AG Defends California Insurance Commissioner’s Regulatory Move

The California Supreme Court heard oral arguments this month, during which the Attorney General’s office in a suit filed by the insurance industry defended a regulatory move by Insurance Dave Jones.

The regulation was developed under Commissioner Steve Poizner and issued by Commissioner Dave Jones to address a perceived problem faced by some homeowners whose homes were damaged or destroyed in the Oakland Hills and other fires and then they found themselves underinsured.

This is because the replacement cost estimates from their insurers left out key elements of the cost to rebuild their homes, according to Jones.

In an attempt to offer artificially low premiums and compete unfairly for business, insurers removed certain elements of the actual estimated-replacement, which left homeowners without sufficient coverage to rebuild their homes, Jones alleges.

Jones said the regulation requires home insurers when providing a replacement-cost estimate to provide a complete estimate of the cost of replacing a home so homeowners know how much insurance they should buy.

Insurers sued the commissioner to block the regulation.

The Association of California Insurance Companies and the Personal Insurance Federation of California see the case as an example of a growing trend where regulators overreach their mandates.

According to the groups, this regulatory overreach trend is driving up costs for insurers and their customers in addition to impairing insurers’ ability to effectively serve their customers.

The regulation, which was adopted in 2010 and went into effect in 2011, established specific requirements governing replacement-cost estimates and decreed that any estimate not conforming to those requirements be deemed a misleading communication in violation of the Unfair Insurance Practices Act.

ACIC and the PIFC filed suit against the CDI of Insurance in 2011 alleging that the Department lacked authority to promulgate the regulation.

Jones noted that the Attorney General feels different.

“The Attorney General’s office noted that the Department of Insurance is expressly authorized to issue regulations to protect consumers, and this regulation falls within that express authority as well as within the authority of a long line of cases supporting rulemaking by governmental agencies like the California Department of Insurance,” Jones said in a statement.