Monday, September 24, 2018
Court of Appeal:
Unfair Insurance Practice Can Be Based on a Single Violation by Insurer
Rejects As Dicta High Court Remarks That Pattern of Practice Must Be Shown
By a MetNews Staff Writer
An insurer’s single knowing act of misconduct can constitute a violation of the Unfair Insurance Practices Act Insurance Code, the Fourth District Court of Appeal has held, rejecting the contentions by PacifiCare that three regulations promulgated by the Insurance Commission, under which it has been hit with penalties in excess of $173 million, are in contravention off statute.
To the contrary, Thomas M. Goethals of Div. Three said in his opinion filed Thursday, the regulations supplement the Unfair Insurance Practices Act (“UIPA”). The opinion reverses an order by Orange Superior Court Judge Kim Dunning imposing a preliminary injunction barring enforcement of the regulations.
Under the UIPA, Insurance Code §790 et seq., the insurance commissioner may impose fines up to $5,000 for each violation by an insurer, or up to $10,000 for each willful violation.
A regulation declares that a violation occurs when a proscribed settlement practice is either “knowingly committed on a single occasion” or “performed with such frequency as to indicate a general business practice.” Another regulation declares that “knowingly” includes implied or constructive knowledge, and a third specifies that a violation may be “willful” without a specific intent to violate the law.
Insurance Commissioner Dave Jones found that PacifiCare had committed 908,547 violations of the UIPA and he imposed fines amounting to $173,603,750.
Dunning found that the regulation declaring a single violation to be sufficient to subject the insurer to a penalty contravenes utterances of the California Supreme Court requiring a pattern of practice. Goethals said the utterances Dunning alluded to were dicta and that the California Supreme Court’s “only binding interpretation” of the statutory language came in the 1979 case of Royal Globe Ins. Co. v. Superior Court “which held that section 790.03(h) can be violated by an insurer’s single knowing act.”
“Consequently, we must apply that precedent.”
Deference to Regulations
Goethals went on to say:
“The trial court also erred in declaring the Commissioner’s regulations defining ‘[k]nowingly committed’ and ‘[w]illfull’ or ‘[w]illfully’ to be invalid. The Commissioner has been given broad authority to promulgate regulations relating to the UIPA, including regulations defining the terms used therein. We must accord substantial deference to those regulations and conclude neither of these is inconsistent with the statutes to which they relate.”
Jones commented yesterday:
“UnitedHealthcare purchased PacifiCare and imposed cost-cutting measures that destroyed PacifiCare’s claims-handling processes and its arguments in litigation that insurance companies should be allowed to willfully harm consumers as long as they don’t do it too often, reflect a gross disregard of the lives and well-being of the consumers who paid for the promise of coverage.”
Breach of Trust
The commissioner added:
“Customers have no choice but to rely on the integrity of their health insurance companies. PacifiCare breached that trust. By any measure, 908,000 violations reflect a general business practice of violating consumer protection laws.
“I am delighted the Court of Appeal has affirmed the authority of the insurance commissioner to punish insurance companies for knowingly harming even one consumer.”
The case is Pacific Life and Health Insurance v. Jones, 2018 S.O.S. 4650.
Copyright 2018, Metropolitan News Company