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california legislation > AB 2160

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AB 2160 (Blumenfield and Feuer)
As Amended August 6, 2012
Majority vote

|ASSEMBLY: |63-4 |(May 25, 2012) |SENATE: |38-1 |(August 20, |
| | | | | |2012)|

Original Committee Reference: INS.

: Prohibits the use of investments in companies doing
business in the energy and military sectors of Iran to satisfy
an insurer's capital requirements. Specifically, this bill :

1)Makes a number of findings and declarations relating to
investments in companies doing business in Iran.

2)Defines "business operations" as maintaining, selling, or
leasing equipment, facilities, personnel, or any other
apparatus of business or commerce in Iran, including the
ownership or possession of real or personal property located
in Iran.

3)Defines "company" as a sole proprietorship, organization,
association, corporation, partnership, venture, or other
entity, its subsidiary or affiliate, including a company owned
or controlled, either directly or indirectly, by the
government of Iran, that is established or organized under the
laws of or has its principal place of business in the Islamic
Republic of Iran.

4)Defines "Government of Iran" as the government of Iran or its
instrumentalities or political subdivisions including an
individual, company, or public agency located in Iran that
provides material or financial support to the Islamic Republic
of Iran.

5)Defines "invest" or "investment" as the purchase, ownership,
or control of stock of a company, association, or corporation,
the capital stock of a mutual water company or corporation,
bonds issued by the government or a political subdivision of
Iran, corporate bonds or other debt instruments issued by a
company, or the commitment of funds or other assets to a

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company, including a loan or extension of credit to that

6)Provides that any indirect investment of a domestic insurer in
any company included in the list of companies doing business
in Iran (DGS list) published by the Department of General
Services (DGS) shall be treated as a nonadmitted asset on
financial statements filed with the Department of Insurance

7)Provides that domestic insurers utilizing the DGS list to
determine whether it has investments in Iran will be
automatically deemed compliant with this bill by the

8)Requires domestic insurers to annually provide the department
a list of investments the insurer has in companies on the DGS

9)Provides that if an insurer sells or transfers all of its
investments in companies on the DGS list the insurer is not
subject to the requirements in this bill.

10)Specifies that the bill shall cease to be operative if both
of the following occur:

a) Iran is removed from the State Department's list of
countries that provide support for acts of international
terrorism; and,

b) The President determines and certifies to Congress that
Iran has ceased its efforts to design, develop,
manufacture, or acquire a nuclear explosive device or
related materials and technology.

The Senate amendments make minor clarifying changes.

FISCAL EFFECT : Unknown. This bill is keyed non-fiscal by the
Legislative Counsel.

COMMENTS : According to the author, although California law
prohibits California-based insurance companies from acquiring
direct investments in Iran and other countries that are
designated as state sponsors of terrorism by the United Sates
Secretary of State, it allows insurance companies to invest in

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companies that help spur Iran's nuclear weapon capabilities. In
June 2009, the California's Insurance Commissioner uncovered
billions of dollars of such indirect investments. This bill will
explicitly allow the Commissioner to target these investments by
withholding credit for these investments on the financial
statements submitted by domestic insurers.

The serious and urgent nature of the threat from Iran demands
that states, together with the federal government, do everything
possible diplomatically, politically, and economically to
prevent Iran from acquiring a nuclear weapons capability. It is
the responsibility of the commissioner to decide whether or not
domestic insurance companies have financially sound investments
and have enough capital to cover their claims. It is then the
prerogative of California not to engage in business with foreign
companies or help facilitate the efforts of the Government of
Iran that place those companies at risk from the impact of
economic sanctions for committing egregious violations of human
rights, proliferating nuclear weapons capabilities, and
supporting terrorism.

The Comprehensive Iran Sanctions, Accountability, and Divestment
Act of 2010 (CISADA), authorizes states and local governments to
prohibit investment of state or local government assets in, or
to divest the assets of the state or local government from, any
person that the state or local government determines engages in
investment activities in Iran of $20 million or more in the
energy sector of Iran or is a financial institution that extends
$20 million or more in credit for investment in the energy
sector of Iran. In response, the California Legislature enacted
AB 1650 (Feuer), Chapter 573, Statutes of 2010, to prohibit a
person that provides goods or services of $20 million or more in
the energy sector of Iran, as identified in the list created by
the DGS, or a financial institution that extends $20 million or
more in credit to such a person, from bidding on or entering
into a contract for goods or services of $1 million or more with
a public entity.

Federal law generally reserves the conduct of foreign policy for
the President and Congress. A series of decisions from the
Supreme Court have clearly established that actions by state and
local governments that infringe on the conduct of foreign policy
by the federal government are pre-empted by federal law. In
fact, Courts have ruled that state action is pre-empted even
when the federal government has taken no action on a particular

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foreign policy issue. One notable case (American Insurance
Association, et al., v. John Garamendi, Insurance Commissioner,
539 U.S. 396; 123 S. Ct. 2374) in this line of decisions
overturned California's Holocaust Victim Insurance Relief Act
(HVIRA). HVIRA was enacted in California and required insurance
companies doing business in California to disclose policies sold
in Europe from 1920 to 1945. The Court ruled that HVIRA was
pre-empted by federal law in 2003.

In February of this year, the Ninth Circuit Court of Appeals
overturned a California statute that extended the statute of
limitations for, and allowed California courts to hear, cases
regarding insurance claims brought by victims of the Armenian
Genocide (Movsesian v. Victoria Versicherung AG, 670 F.3d 1067).
The Court ruled, in a unanimous en-banc decision, that the
statute was pre-empted by federal law. In its opinion, the
court described the fate of state actions related to foreign
policy concerns as follows, "Courts have consistently struck
down state laws which purport to regulate an area of traditional
state competence, but in fact, affect foreign affairs." The
case law is not limited to these two California efforts that
seek to remedy problems involving foreign countries. A number
of states have sought to enact well-reasoned efforts to respond
to the past or present activities of foreign governments. These
efforts have been consistently struck down. There is
substantial similarity between this bill and other state
legislation that has been overturned by the courts. If this
bill becomes law and subject to a legal challenge, it is
reasonable to expect it would be overturned as well.

The department recently settled litigation regarding actions
taken by the previous commissioner that, among other things,
would have (like this bill) treated indirect investments in
Iran's energy and military sectors as non-admitted assets. The
settlement agreement resulted in the department abandoning that
policy. The settlement allows the department to continue
publishing a list of companies that do business with Iran's
energy and military sectors, and identifying those insurance
companies with investments in those companies, on the
department's Web site. The settlement agreement also prohibits
the department from using any administrative action to pressure
or punish insurance companies with investments in listed
companies, and favoring any insurance company that divests from
listed companies.

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Given the history of litigation leading to this settlement, it
is reasonable to expect this bill, should it become law, would
be subject to a legal challenge as well. The department is
required by the State Constitution to defend state law against a
federal preemption challenge to the Court of Appeals. The cost
of such a defense is expected to be several hundred thousand
dollars assuming the department is represented by the Attorney
General (AG). However, since the AG represented the department
in the litigation concluding in the recent settlement, the AG
may decide against representing the department in another
lawsuit on the same subject. Should the department have to
retain private counsel for litigation relating to this bill, the
costs would be substantially higher.

Analysis Prepared by : Paul Riches / INS. / (916) 319-2086