Garamendi Says C.A. Ruling Will Not End Fight Over ‘Use-It-and-Lose-It’ Homeowners’ Policies
From Staff and Wire Service Reports
Insurance Commissioner John Garamendi said yesterday that he won’t give up efforts to prevent homeowners’ insurers from using “use-it-and-lose-it” policies that result in cancellations for filing legitimate claims.
A state appeals court Monday struck down emergency regulations that were issued by Garamendi to try to stop use of the policies by regulating insurers’ use of loss databases.
Garamendi said use of faulty databases was a prime reason for the “use-it-and-use-it” policies.
But the Third District Court of Appeal said the law didn’t give the commissioner broad powers to regulate homeowners’ insurance.
Justice Fred Morrison, writing for the Court of Appeal, rejected Garamendi’s contention that the regulations were necessary to protect against misuse of insureds’ personal information in the underwriting process.
The insurance industry argued that loss history information is not “personal,” as defined by the Insurance Code, but rather “privileged.” Such information cannot be publicly disclosed, but can be used for making underwriting decisions.
Sacramento Superior Court Judge Raymond Cadei agreed with the industry. Morrison said it did not matter whether the information was personal or privileged, because even if it was personal, the insurance commissioner exceeded the authority granted him to protect such information under the Insurance Information and Protection Privacy Act.
Nor, the justice went on to say, can the regulations be sustained under Proposition 103, the 1988 initiative that provided for an elected insurance commissioner with broad authority over ratemaking.
Proposition 103, the justice explained, provided for broad regulation of automobile insurance. It gave the commissioner the power to determine what factors may be used in setting rates and how much weight should be given to each; mandated good driver discounts; and limited the grounds for cancellation or non-renewal of coverage.
“No similar restrictions were placed on homeowners insurance by Proposition 103,” the justice wrote. “Absent any statutory indication, we decline to find that the Commissioner has an implied wide-reaching authority to regulate underwriting based on his authority to approve rates.”
But as to other types of insurance, Morrison said, the commissioner’s powers are far more limited.
Insurance company representatives praised the decision, saying it would save homeowners who don’t file claims from subsidizing those who do.
But Garamendi said homeowners should not be afraid to file legitimate claims.
“The use-it-and-lose-it insurance syndrome is a very real problem with very real victims,” he said. “There is not a homeowner in California who doesn’t hesitate before filing a legitimate insurance claim. They have a very real and justified fear that they may lose their insurance or be forced to pay significantly more in premiums.”
Garamendi said he was waiting for his attorneys to finishing studying the decision before deciding his next move, but he said he would continue to seek legislation controlling homeowners’ insurance practices.
Lawmakers approved a bill last year that bars insurers from canceling a policy when a home is being rebuilt following a total loss. But a measure that would have prevented insurers from refusing to renew or sell a policy, or barred them from charging higher rates, because the homeowner had filed one claim in the previous three years died in the Assembly.
The case is American Insurance Association v. Garamendi, 05 S.O.S. 1139.
Copyright 2005, Metropolitan News Company