CIC of New Mexico Sues to Enjoin California Department of Insurance from Interference

January 7, 2021

California Insurance Company of New Mexico has filed suit in federal court to enjoin the California Insurance Department from continuing to take what the suit asserts are illegal, actions to block the approved redomestication of CIC and to undermine a financially sound insurer by instituting a conservatorship to gain control of CIC.

The suit comes after the Office of the Superintendent of Insurance in New Mexico ordered CIC either to comply immediately with all regulations required under its approved redomestication to New Mexico or face financial penalties and possible revocation of the Company’s Certificate of Authority

The lawsuit, filed in United States Federal Court, Eastern District, California, names CDI Commissioner Ricardo Lara, Deputy Commissioner Kenneth Schnoll, and Deputy Commissioner Bryant Henley with violation of the Commerce Clause of the United States Constitution, violation of the company’s right to due process, and sets the basis for a demand for compensation for losses resulting from damages caused to the Company by the CDI defendants’ illegal manipulation and control of its assets under the conservatorship.

CDI got approval last year to place CIC in conservatorship and this week CDI filed a follow-up rehabilitation plan that would force CIC to sell its California business to another insurer.

Representatives for the CDI and the New Mexico insurance department have been reached out to for comment.

CIC charges Lara and the other officials named with “unlawful” and “bad faith” action in imposing an arbitrary, illogical and illegal conservatorship of CIC to obstruct its New Mexico redomestication, after that move was approved by several states.

The suit asserts the CDI has continued to wage a bad faith campaign to harm CIC by prohibiting the company from transferring its assets and its business to New Mexico in compliance with the approved redomestication and the Order of New Mexico’s Superintendent of Insurance in October of 2019.

The suit also asserts that CDI filed an application for approval of a non-consensual rehabilitation plan in California State Court that would impose severe punitive measures on CIC for failure to comply with the conservatorship, but presented no rationale for the imposition in the first place.

Among other things, the CDI seeks to require CIC to transfer and reinsure its entire “book of California business” to an unaffiliated competitor, and to force CIC to settle more than 40 separate civil legal proceedings on arbitrary terms dictated by the Commissioner, in which the Company has valid defenses and an unqualified right to defend.

According to Jeffrey A. Silver, CIC’s general counsel, the CDI’s actions represent an exotic, if not illegal approach to find a way to turn the financially sound, A-rated insurance carrier into a defenseless target for the trial lawyers, a powerful lobby with advocates and collaborators in state government.

“Incredibly, CDI has targeted CIC despite our good citizenship in paying claims– praised as the best in State recently in the California Department of Industrial Relations’ Profile Audit Review Report– and despite our financial strength– or maybe because of it,” he said. “The CDI works collaboratively with trial lawyers, we believe, whose interests collide with insuring consumers, businesses, insurance pricing and the insuring environment itself affecting all California policyholders.”