Tuesday, January 24, 2017
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S.C. Overturns Lower Court Holdings on Insurance Rule
Justices Unanimously Rule That Commissioner Has Authority to Regulate Replacement Cost Estimates
By KENNETH OFGANG, Staff Writer
The state insurance commissioner has broad authority to regulate insurance practices, including the content of replacement-cost estimates for homeowner’s insurance, the state Supreme Court ruled yesterday.
The justices unanimously overturned lower court rulings that then-Commissioner Steve Poizner exceeded his authority under the Unfair Insurances Practices Act when he promulgated California Code of Regulations §2695.183. The Department of Insurance said the regulation was an appropriate response to complaints about underinsurance by Southern California homeowners with losses from the 2003, 2007, and 2008 wildfires.
The high court reversed Div. One of this district’s Court of Appeal, which agreed with Los Angeles Superior Court Judge Gregory Alarcon that industry groups challenging the rule were entitled to declaratory relief. The high court’s decision sends the case back to the lower courts to resolve other issues that the plaintiffs raised in opposition to the rule, which was adopted in 2010 and went into effect on June 27, 2011.
Those issues include whether the regulation violates the First Amendment and whether it impermissibly regulates the business of underwriting insurance.
The regulation established specific, detailed requirements for estimates. It also decreed that any estimate that did not comply would be deemed a misleading communication in violation of Insurance Code §790.3.
Industry Opposition
The Association of California Insurance Companies and the Personal Insurance Federation of California opposed the adoption of the regulation, arguing that there were relatively few complaints by homeowners “specifically about the fact that that they were not provided certain information that they needed to make an informed decision about what insurance coverage limitation they have.”
The groups also argued that there had been no showing that the “underinsured problem” was caused by lack of knowledge, that compliance would be unnecessarily costly, and that the rule would drive some carriers from the marketplace.
The groups filed suit against Poizner’s successor, Commissioner Dave Jones, two weeks before the regulation took effect.
Alarcon ruled that the commissioner could not define a practice not specifically listed in §790.3 as unfair or deceptive without following a special process laid out in §790.6.
Court of Appeal Opinion
Superior Court Judge Helen Bendix, sitting on assignment and writing for the Court of Appeal, agreed with Alarcon that the commissioner had exceeded the authority granted him by the UIPA.
Bendix, citing the maxim “expressio unius est exclusio alterius,” reasoned that the omission of the preparation of misleading replacement cost estimates from the statute’s listing of deceptive and unfair practices left the commissioner without authority to regulate that subject.
But Justice Mariano-Florentino Cuéllar, writing for the high court, said the lower courts had interpreted the commissioner’s power too narrowly.
“Where, as here, the Legislature uses open-ended language that implicates policy choices of the sort the agency is empowered to make, a court may find the Legislature delegated the task of interpreting or elaborating on the statutory text to the administrative agency,” Cuéllar wrote.
The commissioner, he elaborated, had properly investigated the underinsurance issue, “and in particular, the disconnect between a homeowner’s expectation and the actual scope of insurance coverage purchased,” and concluded that an estimate that fails to account for all of the costs necessary to rebuild the insured’s home qualifies as misleading.
‘Broad Prohibition’
The regulation is consistent with the UIPA’s “broad prohibition against false and misleading statements,” and with Insurance Code §790.10, which directs the Legislature to “promulgate reasonable rules and regulations . . . as are necessary to administer” the act, and upholding it is consistent with the principle of judicial deference to administrative agencies, Cuéllar said.
“Finding otherwise would not only cut against the grain of our previous decisions and the importance they ascribe to the agency’s expertise in deciding how it makes policy, but would also eviscerate section 790.10,” he wrote. The agency’s authority, he iterated, is not limited to situations “where it cannot otherwise address offending conduct through enforcement actions.”
ACIC President Mark Sektnan said in a statement the commissioner had overreached, and the court’s opinion “does not accurately reflect the Legislature’s intent.” He was joined in the statement by Kara Cross, general counsel of the Personal Insurance Federation of California.
The case is Association of California Insurance Companies v. Jones, 17 S.O.S. 295.
Copyright 2017, Metropolitan News Company