Calif. Bill Could Threaten Investigation of Insurance Fraud

According to the National Association of Independent Insurers (NAII), California Assembly members are poised to vote on a bill that would “hamstring” insurers’ ability to conduct investigations when they suspect fraud and would unnecessarily add to the cost of insurance. This week, the NAII wrote to all Assembly members, urging them to vote against Senate Bill 658.

The NAII, whose members write about 31 percent of California’s property/casualty insurance market, is opposed to the bill on primarily two fronts. First, the bill would dissuade insurance companies from fully investigating suspicious claims because the legislation would make it more difficult for insurers to conduct examinations under oath. Secondly, the bill would require insurers to provide insured claimants with costly and needless copies of statutes and regulations.

“Many of the disincentives that Senate Bill 658 would create will lead to more insurance fraud, and, as a result, would impose higher costs on all honest insurance customers,” Sam Sorich, NAII vice president and western regional manager, wrote in a memo to all 80 California Assembly members.

On August 22, the California Assembly Appropriations Committee approved the bill. SB 658 already has passed the full Senate, and now awaits a final vote on the Assembly floor. The bill is expected to be voted on before the Legislature adjourns Sept. 14.

For more than 50 years, California’s insurance code has required homeowner policyholders to submit to examinations under oath to answer insurance companies questions about claims. The examination under oath provision allows insurance companies to conduct fair and thorough investigations, which is critical when fraud is suspected, according to NAII’s memo to legislators. SB 658 places restrictions on examinations under oath that would, among other changes, require the insurer to pay the fees of the attorney who accompanies the policyholder to the examination. By imposing attorney fees on insurers, examinations under oath an unfeasible option for many insurers-and keep insurers from exercising their right to conduct examinations and effectively fight fraud.

“The cost that attorney fees would add to the claim could exceed the cost of the claimed loss itself,” Sorich wrote in the memo. “Faced with the prospect of having to pay expensive attorney fees, many insurers would be discouraged from conducting a thorough investigation that gets to the truth about the facts of a claim. It would also encourage unscrupulous claimants to undermine insurer investigations by simply demanding attorney fees.”

Provisions in SB 658 would require an insurer to distribute copies of statutes and regulations to the insured claimant. The unproductive and futile printing and mailing of this information would add costs that would be reflected in the price of insurance, Sorich said.

Topics California Carriers Fraud Legislation