Metropolitan News-Enterprise


Monday, August 16, 2010


Page 3


C.A. Upholds Poizner’s Settlement With Insurers Over Disability Claims


By a MetNews Staff Writer


The First District Court of Appeal has rejected a challenge to  the California insurance commissioner’s settlement with insurers who allegedly improperly denied claims for disability income benefits.

Div. Three, in an opinion published Thursday, held that state law did not impose upon the insurance commissioner a ministerial duty to seek any particular remedy, and said that the commissioner did not abuse his discretion when he entered into settlement agreement whereby insurers agreed to reevaluate improperly denied claims and pay an $8 million penalty.

John Garamendi was the insurance commissioner when the settlement was entered into in 2005. His successor, Steve Poizner, took office in 2007 and defended the settlement in court.

Writing for the court, Justice Stuart R. Pollak noted that there was no evidence that Poizner’s investigation was inadequate in any respect, and said that a policyholder challenging the settlement agreement failed to rebut a presumption that the commissioner complied with his official duties in investigating the insurers.

Policyholder Rick Schwartz had sought a writ of mandate compelling the commissioner to pursue additional remedies that would benefit California residents holding disability income policies issued by the insurers who, like Schwartz, submitted no claims under their policies but allegedly were overcharged in view of the insurers’ unlawfully restrictive claims procedures, and who received no benefit under the terms of the settlement agreement.

The agreement established a claims reassessment process under which previously denied claims for disability income benefits could be resubmitted for re-evaluation. In addition to the $8 million penalty, it also required insurers to make changes to their claims-handling procedures and the language of their policies.

Under the reassessment process, approximately $230.2 million in additional benefits will be paid to policyholders that made claims. However, the agreement does not include any express benefits for policyholders who, like Schwartz, submitted no claim for benefits.

Schwartz alleged that the insurers’ “systematic scheme to deny and terminate claims eliminated coverage under the disability income policies for all policyholders and, therefore, effectuated a reduction in coverage across the entire policy holder class.”

San Francisco Superior Court Judge Richard A. Kramer, however, denied Schwartz’s request for mandamus, rejecting claims that the commissioner had a ministerial duty to seek the additional relief and that the commissionerabused his discretion in failing to seek that relief.

On appeal, Pollak agreed with Kramer, explaining:

“Contrary to plaintiff’s argument, the Commissioner does not have a ministerial duty ‘to enforce the right to rescission under the Insurance Code belonging to [plaintiff] and the proposed class’ and ‘to require that the corporate insurers return the premium that they collected from [plaintiff] and the proposed class under false pretenses….’,” he wrote.

“[E]ven on the questionable assumption that plaintiff and purported class members suffered economic harm as a result of the insurers’ claim practices that have now been corrected, the Commissioner was not required to pursue any remedy on their behalf,” the justice said. “Nothing in the record suggests that the decision not to pursue additional remedies was so unreasonable as to constitute an abuse of discretion.”

Presiding Justice William R. McGuiness and Justice Martin J. Jenkins joined Pollak in his opinion.

The case is Schwartz v. Poizner.


Copyright 2010, Metropolitan News Company