Insurers Challenge “Underground Regulations”

Insurance companies have filed a lawsuit against California Insurance Commissioner John Garamendi, challenging what they called “underground regulations” that would boost the cost of disability insurance.

“Left unchallenged, the commissioner’s actions would drive the cost of disability insurance beyond the reach of many employers who provide this benefit to their employees,” said Brad Wenger, president of the Association of California Life and Health Insurance Companies. Garamendi Spokesman Norman Williams said the department was merely trying to enforce existing law and make sure disability policies “are delivering what they’re supposed to.”

Private disability insurance supplements Social Security and disability insurance from the state for people who are unable to work because of illnesses or injuries not related to their jobs.

The suit was prompted by a letter that notified insurers that the department intended to review disability policies to make sure they did not violate seven standards. The standards, among other things, prevent polices from including certain requirements for obtaining benefits. Policies also cannot limit disability benefits to make up for an insured receiving other income.

A representative for the insurers, however, said the state standards amounted to “improper underground regulations.” The standards should be vetted by the state Office of Administrative Law to make sure the Department of Insurance has the authority to enforce them, said Gene Livingston, an attorney for the insurers and a former director of the Office of Administrative Law.

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