Thursday, April 9, 2015
C.A. Voids Insurance Regulation on Replacement Cost Estimates
Panel Says Commissioner’s Response to Homeowners’ Wildfire Losses Exceeded Commissioner’s Authority
By KENNETH OFGANG, Staff Writer
A Department of Insurance regulation governing the content of replacement-cost estimates for homeowner’s insurance is invalid, the Court of Appeal for this district ruled yesterday.
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.
Deputy Insurance Commissioner Byron Tucker reacted strongly to the ruling, telling the MetNews that it “undermines an important consumer protection.” Tucker said the department was “weighing its next steps,” which could include a petition for review in the Supreme Court or a push for new legislation.
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, Commissioner Dave 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.
“Applying the legislative maxim of expressio unius est exclusio alterius, we can infer that the absence of a provision regarding replacement cost estimates [in §790.03’s listing of deceptive and unfair practices] was a deliberate choice. Thus, the Commissioner did not have authority 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 jurist elaborated:
“By our opinion today, we are not suggesting that the Legislature could not regulate the form and content of replacement cost estimates if it chooses to do so. We are also not suggesting that the Commissioner could not use the administrative and court processes in section 790.06 to seek a determination that replacement cost estimates not including certain information are unfair and deceptive. Nor are we limiting the Commissioner’s authority under section 790.05 to bring an enforcement action against a licensee who has lowballed or otherwise given an incomplete replacement cost estimate. Our ruling today is limited to one conclusion—that the UIPA has not as of yet given the Commissioner authority to regulate the content and format of replacement cost estimates.”
Bendix said it was unnecessary to consider the industry’s other arguments, including claims that the regulation violated the First Amendment and was an impermissible regulation of the business of underwriting insurance.
Attorneys on appeal were and Deputy Attorney General Lisa W. Chao for the commissioner and Gene Gordon Livingston, Gregory Sperla and Stephen E. Paffrath of Greenberg Traurig for the plaintiffs.
The case is Association of California Insurance Companies v. Jones, 15 S.O.S. 1780.
Copyright 2015, Metropolitan News Company