Within the last six years, the insurance industry has continually questioned the authority of the California Department of Insurance to regulate its industry on several fronts.
But in a sweeping victory for consumers, Insurance Commissioner Dave Jones announced that on Jan. 23 the California Supreme Court, in a 7-0 decision, affirmed his authority against a major insurance industry legal challenge.
Rejecting the insurance industry's arguments, the Supreme Court ruled the insurance commissioner has broad discretion to adopt rules and regulations as necessary to promote the public welfare. The insurance industry lost their challenge to Jones' consumer protection regulations that require insurers replacement cost estimates actually reflect the complete cost of rebuilding a policyholder's home after a fire, according to the California Department of Insurance's press release.
The lawsuit by two statewide industry trade associations challenged a 2011 regulation that made it illegal for insurers to issue estimates of a home's replacement cost to consumers unless the estimate included specific details such as the costs associated with labor, building materials and debris removal.
The Association of California Insurance Companies and the Personal Insurance Federation of California were successful in blocking the rule in 2013 when a judge in Los Angeles ruled that the commissioner had overreached and the decision was affirmed on appeal in 2015.
The insurance industry, led by the Association of California Insurance Companies and the Personal Insurance Federation of California, used its lawsuit challenging the regulation to challenge the insurance commissioner's authority to adopt regulations that protect consumers from insurers' unfair and misleading practices.
With this decision, the Supreme Court rejected the challenge and affirmed that the commissioner has broad authority under the Unfair Insurance Practices Act to adopt regulations prohibiting insurers from unfair practices, like misleading consumers into believing they have replacement-cost insurance coverage that is not intended to cover all costs of replacement, the DOI release stated.
"We have won an important victory for California consumers over the insurance industry with the Supreme Court's decision today upholding our consumer protection regulation," Commissioner Jones said. "The Supreme Court rejected the insurance industry's effort to strike down the department's regulation, which protects consumers from misleading insurer estimates of home replacement costs, which left homeowners without adequate coverage or ability to rebuild their homes after fires."
This court decision revolves around home replacement costs after a fire, but how will it affect the collision repair industry in California? To find out from the collision industry's perspective, we talked to Jack Molodanof, the California Autobody Association's lobbyist.
"Yes, this is definitely a good thing for everyone in collision repair in California, because the California Supreme court said that the commissioner has the statutory authority to promulgate reasonable rules and regulations," Molodanof said. "This decision dealt with home replacement and how consumers can be protected, which is exactly what they are trying to do in the collision repair industry as well. So this decision is a victory for all consumers in general, but definitely a real plus for body shops who work almost exclusively with insurers. What it really says is that the Department of Insurance has the legal authority to issue reasonable regulations just like they recently did by enacting the auto body labor rate survey and anti-steering regulations."
What is the next step for the insurance companies as they react to this decision? "It is a big setback for them, because I am fairly confident that they thought they would prevail, based on the lower court's decision," Molodanof said. "This decision essentially eliminates their main argument that the Commissioner has no authority to issue the auto body regulations. I would guess that they will either continue to litigate or come up with some new legislation to counter the court's decision, but they surely can't be happy with this outcome."
A joint response from Mark Sektnan, President, ACIC and Kara Cross, General Counsel, Personal Insurance Federation of California submitted the following response to the decision: “We respectfully disagree with the Court's opinion today upholding the Commissioner's overreach; we believe it does not accurately reflect the Legislature's intent. The Court acknowledged that its decision reaches only one of several grounds asserted in this case and we are continuing to evaluate our options, including on remand.”
Ed Attanasio