Thursday, 11 August 2022

Bill targets illegal car extended warranty robo-calls and other unlicensed insurance scams

State Sen. Susan Rubio (D-Baldwin Park) on Tuesday introduced legislation, sponsored by Insurance Commissioner Ricardo Lara, that would help consumers victimized by insurance scams, including the illegal “we are trying to reach you about your car’s extended warranty” robo-calls.

The legislation would help victims recover their losses from sellers of insurance not licensed by the California Department of Insurance to transact insurance.

It addresses common scams such as illegally telemarketed sales of automobile extended warranties to consumers and illegally collected premiums for workers’ compensation insurance from businesses, among other unscrupulous acts on unsuspecting consumers.

SB 1040 would give the Insurance Commissioner the ability to order restitution to consumers from unlicensed sellers of insurance who are breaking California laws, leading to greater repayments to consumers.

The Department of Insurance estimates that unlicensed activity costs Californians millions of dollars every year.

For example, hardworking Californians have paid thousands of dollars for illegally sold extended warranties from 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.

Under current law, the Insurance Commissioner can order unlicensed sellers of insurance to cease and desist and pay a fine of no more than $5,000 per day, but cannot order those unlicensed sellers to repay consumers for losses that they caused, such as direct premium they misappropriated and financial losses that the consumer suffered when they believed they were otherwise covered by insurance.

“We have all gotten robocalls trying to illegally sell us automobile extended warranties but until now my Department’s hands have been tied in trying to order repayment to victims of these illegal insurance scams,” said Insurance Commissioner Ricardo Lara. “SB 1040 will give my Department the ability to order restitution to seniors, consumers, and small businesses who fall prey to unlicensed sellers of insurance, especially during this pandemic.”

“We need to make it easier for victims of insurance scams to get back the money they lost,” said Senator Rubio. “My top priority as chair of the Senate Committee on Insurance is to protect consumers, and insurance fraud can be disastrous for individuals and small businesses. Meanwhile, these scams are constantly getting more sophisticated. I’m proud to work with Insurance Commissioner Lara on SB 1040 to give Californians more power to recover their losses.”

Investigations by the Department of Insurance have revealed numerous instances of insurance premium theft, embezzlement and fraud by unlicensed sellers of insurance specifically targeting vulnerable communities, 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 of Insurance 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 of Insurance 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 of Insurance 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 of Insurance 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 Department of Insurance has obtained restitution in some cases, but only through legal settlements. Because, in most cases, consumers must pursue recovery on their own and the obstacles to doing so can be great, most money illegally stolen in unlicensed insurance fraud is never repaid to the aggrieved consumers.

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