AMENDED IN ASSEMBLY JUNE 10, 2026

AMENDED IN SENATE MAY 14, 2026

CALIFORNIA LEGISLATURE— 2025–2026 REGULAR SESSION

97

Introduced by Senator Allen

February 19, 2026

An act to amend Section 734.1 of the Insurance Code, relating to insurance.

Vote: majority   Appropriation: no   Fiscal committee: yes   Local program: no

LEGISLATIVE COUNSEL’S DIGEST

Existing law authorizes the Insurance Commissioner to conduct examinations of insurers whenever they deem it appropriate, or for admitted insurers, at least once every 5 years. Existing law requires the examiner in charge to file a verified written report of the examination with the department. Existing law requires the department to transmit that report to the company examined with a notice that the company has 30 days to make a written submission or rebuttal to any matters contained in the report. Existing law requires the commissioner, within 30 days of the end of the period allowed for the company to reply, to fully consider the report and any submissions and either adopt the report as filed, with modifications, or reject the report with an order to reopen the examination.

This bill would require an examined company to take corrective actions to remediate violations of specified laws and regulations identified in the report. The bill would require a company that fails to adopt the necessary corrective actions to be subject to a penalty. The bill would authorize the company to request an additional extension to comply in specified circumstances. The bill would require the commissioner, if the commissioner has reason to believe that a company has not complied with a recommendation in the report, to issue and serve an order to show cause on the company with a statement of the charges, its potential liability, and a notice of hearing. If the charges are found to be justified, the bill would require the commissioner to issue an order requiring the company to pay a specified penalty and to comply with and implement the recommendations contained in the report. The bill would require the hearing be held in compliance with the Administrative Procedure Act and would state that these powers would be additional to any other powers currently vested in the commissioner to enforce the provisions of this code.

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

SECTION 1.

Section 734.1 of the Insurance Code is amended to read:

734.1.

(a) No later than 60 days following completion of the examination, the examiner in charge shall file with the department a verified written report of the examination under oath. Upon receipt of the verified report, the department shall transmit the report to the company examined, together with a notice that the company has 30 days to make a written submission or rebuttal with respect to any matters contained in the examination report.

(b) Within 30 days of the end of the period allowed for the receipt of written submissions or rebuttals, the commissioner shall fully consider and review the report, together with any written submissions or rebuttals and any relevant portions of the examiner’s workpapers, and shall either adopt the report as filed or with modifications or corrections, or reject the report with directions to the examiners to reopen the examination for purposes of obtaining additional data, documentation, or information, and refiling pursuant to subdivision (a).

(c) (1) An examined company shall take corrective actions to remediate violations of applicable statutes, regulations, statutory accounting principles as referenced in Section 923, and other legally binding applicable rules identified in the report of examination or other operational report conducted by the commissioner or their designee. If the company fails to adopt the necessary corrective action in a timeframe agreed upon by the commissioner or their designee, the company shall be subject to a penalty of up to twenty thousand dollars ($20,000) for each failure to take corrective action.

(2) A company may request additional extensions of 30 calendar days or other greater extensions approved by the commissioner, for good cause, in order to comply. The commissioner or their designee may deny a request for extension of time if it is determined the request is not made in good faith or there has not been a good faith effort to comply. For purposes of this subdivision, “good cause” shall include circumstances beyond the company’s control, a showing that the company has made a good faith effort to comply, or other factors agreed to by the commissioner.

(3) For purposes of this subdivision, a failure to take corrective action shall be determined per specific category of corrective action requested as described in the examination.

(d) (1) If the commissioner has reason to believe that a company has violated subdivision (c), and that a proceeding by the commissioner would be in the interest of the public, the commissioner shall issue and serve upon that company an order to show cause containing a statement of the charges in that respect, a statement of that company’s potential liability under this section, and a notice of a hearing for the purpose of determining whether the commissioner should issue an order to that company to pay the penalty imposed by this section and to comply with and implement the recommendations contained in the report. The notice of hearing shall include the time and place of the hearing and shall be heard no less than 30 days after service of the notice. If the charges are found to be justified, the commissioner shall issue, and serve on the company, an order requiring the company to pay the penalty imposed by this section and to comply with and implement the recommendations contained in the report. The hearing shall be conducted in accordance with the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), except that the hearings may be conducted by an administrative law judge in the department’s administrative law bureau when the proceedings involve a common question of law or fact with another proceeding arising under other provisions that may be conducted by administrative law bureau administrative law judges. The commissioner and the appointed administrative law judge have all the powers granted under the Administrative Procedure Act.

(2) The company is entitled to have the proceedings and the order reviewed by means of any remedy provided by Section 12940 or the Administrative Procedure Act.

(e) The powers vested in the commissioner in this section are in addition to any other powers to enforce penalties, fines or forfeitures, and denials, suspensions, or revocations of licenses and certificates, authorized by law with respect to the methods, acts, and practices in violation of this code.

(f) (1) Nothing contained in this article shall be construed to limit the commissioner’s authority to terminate or suspend any examination in order to pursue other legal or regulatory action pursuant to the insurance laws of this state.

(2) If the commissioner terminates or suspends an examination that includes an examination of claims practices, the commissioner shall within 10 days of the termination or suspension transmit a copy of the complete examination file to the State Bureau of Audits. The State Auditor shall audit the file pursuant to Section 10527 of the Government Code to determine the propriety of the termination or suspension.