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AB-740 Wildfires: Climate Change Catastrophe Compensation Fund.(2019-2020)

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Date Published: 05/20/2019 09:00 PM
AB740:v96#DOCUMENT

Amended  IN  Assembly  May 20, 2019
Amended  IN  Assembly  April 12, 2019
Amended  IN  Assembly  April 01, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Assembly Bill No. 740


Introduced by Assembly Member Burke
(Coauthors: Assembly Members Aguiar-Curry, Low, and Quirk)

February 19, 2019


An act to add Chapter 3 (commencing with Section 3000) to Part 1 of Division 2 of the Insurance Code, relating to wildfires, and declaring the urgency thereof, to take effect immediately.


LEGISLATIVE COUNSEL'S DIGEST


AB 740, as amended, Burke. Wildfires: Climate Change Catastrophe Compensation Fund.
Under existing law, the Public Utilities Commission has regulatory authority over public utilities, including electrical corporations, while local publicly owned electric utilities are under the direction of their governing boards. Existing law authorizes the commission to fix just and reasonable rates and charges for electrical corporations.
Existing law provides for the issuance of rate reduction bonds by the California Infrastructure and Economic Development Bank for the recovery of electrical industry restructuring transition costs by electrical corporations. Existing law authorizes the commission to issue financing orders to support the issuance of bonds secured by a dedicated rate component to finance a specified sum awarded to the Pacific Gas and Electric Company.
Existing law, under specific circumstances, authorizes the commission, upon application by an electrical corporation, to issue financing orders to support the issuance of recovery bonds to finance costs, in excess of insurance proceeds, that are incurred or expected to be incurred by an electrical corporation, excluding fines and penalties, related to wildfires, as provided.
This bill would establish the Climate Change Catastrophe Compensation Fund, the purpose of which will be to ensure that victims of wildfires caused by climate change are compensated in a timely manner, to provide reimbursements to insurers victims for a portion of those wildfire losses, and to avoid lengthy legal proceedings. The bill would specify that the funding sources for the fund include the Greenhouse Gas Reduction Fund and the State Budget process. The bill would authorize an insurer, an insured who becomes underinsured due to construction demand surge, and a local government to seek reimbursement from the fund. The bill would require an electrical corporation and its shareholders to annually set aside funding that would be used to reimburse the fund if the electrical corporation is determined to be responsible for a wildfire by the Department of Forestry and Fire Protection and that determination is sustained by a final judgment. The bill would establish the California Climate Change Catastrophe Compensation Fund Commission within the Department of Insurance, which would be composed of 13 members, including the Insurance Commissioner, the Director of the Department of Forestry and Fire Protection, and 8 members with specified expertise appointed by the Governor, who would serve staggered, 3-year terms. The bill would require the California Climate Change Catastrophe Compensation Fund Commission to oversee the fund, and would authorize the commission to expand reimbursement to losses after a state of emergency, other than a wildfire, that is related to climate change and declared by the Governor.
This bill would declare that it is to take effect immediately as an urgency statute.
Vote: 2/3   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 The Legislature finds and declares all of the following:
(a) As a result of Hurricane Andrew, which caused insured and uninsured losses in excess of $20,000,000,000, the Florida Legislature acted to implement the Florida Hurricane Catastrophe Fund. The Florida Legislature recognized that Hurricane Andrew would not be the last major windstorm to strike Florida, and that a future wind catastrophe could cause damages in excess of $60,000,000,000, especially if a major urban area or series of urban areas were hit. It was the intent of the Florida Legislature to equitably balance its concerns about mitigating the impacts of hurricanes, increasing insurance affordability and availability, and decreasing the risk of insurer and joint underwriting association insolvency, as well as overcoming assessment and bonding limitations.
(b) In California, as a result of the increased likelihood and severity of wildfires caused by climate change and drought, it is the intent of the Legislature to address and mitigate the economic impacts of those wildfires.
(c) It is the intent of the Legislature to establish the Climate Change Catastrophe Compensation Fund. The purpose of the fund will be to ensure that victims of wildfires caused by climate change are compensated in a timely manner, to provide reimbursements to insurers victims for a portion of those wildfire losses, and to avoid lengthy legal proceedings.
(d) There is a compelling state interest in ensuring that victims affected by climate change wildfires are able to pay the costs of construction, reconstruction, repair, restoration, and other costs associated with damage to property, which in turn ensures communities are rebuilt after those wildfires.
(e) There is a compelling state interest in maintaining a viable private sector market for property insurance in this state. Most mortgages require reliable property insurance, and the unavailability of reliable property insurance would therefore make most real estate transactions impossible. In addition, the public health, safety, and welfare demand that structures damaged or destroyed in a climate change wildfire be repaired or reconstructed as soon as possible.
(f) There is a compelling state interest in maintaining a safe, reliable, and affordable electrical grid. The overall financial health of electrical corporations is critical to ensuring they have access to capital markets to borrow at a rate that does not negatively impact their customers.
(g) Electrical corporations and local publicly owned electric utilities are challenged by the significant liabilities that arise as a result of climate change wildfires.
(h) Therefore, in order to minimize the potential costs of those liabilities, there is a compelling state interest in establishing the Climate Change Catastrophe Compensation Fund to ensure victims and insurers are compensated for their losses.
(i) There is a compelling state interest in ensuring that the capital markets have confidence in the financial health of California utilities.
(j) There is a compelling state interest in socializing the costs of climate change wildfires to ensure victims are compensated, the private insurance markets are stable, and private and public utilities are financially healthy and available to provide safe, reliable, and affordable electricity.
(k) A Department of Insurance report found that the number of homeowners in the wildland urban interface who complained about policy nonrenewal more than tripled from 2010 to 2016, inclusive. In the last five years, the number of FAIR Plan policies written in brushfire and wildfire areas has increased from 22,397 policies to 33,898 policies, equating to a 51-percent increase.
(l) Insurers should be encouraged to address underinsurance of homeowners by working with their insureds to reduce the likelihood of underinsurance and to consider adding additional liability and other wraparound coverage with a FAIR Plan policy.
(m) Therefore, it is the intent of the Legislature that the Climate Change Catastrophe Compensation Fund should be funded by multiple entities, including, but not limited to, the State of California, electrical corporation shareholders, ratepayers, and insurance company shareholders, to ensure that the fund is large enough to cover the costs of future wildfires caused by climate change in California. It is the further intent of the Legislature that the fund should have the ability to issue bonds and to obtain reinsurance and financing.

SEC. 2.

 Chapter 3 (commencing with Section 3000) is added to Part 1 of Division 2 of the Insurance Code, to read:
CHAPTER  3. California Climate Change Catastrophe Compensation Fund Commission

3000.
 The California Climate Change Catastrophe Compensation Fund Commission is hereby created within the department.

3001.
 The commission shall be composed of 13 members, as follows:
(a) The Governor shall appoint eight members, as follows:
(1) Two members to represent insurance companies.
(2) One member to represent public electric utilities.
(3) One member to represent private electric utilities.
(4) One member with a background and expertise in insurance risks and premiums.
(5) One member with a background and expertise in climate change.
(6) One member with a background and expertise in construction and building costs.
(7) One member to represent communities with diverse racial and ethnic populations and communities with low-income populations.
(b) The Speaker of the Assembly shall appoint one member.
(c) The Senate Committee on Rules shall appoint one member.
(d) The commissioner shall serve as a member.
(e) The Director of the Department of Forestry and Fire Protection shall serve as a member.
(f) The Treasurer shall serve as a member.

3002.
 (a) Commission members shall serve staggered, three-year terms.
(b) Members serving an initial term of less than three years shall be members appointed by the Governor, who shall determine which of the Governor’s eight appointees shall serve initial one-year and two-year terms.
(c) Commission members may be reappointed for additional terms without limitation.

3003.
 (a) The commission shall establish and oversee the California Climate Change Catastrophe Compensation Fund.
(b) The fund shall be funded from sources that include, but are not limited to, the Greenhouse Gas Reduction Fund and the State Budget process.
(c) (1) The fund shall be used to reimburse insurers, insureds, and local governments victims for their losses after a wildfire caused by climate change or an electrical corporation.
(2) At the commission’s discretion, the fund may be used to reimburse insurers, insureds, and local governments victims for their losses after a state of emergency, other than a wildfire, that is related to climate change and declared by the Governor pursuant to Section 8558 of the Government Code.

(d)(1)In lieu of costly and drawn-out litigation, an insurer may recover from the fund a percentage of the total amount of the claims paid by the insurer to its insureds for their losses. The total amount of recovery shall be determined by the commission.

(2)An insured may seek reimbursement from the fund if the insured becomes underinsured as a result of construction demand surge after a declared disaster.

(3)A local government may seek reimbursement from the fund.

(e)

(d) (1) An electrical corporation shall annually reserve an amount of funding based on either the electrical corporation’s share of the electricity market or the electrical corporation’s risk. The amount of funding and the specified calculation criteria shall be determined by the commission. An electrical corporation’s shareholders shall annually reserve an additional amount of funding.
(2) An electrical corporation shall maintain insurance coverage and continue to purchase available commercial insurance as necessary.
(3) An electrical corporation shall maintain aggressive wildfire mitigation efforts pursuant to Chapter 6 (commencing with Section 8385) of Division 4.1 of the Public Utilities Code.
(4) Using the funds reserved pursuant to paragraph (1), an electrical corporation shall reimburse the fund after the Department of Forestry and Fire Protection determines the electrical corporation caused a wildfire and that determination is sustained by a final judgment.
(5) After a determination is made pursuant to paragraph (4), the Public Utilities Commission shall submit a report to the commission that determines the electrical corporation’s percentage of liability. The report shall assist the commission to determine the dollar amount of the electrical corporation’s reimbursement to the fund.

(f)

(e) The commission may authorize an electrical corporation to securitize the reimbursement described in subdivision (e). (d).

(g)

(f) The commission may issue bonds against the fund and may purchase reinsurance for the fund.

SEC. 3.

 This act is an urgency statute necessary for the immediate preservation of the public peace, health, or safety within the meaning of Article IV of the California Constitution and shall go into immediate effect. The facts constituting the necessity are:
In order to ensure that the insurers, insureds, and local governments wildfire victims may receive payment in a timely manner and may rebuild, move on, regain a sense of normalcy, and avoid lengthy legal proceedings after a catastrophic declared disaster, like a wildfire, damages or destroys their property, it is necessary for this act to take effect immediately.