Recent Regulatory Rulings May Provide Leverage for Insurers

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As recently reported in this blog post, Los Angeles Superior Court Judge Gregory Alarcon invalidated the California Department of Insurance's regulation on estimating replacement costs for homeowners insurance (10 CCR 2695.183) in Association of California Insurance Companies (ACIC) and Personal Insurance Federation of California v. Jones. This represents the second judicial determination that the Department has overstepped its regulatory authority under the Unfair Practices Act in less than a year. 

In the earlier ruling (the “Torchmark” case), issued in August of 2012, Administrative Law Judge Stephen Smith found that the Department's Fair Claims Settlement Practices Regulations (FCPR) may not be used by the Department to make Unfair Practices allegations under Insurance Code section 790.03(h). A discussion of the Torchmark administrative case, which was argued by Barger & Wolen's senior insurance regulatory attorney, Robert Hogeboom, is available here

In both cases, it was determined that the Department:

  1. unlawfully expanded the intended scope of section 790.03 and
  2. failed to follow the statutory procedures mandated by Insurance Code section 790.06 for taking action against insurers based on unfair practices not listed in section 790.03.

The insurance industry raised the ruling by Judge Smith, as persuasive authority, in the ACIC case as well as in another pending administrative action. While it remains to be seen what affect the Torchmark ruling will have in these other cases, the decision may be helping insurers gain some much-needed leverage when dealing with the Department and its sometimes strong-arm enforcement actions.

The Department, for its part, has sought to downplay the significance of the Torchmark decision, noting that it is not precedential. At least one senior attorney for the Department has urged that Torchmark is not a "final" decision - a claim that we discount.

The trend in the courts, nonetheless, appears to be moving towards holding the Department to the intended limits of the Unfair Practices Act. We will continue to monitor future activities in this area.