Calif. Commissioner Seeks Stricter Penalty Powers

California Sen. Noreen Evans, D-District 2, has introduced legislation to grant explicit authority to the state Insurance Commissioner to order restitution as part of an administrative enforcement action against an insurance company. If passed, Senate Bill 631 would give the commissioner “unprecedented new powers to punish broker-agents and other licensees ‘in all instances’ where he finds any violation of the California Insurance Code,’ according to Insurance Brokers and Agents of the West (IBA West).

Existing law permits the commissioner to order restitution only in limited circumstances. The commissioner regularly finds that, as a result of legal violations, Californians are entitled to refunds or restitution, but in many circumstances, the commissioner has no specific authority to order refunds or restitution, according to the bill text.

“The Insurance Commissioner does not have the authority to order insurers to restore out-of-pocket expenses or money wrongfully obtained due to insurer misconduct. This needs to change, and it needs to change now,” Commissioner Dave Jones said.

“David and Goliath” dynamics can occur when a consumer seeks repayment for wrongful insurance company conduct, explained Evans, who chairs the Senate Judiciary Committee and the Legislative Women’s Caucus. “The status quo allows insurance companies to violate the law and then simply nudge consumers away from regaining the monetary losses they experienced,” she said. “Restitution-granting authority already exists in several other state departments. SB 631 extends this same authority to the Insurance Commissioner and simultaneously provides built-in safeguard for all parties.”

Under SB 631, insurers may seek a judicial appeal and go to court if they disagree with the restitution order by the Insurance Commissioner. Should a consumer wish to directly pursue judicial action against an insurer, rather than receiving restitution through the Insurance Commissioner, the bill still allows them to do so, Evans added.

Yet IBA West said it is concerned because persons entitled to receive restitution are defined so broadly as to include insurance companies – meaning broker or agents could conceivably be required to pay restitution to their own insurers in the event of even minor violations of Insurance Code or regulatory provisions. The association also is concerned that the bill lacks “meaningful” limits on the commissioner’s ability to impose financially devastating punishments.

The bill would permit parties who’ve been ordered to pay restitution to file a civil lawsuit against the Department of Insurance, but that remedy would be beyond the financial ability of many broker-agents to exercise, said Steve Young, IBA West general counsel.

That concern that was communicated to the Department, according to Bryant Henley, CDI senior staff counsel. “While there may be concerns that an agent or broker may not be in a position to challenge the court, we’re talking about a situation in which the agent or broker has illegally taken money from another party. And if that’s the case, then it’s likely that the broker or agent has bigger problems than having to repay money, because it’s likely the licensee’s license is in jeopardy of being revoked or restricted. The scope of what we’re dealing with are bigger problems than concerns about businesses not being in a financial position to challenge an order of the commissioner,” he said.

Furthermore, anyone who could be required to pay restitution would be given due process to present evidence before an administrative law judge.

“Whether we’re talking about an action by an agent, broker or insurance company, there is always a hearing process. The Department would present its case to demonstrate why it believes money was illegally taken and why it should be returned, and the other party has an opportunity to appear and to present its side if it feels that money was not illegally taken. Administrative proceedings are typically a more flexible process than the civil, superior court trial process, in terms of having the ability to have a controversy addressed in a quick fashion that doesn’t cost substantial sums of money,” Henley said.

IBA West has asked the Commissioner for more information regarding the proposal. The association said it will “strongly oppose this legislation unless the Commissioner can explain not only why it is needed, but also why he should be given unfettered discretion to impose arbitrary and excessive penalties,” Young said.

At press time, the bill was scheduled to be heard by the Senate Insurance Committee.

Evans’ Second Senatorial District includes all or portions of the counties of Humboldt, Lake, Mendocino, Napa, Solano, and Sonoma.