The California Insurance Commissioner has the authority to issue a rule specifying that a particular practice is “misleading.”
The Issue: After catastrophic wildfires in southern California, homeowners discovered that they had underinsured their homes because insurers’ cost estimates for rebuilding had not included necessary expenses, such as the cost to replace the foundation, and had not taken into account features and circumstances of their homes that would substantially affect the cost of reconstruction. The Insurance Commissioner responded with a rule establishing that omission of these and related items from cost-of-rebuilding estimates was a deceptive practice under the Insurance Code. Insurers then brought a challenge to the rule, asserting that the Commissioner had exceeded his statutory authority.
Why It Matters: The problem of widespread underinsurance can undermine entire neighborhoods and regions that are subject to natural disasters. If residents cannot rebuild, then the area may remain pocked with abandoned homesites after residents have been forced to relocate. Insurers, who may engage in price battles with competitors who offer cheaper policies with inadequate coverage, benefit from a regulator establishing a level playing field by setting minima of coverage and disclosure. More generally, consumers buying all kinds of insurance are better protected if the insurance commissioner possesses a robust authority to determine swiftly when a new unfair or misleading practice emerges – and to issue a rule regulating that practice.
Public Good’s Contribution: Public Good wrote an amicus brief in the California Supreme Court that discussed the history of California’s Unfair Insurance Practices Act, specifically its genesis in a model statute adopted by almost all other states, to argue that the intent of the framers of the model statute and the conclusions of courts in other states are relevant to the interpretation of California’s law. The brief concludes that the California Insurance Commissioner possesses broad and flexible authority more than sufficient to encompass the regulation at issue.
Amici joining Public Good: Public Good’s brief was filed on behalf of itself and other public interest organizations working in areas within the insurance commissioner’s jurisdiction: Consumers for Auto Reliability and Safety, East Bay Community Law Center, Housing and Economic Rights Advocates, and Public Counsel.
Outcome: The California Supreme Court unanimously upheld the rule, reversing the court below, agreeing in full with the arguments presented by Insurance Commissioner (and by Public Good). The decision addressed both the legislative history of the statute and other states’ statutes – topics on which Public Good’s brief had focused – and cited sources that had appeared only in our brief.
235 Cal.App.4th 1009 (Apr. 08, 2015), and judgment reversed, 2 Cal.5th 376 (Cal., Jan. 23, 2017).