ESIGN/UETA The CA Problem and e-posting Safe Harbor Provisions 28 th Annual ACIC General Council Seminar San Diego, CA July 27, 2017 Patrick Hatfield, Partner
The CA-UETA problem and solution Background: California enacted UETA before the Federal ESIGN Act became law. California s version of EUTA ( CA-UETA ) excludes many transactions from the scope of its coverage, a number of which relate to insurance. As such, the CA Dept of Insurance and others have taken the position that such transactions may not be conducted electronically. CA-UETA Section 1633.3(c) provides: (c) This title [referring to CA-UETA] does not apply to any specific transaction described in Section 662, 663, 664, 667.5, 673, 677, 678, 678.1, 786, 10086, 10113.7, 10127.7, 10127.9, 10127.10, 10192.18, 10199.44, 10199.46, 10235.16, 10235.40, 10509.4, 10509.7, 11624.09, or 11624.1 of the Insurance Code,.. For purposes of this group, the most relevant sections are the notices relating to cancellation and nonrenewal in Sections 662, 663, 664, 667.5, 673, 677, 678, 678.1, 10086, 11624.09 and 11624.1. Just reading Section 1633.3(c) one might lead one to conclude that notices under the above sections may not be provided solely through electronic means. 701824.2 2
The CA-UETA problem and solution The rest of the story results in a different conclusion: CA-UETA Section 1633 contains a savings clause: (f) The exclusion of a transaction from the application of this title under subdivision (b) or (c) shall be construed only to exclude the transaction from the application of this title, but shall not be construed to prohibit the transaction from being conducted by electronic means if the transaction may be conducted by electronic means under any other applicable law. Thus, if another (California or federal) law permits the transactions otherwise excluded by Section 1633.3(c) to be conducted by electronic means, those transactions may be conducted by electronic means in accordance with that other law. The Federal ESIGN Act is one such other law that permits the insurance transactions / notices excluded by Section 1633.3(c) to be conducted by electronic means. 701824.2 3
The CA-UETA problem and solution The Federal ESIGN Act contains a broad preemption provision: (a) In General.--A State statute, regulation, or other rule of law may modify, limit, or supersede the provisions of section 101 with respect to State law only if such statute, regulation, or rule of law-- (1) constitutes an enactment or adoption of the Uniform Electronic Transactions Act as approved and recommended for enactment in all the States by the National Conference of Commissioners on Uniform State Laws in 1999, except that any exception to the scope of such Act enacted by a State under section 3(b)(4) of such Act shall be preempted to the extent such exception is inconsistent with this title or title II, or would not be permitted under paragraph (2)(A)(ii) of this subsection; or (2)(A) specifies the alternative procedures or requirements for the use or acceptance (or both) of electronic records or electronic signatures to establish the legal effect, validity, or enforceability of contracts or other records, if-- (i) such alternative procedures or requirements are consistent with this title and title II; (ii) such alternative procedures or requirements do not require, or accord greater legal status or effect to, the implementation or application of a specific technology or technical specification for performing the functions of creating, storing, generating, receiving, communicating, or authenticating electronic records or electronic signatures; and (2)(B) if enacted or adopted after the date of the enactment of this Act, makes specific reference to this Act. 701824.2 4
The CA-UETA problem and solution The official legislative history of the Federal ESIGN Act also makes it clear that states are not permitted to do what California has done without such state law being preempted: Subsection (a)(1) places a limitation on a State that attempts to avoid Federal pre-emption by enacting or adopting a clean UETA. Section 3(b)(4) of UETA [which is similar to CA-UETA Section 1633.3], as reported and recommended for enactment by NCCUSL, allows a State to exclude the application of that State s enactment or adoption of UETA for any other laws, if any, identified by State. This provision provides a potential loophole for a State to prevent the use or acceptance of electronic signatures or electronic records in that State. To remedy this, subsection (a)(1) requires that any exception utilized by a State under section 3(b)(4) of UETA shall be preempted if it is inconsistent with title I or II, or would not be permitted under subsection (a)(2)(ii) (technology neutrality). Requirements for certified mail or return receipt would not be inconsistent with title I or II, however, note that an electronic equivalent would be permitted. Thus, the alternative to reading CA-UETA Section 1633.3(c) as a savings clause is to take the preemption path, which of course regulators do not like. The Federal ESIGN Act expressly applies to the business of insurance. 701824.2 5
Reconciling the e-posting Statutes Many but not all of the states (as encouraged by the PCI), including CA in Insurance Code Section 38.5, have enacted in their Insurance Codes provisions expressly permitting e-delivery or e-posting of notices or coverage documents. Such Insurance Code provisions raise a number of questions: For states that have not, is e-delivery or e-posting permitted? To what extent are such provisions preempted? 701824.2 6
Reconciling the e-posting Statutes To the extent such Insurance Code provisions conflict with an e-delivery process consistent with a process permitted by the Federal ESIGN Act, such Insurance Code provisions should be preempted. By viewing such Insurance Code provisions as safe harbor provisions, one avoids the preemption argument. Some states (e.g., KS Ins. Code Section 40-5804(m)) expressly state that such e-posting statute in the Insurance Code is supplemental to and is not to limit the provisions of the Federal ESIGN Act or the state s UETA. Thus, if the e-posting provisions in the Insurance Codes do not create administrative burdens, consider including them in your process. To the extent they do create undue burdens, comply with the state UETA law or the Federal ESIGN Act, and rely on the safe harbor and preemption arguments. 701824.2 7
Wrap-up Congress intended to establish a set of uniform bodies of law to give due recognition to e-processes, so companies, expressly including insurance companies and producers, can establish a uniform national e-contracting process. Even with the CA deviation and the e-posting statutes, there is solid authority for having a uniform national e-contracting process that satisfies UETA and the Federal ESIGN Act. 701824.2 8
Q & A / Conclusion Patrick Hatfield, Esq. Locke Lord LLP 600 Congress Avenue Suite 2200 Direct: (512) 305-4787 Fax: (512) 305-4800 phatfield@lockelord.com 701824.2 9