Thursday, July 16, 2015
Supreme Court to Determine Validity of Insurance Rule Inspired by Southern California Wildfires
By a MetNews Staff Writer
The state Supreme Court yesterday agreed to determine the validity of a Department of Insurance regulation governing the content of replacement-cost estimates for homeowner’s insurance.
The justices, at their weekly conference in San Francisco, unanimously granted Insurance Commissioner Dave Jones’ petition for review of the April 8 ruling by Div. One of this district’s Court of Appeal in Association of California Insurance Companies v. Jones (2015) 235 Cal. App. 4th 1009.
Div. One agreed with Los Angeles Superior Court Judge Gregory Alarcon, who two years ago granted a declaratory judgment sought by two insurance industry groups.
The rule, which is California Code of Regulations §2695.183, was adopted by then-Insurance Commissioner Steve Poizner in 2010 and went into effect on June 27, 2011.
The regulation—which the department said was adopted in response to complaints about underinsurance by Southern California homeowners with losses from the 2003, 2007, and 2008 wildfires—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 §790.03, part of the Unfair Insurance Practices Act.
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,” 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, Jones, two weeks before the regulation took effect.
Alarcon ruled that the commissioner could not define a practice not listed in §790.3 as unfair or deceptive without following a special process laid out in §790.6. Los Angeles Superior Court Judge Helen Bendix, sitting on assignment and writing for the Court of Appeal, agreed with the trial judge that the commissioner had exceeded the authority granted him by the UIPA. In the absence of an explicit reference to replacement cost estimates in the act’s listing of deceptive and unfair practices, Bendix concluded, it could be inferred that the Legislature did not intend to allow the commissioner “to add content and format requirements for replacement cost estimates in homeowner insurance to the list of practices set forth in section 790.03 under the guise of deeming nonconforming estimates misleading under section 790.03, subdivision (b).”
The high court yesterday directed the parties “to brief and address the question whether the Commissioner has the statutory authority to promulgate a regulation specifying that the communication of a replacement cost estimate which omits one or more of the components in subdivisions (a)-(e) of section 2695.183 of title 10 of the California Code of Regulations is a ‘misleading’ statement with respect to the business of insurance.”
In other conference action, the court adopted the State Bar Court’s recommendation that Juan Carlos Fox be reinstated as a member of the State Bar.
Fox, a former workers’ compensation lawyer in Chula Vista, resigned in 2003, days prior to being placed on probation and ordered to serve six months in custody or on work furlough for his role in a conspiracy to collect money from Mexican insurance companies based on fraudulent claims.
In recommending reinstatement, the hearing judge noted that, at the time of the scheme, Fox was under great financial stress due to the birth of his first child, a reduction in his income, and the cost of purchasing and maintaining a historic home in need of significant repair, and had become a heavy drinker. He has since completed probation, had his conviction expunged, paid fines and restitution, maintained sobriety, and participated actively in The Other Bar and in local charities and civic endeavors, the judge noted.
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