The California Insurance Code (CIC) consists of statutes written and passed by the state legislature. The governor signs these statutes into law. The insurance code is changed by the legislature passing a new statute that amends or repeals an existing statute. The code originally consisted of six divisions, but two divisions have been repealed. The remaining four divisions are (1) general rules governing insurance, (2) classes of insurance, (3) the insurance commissioner, and (4) insurance adjusters. Each division is further broken down into parts, chapters, and articles.
The Insurance Commissioner is elected by the people to serve a four-year term in the same general election in which the governor is elected. If a vacancy should occur during the term of the office, the governor shall appoint a replacement subject to approval by the legislature. (CIC 12900) The commissioner shall perform all duties imposed upon him by provisions of the insurance code and other laws regulating the business of insurance in this State, and he shall enforce the execution of such provisions and laws. (CIC 12921)
The California Code of Regulations (CCR) is made up of rules issued by the commissioner. The regulations may be changed or withdrawn by the commissioner. The CCRs are needed in order to administer the code. Although the commissioner does not write the code, he is responsible for enforcing the code. Even though the CCRs are not law, they carry the same weight as law. A person who violates a regulation is subject to the same penalty as someone who violates the code.
An insurance professional should have knowledge of the California Insurance Code and the Code of Regulations. These documents identify many unethical and illegal practices. However, they are not a complete guide to ethical behavior.
CLASSES OF INSURANCE
Insurance in California is divided into the following 20 categories:
1. Life – Life includes annuities.
2. Fire – Fire includes homeowners, commercial property, and dwelling policies.
3. Marine – Marine includes both inland and ocean marine
4. Title – Protects owner of loss if problems relating to possession of property occur.
5. Surety – Guarantee of payment of one party for the fulfillment of an obligation of a second party; a bond.
6. Disability (includes all forms of health insurance and disability income) – Coverage of the event of illness, injury, or death, for those who are unable to work.
7. Plate glass – Coverage of the breaking of glass, frames, lettering, etc.
8. Liability – Protects against loss where policy holder is responsible for injury or malpractice to person or property.
9. Workers compensation – Payment of compensation to those injured or sick while under employment.
10. Common carrier liability - Insures against loss while property is in the care of a common carrier.
11. Boiler and machinery - Protection against injury or damages to person or property caused from the explosion or breakdown of a boiler or other machinery.
12. Burglary – Covers property of loss or damage occurring from theft or burglary.
13. Credit – Insurance for losses against the repayment of loans. Can also cover the risk of payment in the delivery of belongings.
14. Sprinkler – Coverage of liability or damages to person or property occurring through the malfunction, leaks or breaks, of sprinklers, water pipes or pumps, or other devices in place to extinguish fires
15. Team and vehicle – Protection against liability or damages caused by teams (horse drawn vehicles), or vehicles other than ships or boats. This does cover Trucker Insurance.
16. Automobile – Covers the policy holder of the dangers that occur in the operation or use of the maintenance of the vehicle. Protects against liability or damages of the vehicle or its parts.
17. Mortgage – Insurance that assures the mortgage lender that the amount owed to the lender will be paid.
18. Aircraft - Coverage of the operation, maintenance, and ownership of an aircraft. This does not include any coverage of damages or injury of a person or property because of accidents.
19. Mortgage guaranty (includes insolvency insurance and legal insurance) – If the insurance company providing coverage goes insolvent, this still guarantees payment to the lender.
20. Miscellaneous – Coverage against loss occurring through earthquake, tornado, etc.
Prior to a discussion of the code, certain terms should be understood. These include:
Shall: Shall is mandatory. There is no choice.
May: May is permissive. There is a choice to do or not to do something. (CIC 16)
DEFINITIONS
Insurance: Insurance is a contract whereby one undertakes to indemnify another against loss, damage, or liability arising from a contingent or unknown event. (CIC 22) In insurance the risk of loss is transferred to the insurer by the policyholder. There are many risks that may be insured as noted by the number of lines of insurance recognized by the California Department of Insurance.
Insurable events: Any contingent or unknown event, whether past or future, which may damage a person having an insurable interest, or create a liability against him, may be insured against. (CIC 250) In life or disability insurance, insurable interest shall be required to exist at the time the contract of life or disability interest becomes effective, but it need not exist at the time the loss occurs. (CIC 10110) In property and casualty insurance, insurable interest is required at the inception of the policy and when the loss occurs.
Admitted: “Admitted” in relation to a person, means entitled to transact insurance business in this State, having complied with the laws imposing conditions precedent to transaction of such business. (CIC 24)
Non-admitted: “Non-admitted" in relation to a person, means not entitled to transact insurance business in this State, whether by reason of failure to comply with conditions precedent thereto, or by reason of inability so to comply. (CIC 25)
Domestic, foreign and alien insurers: Companies may be classified according to where the company is domiciled meaning where the company has its principal legal residence, where it was organized, or where it was incorporated.
Domestic: A company is considered to be a domestic insurer in the state where it was organized. Therefore, any company organized under the laws of the state of California is considered to be a domestic insurer in California, whether or not it is admitted to do business in California. (CIC 26)
Foreign: A foreign insurer is an insurer organized under the laws of another state within the United States, whether or not it is admitted to do business. Thus, a company organized in Arizona is considered to be a foreign insurer in California. (CIC 27)
Alien: An alien insurer is an insurer organized under the laws of any jurisdiction other than a state of the United States, whether or not admitted to do business in California. For instance, a company organized in Canada is considered alien.