California Administrative Law Judge Stephen J. Smith issued a 51-page ruling Aug. 25 that found the California Department of Insurance's Fair Claims Settlement Practices Regulations may not be asserted as a legal basis for an unfair claims act. The CDI has used the FCPR for the past 20 years as a basis for assessing penalties and fines against insurers in Order to Show Cause proceedings based on Market Conduct Examinations.
Although the judge's ruling related to alleged regulatory violations by life and health insurers, the holding is an "instructive ruling" that may be used by administrative law judges to the benefit of all lines of insurance.
The attorney of record on the case, Robert Hogeboom of Barger & Wolen, challenged the CDI's OSC on the grounds that the FCPR-based action improperly sought monetary penalties and a cease and desist order in conflict with California Government Code § 11506.
The ALJ ruled that § 2695.1 of the FCPR improperly creates new unfair claims standards, duties, and violations within the meaning of Insurance Code § 790.03(h), thereby exposing insurers to the penalty provisions of Insurance Code § 790.035 for failing to meet those CDI regulatory standards. Specifically, the ALJ held that the FCPR may not expand the statutory scope of the 16 unfair claims settlement practices set forth in Insurance Code § 790.03(h)(1)-(16), and that new unfair acts may only be promulgated by the Legislature or through the process set forth in Insurance Code § 790.06.
NAMIC commends the judge for his well-reasoned and sound public policy ruling, and we are hopeful that the CDI will follow this "instructive ruling" and discontinue its practice of imposing regulatory penalties and fines against insurers for claims settlement practices that are permissible pursuant to state law.
NAMIC is also pleased to announce that it will be scheduling a member webinar facilitated by Hogeboom on this case, where he will discuss the history of the FCPR and the practical legal implications of the ALJ's ruling for property/casualty insurance carriers. A member advisory will be sent out once a date has been established for the webinar.
Christian J. Rataj
State Affairs Manager
Posted: Monday, September 17, 2012 9:01:27 AM.
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