While other states may have similar laws this would be a new law specific to California since each state is permitted to put into effect their own laws and statutes.

I believe you are referring to SB 1500 which requires California insurers to electronically transmit insurance verifications to the Department of Motor Vehicles and it directs the DMV to notify a vehicle owner if the vehicle is not insured.

The initial provision of SB 1500 took effect Jan. 1, 2006. This bill required the mandatory electronic insurance reporting of all private passenger automobile liability (PPAL) policies.

On or after January 1, 2006, each insurer started to electronically report all issued private passenger automobile liability policies or coverage within 30 days of the effective date of the coverage; and all terminations of a reported policy or any change of information previously reported within 45 days of the termination or change.

SB 1500 establishes a Vehicle Registration (VR) suspension program for impacted vehicle owners who:

• Fail to maintain liability insurance coverage;
• Fail to provide evidence of financial responsibility within 30 days after the issuance of the registration certificate upon initial registration or transfer of ownership; or
• Provide fraudulent evidence of financial responsibility.

While if the above mentioned law reports to the DMV that you are without insurance your vehicle registration can be suspended if you are found driving without insurance you may face harsher penalties, such as the large fines and car impoundment as you mentioned.

Failing to show proof of financial responsibility is a violation of California Vehicle Code Section 16029. Violating this code could result in fines up to $500 plus other penalties such as the impoundment of the vehicle and suspension of your driver's license. If the vehicle is impounded the owner will have to pay for all storage and tow charges.

If you need to place auto insurance on your vehicle in California or any of the other States, click here.