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Appellate Court Overturns Decision Limiting CDI Enforcement Powers

SANTA ANA, Sept. 27, 2018 — The California 4th District Court of Appeals has overruled a trial court’s decision that had invalidated California Insurance Commissioner Dave Jones’s attempt to radically rewrite California’s Unfair Insurance Practices Act (UIPA). 

In Pacificare Life and Health Insurance Co v. Jones, the court of appeals sided with the Commissioner’s expansive, and unprecedented, interpretation of his own powers under that statute. 

IIABCal had joined the American Council of Life Insurers (ACLI), the Association of California Life and Health Insurance Companies (ACLHIC), the Personal Insurance Federation of California (PIFC), and the Property Casualty Insurers Association of America (PCIAA), in urging the appellate court to uphold the trial court’s decision. 

“We are very disappointed by the appellate court’s decision,” IIABCal General Counsel Steve Young said.  “We respectfully believe that neither the plain language of the statute, nor the legislative history of its enactment, support the Commissioner’s interpretation of his powers.” 

Lawyers for PacifiCare have indicated they intend to ask the California Supreme Court to review the appellate court’s holding. 

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 error (if repeated solely because of automation) 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. 

The “friend of the court” brief submitted by IIABCal and its coalition partners focused on the legislative history behind the adoption of the unfair insurance practices act – and the multiple ways in which the actions of the Department of Insurance were flatly inconsistent with, and contradicted by the underlying statutory authority.

To view opinion document for this case, go to: