Commissioner-sponsored bill for restitution for victims of insurance scams passed state legislature
SACRAMENTO — Insurance Commissioner Ricardo Lara on Thursday, August 18 issued Public Service Announcements (PSAs) to warn California consumers and businesses about insurance scams involving unlicensed sellers of insurance, including robocalls selling extended vehicle warranties.
The California Department of Insurance (Department) estimates that unlicensed activity costs Californians tens of millions of dollars every year. One example of this is the hardworking Californians who have paid thousands of dollars for vehicle extended warranties illegally sold by unlicensed companies, only to have their claims improperly denied and then having to pay again for expensive repairs. Individual losses of several thousand dollars per victim can add up to massive fraud.
“We have all gotten those phone calls trying to sell us an extended vehicle warranty,” says Commissioner Lara in one of the PSAs. “What a lot of people don’t know is that’s illegal in California. The Department of Insurance is here to protect you and stop these illegal practices.”
Investigations by the Department have revealed numerous instances of insurance premium theft, embezzlement, and fraud by unlicensed sellers of insurance specifically targeting vulnerable populations, such as seniors, immigrants, and historically underrepresented communities. In many cases, small businesses were left without insurance coverage and business owners’ livelihoods were put at risk.
Some examples of illegal acts by unlicensed sellers of insurance leading to fraud include:
- In 2021, a Department investigation led to the arrest of an unlicensed insurance agent who provided falsified workers’ compensation certificates and pocketed the premiums, leaving businesses without coverage for worker injuries.
- In 2020, the Department issued a cease and desist against an unlicensed company that illegally sold automobile extended warranties (also known as “vehicle service contracts”) to more than 1,000 California drivers – many of them seniors – for over $2 million.
- In 2020, the Department issued a cease and desist against an unlicensed Southern California agent after a consumer who thought they had coverage suffered an uninsured $100,000 residential loss.
- In 2019, a Department investigation led to the arrest of an unlicensed insurance agent for allegedly stealing $174,000 in premiums from truck drivers and charter bus companies.
The release of the PSAs comes as the California State Legislature also on August 18 passed Senate Bill 1040, authored by Senator Susan Rubio (D-West Covina) and sponsored by Commissioner Lara. The bill, currently on its way to Governor Gavin Newsom’s desk for his consideration, would help victims recover their losses from sellers of insurance who are not licensed by the California Department of Insurance to transact insurance by giving the Insurance Commissioner the ability to order restitution to consumers from unlicensed sellers of insurance who are breaking California laws. Restitution for consumers in the above real-life examples of illegal acts could mean reimbursement of premiums paid, payment for denied claims, and lost wages, among others.
“Trying to figure out if a sales call is a scam gets harder all the time, but recovering victims’ money shouldn’t be,” said Senator Rubio. “I’m proud to work with Commissioner Lara and author SB 1040, which will eliminate barriers that keep many from getting their money back when harmed by a fraudulent insurance sale. When a scammer targets hundreds or thousands of California consumers with the same fraud, we should make it as easy as possible for victims to be made whole. Right now, many cannot afford to file a lawsuit themselves, and the scammers know this. SB 1040 authorizes the Insurance Commissioner to order restitution on victims’ behalf. The Commissioner investigates and stops fraudulent insurance sales activity. Also, while investigating and taking legal action against scammers, the Department of Insurance often learns the identities of additional victims. This puts the Department of Insurance in the best position to identify the size and scope of a fraud, and by authorizing the Commissioner to order restitution on their behalf, allows the Department to return money back to victims.”
“Thank you to Senator Rubio for her tremendous partnership and leadership in authoring SB 1040, which will help victims of insurance fraud recover,” added Commissioner Lara. “I look forward to ensuring that victims of insurance scams receive direct restitution for their losses, as well as continuing our work with the Legislature to protect California consumers and businesses.”
SB 1040 received strong bipartisan support throughout the legislative process and wide support from consumer groups, business associations, and local governments.
(CA Dept. of Insurance Release)