SAN FRANCISCO, CA, Nov. 20, 2018 — IIABCal filed an amicus letter last week urging the California Supreme Court to grant a Petition for Review and overturn an appellate court decision that endorsed an attempt by California Insurance Commissioner Dave Jones to radically rewrite California’s Unfair Insurance Practices Act (UIPA).
“We are gravely concerned by the decision of the Court of Appeal,” wrote Steve Young, IIABCal general counsel, “because we believe it disregards the plain meaning of the statutory language in issue, the available legislative history back of the statute, this Court’s clear and unambiguous interpretation of these laws, and the dire consequences this decision could engender, which we respectfully submit the appellate court either didn’t perceive or chose to disregard.”
In Pacificare Life and Health Insurance Co v. Jones, the 4th District Court of Appeals in September reversed a trial court decision, which had concluded that the Commissioner’s actions in the PacifiCare case and his interpretation of his statutory powers were contrary to law.
IIABCal and other industry organizations that also filed amicus letters argued that the trial court got it right, and the court of appeals got it wrong in upholding the Commissioner’s actions.
The litigation commenced in 2015, when Jones disregarded a CDI Administrative Law Judge’s ruling in an enforcement hearing against PacifiCare, a health insurer that had been accused of violating several provisions of the California Insurance Code.
The Commissioner unilaterally issued a new decision predicated upon a “radically new” interpretation of the Unfair Insurance Practices Act crafted by his lawyers, which increased the fine on the insurer ten-fold (to $173 million), and then used a provision in the Administrative Procedures Act to designate the new interpretation as a legal “precedent” that could be applied against any licensee of the Department—including any agent or broker.
After trial in Orange County Superior Court, Judge Kim Dunning agreed with PacifiCare lawyers that the Commissioner had acted unlawfully in asserting:
(1) that violation of any provision in the California Insurance Code constitutes a violation of the Unfair Insurance Practices Act (§§ 790.03, et al.) and supports the imposition of UIPA penalties;
(2) that any act taken by a licensee is “knowing”—one of the legal conditions precedent for invoking UIPA enforcement powers—even in the complete absence of intent or even actual knowledge;
(3) that misrepresentation of pertinent facts, which UIPA prohibits, can include omission of a statutory notice in a form, and that any incorrectly paid claim constitutes misrepresentation of a pertinent fact;
(4) that in imposing thousands of dollars in penalties for each incorrectly paid claim, the CDI is not bound by Constitutional prohibitions against excessive fines;
(5) that a single erroneous act can constitute a “general business practice” (one of the other conditions precedent for UIPA liabilities); and
(6) that the Commissioner may create new prohibited acts under UIPA without holding a public hearing as expressly required by the Insurance Code.
“We believe the Court of Appeal erred when it upheld the Insurance Commissioner’s regulatory interpretation of California Insurance Code Section 790.03(h) to define an unfair claims settlement practice as either a licensee’s knowing commission of the prohibited conduct on a single occasion, or the performance of the conduct with such frequency as to indicate a general business practice,” Young wrote the Court.
“Combined with the Commissioner’s definition of “knowingly” as “actual, implied, or constructive knowledge”, this means an insurer or any broker-agent can be liable for an unfair practice, and subject to penalties, for a single act performed without actual knowledge. […]
Moreover, the Insurance Commissioner’s interpretation of Section 790.03(h) transforms any innocent mistake into an unfair insurance practice.”
IIABCal and other industry organizations that also submitted amicus letters argue strongly in support of PacifiCare’s appeal that the appellate court’s interpretation is not only contradicted by by California Supreme Court decisions on point, but is also flatly inconsistent with the available evidence of what the Legislature intended when the underlying statute was enacted.
“In its Petition for Review, PacifiCare casts its arguments in a separation of powers light. We concur,” Young wrote. “The decision of the appellate court purports to permit the Commissioner to disregard rulings of this Court. And in pragmatic, “real world” terms, we fear that the lower court’s decision would permit future insurance commissioners to neatly avoid the Legislature, as well. If the Commissioner is permitted to invoke the full weight of all Unfair Insurance Practice Act remedies against any licensee, for any violation whatsoever of the California Insurance Code—even innocent, unknowing errors—then the Commissioner’s powers of enforcement will know no check or balance.
“For these reasons, we respectfully urge this honorable Court to grant the Petition for Review—and overturn the appellate court’s decision—in this matter.”
The Supreme Court routinely rejects all but a handful of appeals in civil cases, but Young said lawyers for PacifiCare are cautiously optimistic the Court will accept this case—because the decision of the appellate court differs from decisions other appellate courts have rendered on the same legal issues, as well as the Supreme Court’s own opinions.
To review the IIABCal amicus letter.
To review the Petition for Review filed by PacifiCare.
Review the appellate court's opinion.