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CC - Item 7A - Possible Support of Senate Bill 1040ROSEMEAD CITY COUNCIL STAFF REPORT TO: THE HONORABLE MAYOR AND CITY COUNCIL FROM: BEN KIM, ACTING CITY MANAGER �. DATE: MARCH 22, 2022 SUBJECT: POSSIBLE SUPPORT OF SENATE BILL 1040 (RUBIO) SUMMARY Council Member Armenta requested the City Council discuss and provide direction regarding the California Department of Insurance requests for a letter of support for Senate Bill 1040, authored by Senator Susan Rubio. STAFF RECOMMENDATION It is recommended that the City Council discuss and provide further direction to City staff. FISCAL IMPACT None. STRATEGIC PLAN IMPACT None. PUBLIC NOTICE PROCESS This item has been noticed through the regular agenda notification process. Prepared by: AA-- Ericka Hernandez, City Clerk Attachment A: Senate Bill 1040 Text Attachment B: SB 1040 Fact Sheet Attachment C: Sample Letter of Support AGENDA ITEM 7.A Attachment A Senate Bill 1040 Text Q*rk" LEGISLATIVE INFORMATION HomeBill Information California Law j Publications Other Resources My Subscriptions My Favorites SB -1040 Insurance: restitution. (2021-2022) SHARE THIS: M Date Published: 02/15/2022 09:00 PM CALIFORNIA LEGISLATURE— 2021-2022 REGULAR SESSION SENATE BILL NO. 1040 Introduced by Senator Rubio February 15, 2022 An act to amend Sections 12928.6 and 12976 of, and to add Section 12928.7 to, the Insurance Code, relating to insurance. LEGISLATIVE COUNSEL'S DIGEST SB 1040, as introduced, Rubio. Insurance: restitution. Existing law generally regulates insurance and creates the Department of Insurance, headed by the Insurance Commissioner. Existing law authorizes the commissioner to bring a superior court action to enjoin a person who is violating or about to violate the Insurance Code. Existing law also authorizes the commissioner to apply to the clerk of the superior court for a judgment to enforce an order requiring a person to pay a monetary penalty or reimburse the department for costs incurred by the department in prosecuting the matter. This bill would authorize the commissioner to seek a judgment to enforce an order for restitution. The bill would authorize the commissioner to order a respondent, if certain requirements are met, to provide restitution, as defined, for a loss arising from the respondent's conduct. With a restitution order, and if the facts and equity permit, the bill would also authorize the commissioner to issue an order of rescission enforceable on any person subject to the commissioner's jurisdiction. The bill would require the rescission or restitution order to be subject to judicial review. Vote: majority Appropriation: no Fiscal Committee: yes Local Program: no THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS: SECTION 1. Section 12928.6 of the Insurance Code is amended to read: 12928.6. (a) Whenever the commissioner believes, from evidence satisfactory to the commissioner, that a person is violating or about to violate this code or an order or requirement of the commissioner issued or promulgated pursuant to authority expressly granted the commissioner by this code or by law, the commissioner may bring an action in the name of the people of the State of California in the superior court of the State of California against the person to enjoin that person from continuing the violation or engaging therein or doing any act in furtherance thereof. Insaeh—actiom that action, an order or judgment may be entered awarding such the preliminary or final injunction as is proper. (b) (1) The commissioner may apply to the clerk of the superior court for a judgment to enforce an order requiring a person to pay restitution, a monetary penalty penalty, or reimburse the department for costs incurred by the department in prosecuting a matter. The commissioner's application shall include a certified copy of the order and any associated decision. (2) Subject to the requirements of paragraph (3), the order and decision shall constitute a sufficient showing to warrant issuance of a judgment in the amount ordered by the commissioner, plus interest. The clerk of the court shall accordingly enter a judgment within five court days. (3) For an order to qualify for a judgment pursuant to this section, the application shall be accompanied by a declaration given by the legal counsel for the commissioner affirming on information and belief that a petition for mandamus or other legal action for relief from the order has either been denied, or the time for the filing of a petition or action has lapsed. (4) A judgment entered under this section has the same force and effect as, and is subject to all the laws relating to, a judgment in a civil action, and may be enforced in the same manner as any other judgment of the court in which it is entered. SEC. 2. Section 12928.7 is added to the Insurance Code, to read: 12928.7. (a) The commissioner may order a respondent to provide restitution for a loss arising from the respondent's conduct. If the facts and equity permit, with a restitution order, the commissioner may issue an order of rescission enforceable on any person subject to the commissioner's jurisdiction. (b) A restitution order under this section shall meet all of the following requirements: (1) The respondent shall be subject to the commissioner's jurisdiction. (2) The restitution order shall be ancillary to another proceeding authorized by this code in which the commissioner does both of the following: (A) Determines the respondent violated this code or the standards of conduct applicable to persons acting in the capacity the respondent was acting in or purporting to act in when the loss occurred. (B) Issues an order imposing a cease and desist order, an order for a monetary penalty, or another sanction with respect to the respondent's conduct. (3) The restitution order shall cite the factual basis for the restitution order. (4) The restitution order shall state the persons, or classes of persons, who suffered a loss. (5) The restitution order shall state the amount to be paid or property to be returned as restitution. (c) A rescission or restitution order shall be subject to judicial review in the same manner and at the same time as the order to which it is ancillary. (d) A rescission or restitution order may be judicially enforced in an action brought by the commissioner, the Attorney General, a district attorney, a city attorney, or any person owed restitution pursuant to the order. In that action, the court may award attorney's fees and court costs to a prevailing plaintiff. (e) This section does not apply to an insurer authorized to transact business in this state. This section does not apply to a person with respect to acts within the scope of a license issued under Chapter 5 (commencing with Section 1621) of Part 2 if the person holds that license at the time of those acts or at the time an initial pleading seeking restitution is issued. (f) The commissioner may order a respondent who is ordered to provide restitution pursuant to this section to reimburse the commissioner for the commissioner's costs of implementing and enforcing this section, including attorney's fees. (g) This section does not limit or restrict actions, remedies, or procedures otherwise available to the commissioner, the department, or any person pursuant to an administrative or civil action to enforce any law. It is not a defense in an administrative or civil action that the commissioner did not order a person to pay restitution. (h) This section does not expand, limit, or otherwise affect the commissioner's authority to seek or to have sought restitution, refunds, or penalties against insurers, except as expressly provided. (i) As used in this section, "restitution" means the full amount that will compensate each person for their direct and indirect financial and nonfinancial losses proximately caused by the respondent's violations. SEC. 3. Section 12976 of the Insurance Code is amended to read: 12976. All fines, forfeitures, taxes, assessments, restitution, and penalties provided for in this code shall be due and payable on the demand of the commissioner. If payment is not made within-tert 10 days after staeh that demand, then the commissioner shall institute an action in the name of the people of the State of California for the purpose of recoveringsaeh that moneys due. All such actions shall be subject to all the provisions of the Code of Civil Procedure which may be applicable thereto. Attachment B SB 1040 Fact Sheet Senator Susan Rubio SB 1040 (Rubio): Restitution for Consumers Harmed by Unlicensed Sellers of Insurance Bill Summary "We have been trying to reach you about your car's extended warranty..." If you have received this call, you too have been the target of an insurance scam. This bill takes aim at these scams by authorizing the Insurance Commissioner to order unlicensed sellers of insurance to pay restitution to their victims. Existin—a Law Under current law, anyone who sells insurance must be licensed with the Department of Insurance (CDI). The Insurance Commissioner may issue a cease and desist order and assess a monetary penalty of $5,000 per day against an unlicensed seller. The Commissioner does not have authority to order restitution for victims, so victims of fraud must file individual lawsuits to obtain restitution. Obstacles to litigation including getting time off from work, the inability to afford a lawyer for larger cases, the uncertainty of collecting a judgment, mobility issues, and language barriers often deter victims from suing regardless of their socioeconomic status. Many California regulators and insurance regulators in other states possess the authority to obtain restitution orders when an unlicensed person harms a consumer. These include: California agencies: Bureau of Automobile Repair, Contractors State License Board, Dental Hygiene Board, Bureau of Security and Investigative Services, the State Bar, Department of Financial Protection and Innovation, and DMV. Other state insurance regulators, including but not limited to: AR, CT, IA, KS, KY, ME, VA, WV. Background Every year the Insurance Commissioner issues cease and desist orders to unlicensed sellers of insurance. These unlicensed sellers include unlicensed automobile warranty companies, unlicensed insurers, and unlicensed individuals acting as agents or brokers. These sales defraud Californians of millions of dollars annually and the typical case involves multiple victims. Losses include stolen premium and the placement of fraudulent policies that lead to uninsured claims. Unlicensed sellers target vulnerable communities and small businesses, among others. Unlicensed auto warranty companies have left countless consumers with unpaid claims. Examples of unlicensed conduct and its victims include: • An unlicensed seller was sentenced to four years in prison in 2022 after being convicted of defrauding three victims of over $1.4 million. The unlicensed seller gave the victims with fraudulent certificates of insurance, leading them to believe they had valid coverage. • In 2020, CDI issued a cease and desist order to an unlicensed auto warranty company. Over 1,000 Californians paid more than $2 million in illicit premium. • An unlicensed seller stole $174,000 in premium payments from individual truck drivers and charter bus companies in 2017 and 2018. Truck drivers who thought they were insured and were not temporarily lost their authority to operate and had to decline jobs while securing actual coverage. Details of the Bill This bill authorizes CDI to seek restitution order on behalf of victims and defines restitution to mean "the full amount that will compensate each person for their direct and indirect financial and non-financial losses proximately caused by the respondent's violations." For More Information Brian Flemmer, Staff Director Senate Insurance Committee 10210 St Ste. 3310 (916)651-4110 Brian. flemmer(@sen.ca.gov Senator Susan Rubio Support California Department of Insurance (Sponsor) Attachment C Sample Letter of Support Please place your organization's letterhead PLEASE SUBMIT LETTERS BY 12 PM (PDT) on WEDNESDAY, MARCH 23 [Month] [Day], [Year] The Honorable Susan Rubio Chair, Senate Insurance Committee 10210 Street, Room 3310 Sacramento, CA 95814 RE: Senate Bill 1040 (Rubio) - SUPPORT Dear Senator Rubio, [Name of Organization] is in SUPPORT of Senate Bill 1040. This bill authorizes the Insurance Commissioner to order people who sell insurance without the necessary license and misappropriate the premium to pay restitution to the victims. [Optional — insert information about your organization and/or how it has been impacted by unlicensed insurance fraud.] Every year, Californians are victimized by unscrupulous individuals who sell insurance without a license. Unlicensed sellers include unlicensed automobile warranty companies, unlicensed insurers, and unlicensed pseudo -agents and pseudo -brokers, who have defrauded California residents out of millions of dollars in recent years. The California Department of Insurance (Department) has discovered numerous instances of insurance premium theft, embezzlement, and fraud by unlicensed insurance sellers who specifically target vulnerable communities such as seniors, immigrants, and historically underrepresented communities. In many cases, small businesses are left without insurance coverage, and business owners' livelihoods are put at risk. The Insurance Commissioner can order unlicensed insurance sellers to cease and desist and pay a fine of up to $5,000 per day under current law, but can't order those unlicensed sellers to repay consumers for losses they suffered, such as direct premiums misappropriated and financial losses experienced when the consumer believed they were otherwise covered by insurance. As a result, many victims of unlicensed sales must file individual lawsuits to obtain a restitution order, which can be difficult (e.g., financial difficulties, language barriers, and uncertainty about the process) and may discourage them from suing. In most cases, the harmed consumer is never repaid the money that was illegally stolen through unlicensed insurance fraud. SB 1040 seeks to change this by granting the Insurance Commissioner with the authority to order restitution to consumers from unlicensed insurance sellers who violate California law. Restitution is defined in this bill as "the full amount that will compensate each person for their direct and indirect financial and non-financial losses proximately caused by the respondent's violations." This bill will result in higher consumer repayments. For these reasons, I respectfully request your "AYE" vote on Senate Bill 1040 when it is heard before your committee. Thank you for your thoughtful consideration on this important measure. Sincerely, [SIGN YOUR FIRST & LAST NAME] [Print your full name, Title, Organization] cc: California Department of Insurance, Sponsor Members, Senate Committee on Insurance Brian Flemmer, Staff Director, Senate Committee on Insurance