Low, Ball & Lynch’s
WEEKLY LAW RESUME
March
17, 2005 Issue
By: Raymond Coates
Coverage - Insurance Regulations
American Insurance Association v.
John Garamendi
Court of Appeal, Third District
(February 28, 2026)
Under the auspices of perceived "crises," the Insurance
Commissioner's office has issued various rules and regulations. This case
considers regulations issued by the Commissioner concerning cancellation of
homeowner insurance when a homeowner has made a claim.
This action was brought by three insurance industry trade groups seeking to
set aside emergency regulations issued by the Department of Insurance.
The Commissioner's office, having perceived a crisis in the availability of
homeowner insurance, adopted a regulation concerning the use of loss history
information in the rating and underwriting of residential property
insurance. It regulated the use of loss information and required insurers
to show that each loss bore a substantial relationship to the risk of future
loss. Furthermore, inquiries concerning coverage could not be used as a
basis for underwriting unless an actual loss or exposure to loss was identified
and determined to have a substantial relationship to loss exposure.
Insurers were required to maintain eligibility guidelines for each line of
insurance that was specific and objective and had a substantial relationship to
the insured's loss exposure.
The insurance trade groups sought a writ of mandate to set aside and stop
enforcement of these regulations. The trial court found that the
Commissioner exceeded his authority in promulgating these regulations because
they were inconsistent with governing statutes. The court issued a writ
ordering the Commissioner and the California Department of Insurance to stop
from enforcing these regulations.
On appeal to the Court of Appeal, the judgment was affirmed. The Court
noted that the Insurance Commissioner and the Department of Insurance have
broad authority to issue regulations. However, a regulation not authorized
by or inconsistent with legislative law is void. In this instance, the
Court found the regulation to be inconsistent with the Insurance Code.
The Commissioner argued that he had the authority to regulate underwriting in
the area of homeowner insurance. The Commissioner believed he had
authority to regulate underwriting when loss history had no substantial
relationship to future risk. The Court noted that whether an insurer
should be required to offer a particular class of insurance or insure particular
risks was a matter within the scope of the Legislature. The Legislature
had not determine what risks in the residential casualty market an insurer must
insure where prior claims are present.
The Insurance Code provided the bases for cancelling a policy of insurance
after it had been in effect for 60 days. There were also provisions that
limited an insurer's decision not to renew a policy. There were also
statutes prohibiting discriminatory practices. These various statutes indicated
that, while the Legislature had regulated some aspects of the insurance
industry, they had not regulated the use of claims or loss history.
Further, there was no showing of any implied authority for the Commissioner to
regulate the use of loss history in homeowners insurance underwriting.
The Court noted that the voters approved Proposition 103, which regulated
automobile insurance. No similar initiative had been passed which placed
restrictions on homeowners insurance. The Court therefore concluded the
Commissioner lacked the authority to regulate underwriting for homeowners
insurance. The Court found the Insurance Code did not give the
Commissioner authority to regulate underwriting for homeowners insurance.
The judgment was therefore affirmed.
COMMENT
In the last ten years, the power of the Insurance Commissioner's office has
grown immensely as the office has been vested with new and increased
powers. However, this decision shows that the Commissioner's office
remains subject to laws passed by the Legislature and judicial review of
regulations issued.
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