems have been compromised.

EXISTING LAW:

1. Establishes a comprehensive system of regulation of the insurance industry by the Insurance Commissioner (IC), including enforcement of the Unfair Practices Act, as implemented by the Fair Claims Settlement Practices regulations.
2. Specifies a procedure that ensures that body shops are paid when they undertake insured repairs of vehicles.

FISCAL EFFECT: Undetermined.

COMMENTS:

1. Purpose. According to the author, most insurers do not limit a first-party claimant’s opportunity to collect a monetary settlement based on the cash value (less deductible) of the cost to repair the damaged vehicle. The Department of Insurance (DOI) asserts that most of the companies that have a “no cash-out” provision in its policy are selling in the so-called “non-standard” market (the nonstandard market, at least in California where we have the Proposition 103 “Good Driver” right to select your insurer, is a smallish niche of companies that typically are not well known, and that write policies for drivers with bad driving records that mainstream insurers prefer to avoid), and the policyholders are typically low-income drivers with poor driving records, who therefore cannot access the better coverage provided by most name-brand companies. The author asserts that these policyholders are not well-served by a rule that requires the repairs actually be made.
2. Safety concerns. Modern automobiles are complex, computerized systems that depend on sensors and monitors located throughout the physical structure of the vehicle to obtain and assess data related to the vehicles’ on-road safety features and “self-driving” components, including automatic braking capabilities, lane-drift protections, and other safety features. If these components are damaged – and it is frequently impossible to know unless the damaged area of the vehicle is disassembled – the vehicles’ on-road safety features may be compromised if the insured does not get the vehicle repaired. Recent amendments have clarified that an insurer is not mandated by the provision in law that the bill is amending to “cash-out” a damage claim if the damage has compromised safety systems in the vehicle.
3. Fraud concerns. Insurers that either have “no cash-out” policy provisions, or that implement a “no cash-out” rule in their claims manual, argue that there is an anti-fraud element to this approach. Particularly with an older “clunker,” insurers have expressed concerns that repeated staged accident schemes have been used to collect damage settlements but never repair the vehicle. Recent amendments make it clear that the bill does not compel cash-out payments in cases of suspected fraud.
4. Clarifying existing law? Both the author and DOI have characterized the bill as merely clarifying existing law. According to proponents, the few insurers that insist on a “no cash-out” rule point to Insurance Code Section 560 – the provision of law being addressed by the bill -- as support for the insurer’s position. For this reason, the bill approaches the amendments to Section 560 by clarifying what the provision does NOT do and what it does NOT require.

REGISTERED SUPPORT / OPPOSITION:

Support

Consumer Attorneys of California (CAOC)

Consumer Federation of California

Insurance Commissioner, Richard Lara

Opposition

None received

Analysis Prepared by: Mark Rakich / INS. / (916) 319-2086