California Supreme Court Affirms Insurance Commissioner’s Regulatory Authority in Replacement Cost Estimate Case
Jan 23, 2017
California Insurance Commissioner Dave Jones announced today, January 23, 2017, that the California Supreme Court affirmed his authority against a major insurance industry legal challenge to a 2011 regulation establishing specific requirements governing replacement-cost estimates. The Rule decreed that any estimate not conforming to those requirements be deemed a misleading communication in violation of the Unfair Insurance Practices Act.
Rejecting the insurance industry’s arguments, the California Supreme Court ruled unanimously that the California’s Insurance Commissioner has broad discretion to adopt rules and regulations as necessary to promote the public welfare. The Association of California Insurance Companies (which includes the Personal Insurance Federation of California) had challenged the regulation, which requires insurers replacement cost estimates to reflect the complete cost of rebuilding a policyholder’s home after a fire.
“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.”
“Climate change, years of drought, and more devastating wildfires have changed the landscape of California and led to a year-round fire season. This regulation offers homeowners peace of mind, should disaster strike,” Jones added.
Commissioner Jones explained that the regulations were needed because insurance companies were misleading consumers by giving them incomplete home replacement cost estimates, sometimes by removing key components from the actual estimates they calculated, in order to undercut competitors with lower premium. He said the practice unfairly left consumers who relied on their insurers’ estimates unaware they were underinsured, and many could not rebuild after fires destroyed their homes.
In a press release issued today, the California Department of Insurance said that the Association of California Insurance Companies and the Personal Insurance Federation of California coalition ” . . . 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.”
While the insurance industry did not argue insurers would have difficulty complying with the regulation, or that the general rule requiring all insurers’ replacement-cost estimates include all costs necessary to replace a home is a bad idea, the industry argued that the regulation was overreaching by the commissioner, the agency said. It emphasized that the California Supreme Court’s rejection of the challenge 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.”
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