Court Invalidates New Regulations Issued by Department of Insurance Concerning Underwriting and Rescission of Health Insurance Policies

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On December 30, 2010, Sacramento County Superior Court Judge Michael Kenny invalidated several recently issued regulations by the California Department of Insurance (“CDI”) in response to a challenge filed by the Association of California Life & Health Insurance Companies (“ACLHIC”). ACLHIC was represented by Gregory Pimstone of Manatt, Phelps and Phillips and by Barger & Wolen partner John M. LeBlanc. The regulations were issued by the CDI on August 5, 2010 and attempted to impose a series of underwriting requirements on health insurers and restrict health insurers’ ability to rescind health insurance policies in California.

ACLHIC challenged the regulations on several grounds, claiming that the CDI abused its discretion in adopting the regulations. In particular, ACLHIC argued that the CDI lacked the authority to promulgate the regulations. The Court agreed with the ACLHIC with respect to the key regulations at issue. It held that the CDI lacked authority to issue either 10 California Code of Regulations § 2274.74 or 10 California Code of Regulations § 2274.77. The CDI argued, unsuccessfully, that its authority to issue these sections was found in Insurance Code§§ 790.10 and 12921.

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