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A Los Angeles Superior Court Judge this week rejected a lawsuit, in which IBA West had intervened, challenging challenging the legality of replacement cost regulations promulgated by the California Department of Insurance. Judge Gregory W. Alarcon denied a motion for judgment on the pleadings, brought by the Association of California Insurance Companies and the Personal Insurance Federation of California, with nothing more than a cursory statement that his decision was based "on the the reasoning contained in defendant's opposition papers." The plaintiffs are now evaluating whether they will appeal the ruling.
The suit, Association of California Insurance Companies and Personal Insurance Federal of California v. Dave Jones, challenged the statutory authority cited by CDI in attempting to justify the regulations, which among other things require insurers to use a standardized set of factors in determining estimates of replacement cost in homeowners' insurance policies, and impose significant disclosure and record-keeping obligations on broker-agents. IBA West submitted an amicus brief in support of the plaintiffs.
The plaintiffs and IBA West have voiced strong objection to the Department's attempt to justify the new rules on provisions of the California Insurance Code that prohibit licensees from making unfair or deceptive statements in the business of insurance. The CDI regulations not only require insurers to use the standardized factors for calculating replacement cost estimates, but also prohibit insurers from using any other factors and from describing any other construction cost estimates as a "replacement cost" calculation--which involve determinations of public policy that only the Legislature could enact or delegate to the Insurance Commissioner.
"There is nothing inherently misleading about other calculations that fail to strictly adhere to the formula the Commissioner devised," said IBA West General Counsel Steve Young. "Other calculations might be non-conforming to the Commisioner's idea of how replacement cost should be calculated, but they are not misleading; therefore, the Commissioner's reliance on the statute prohibiting deceptive statements is completely misplaced. Our very strong view is that he should have gone to the Legislature to get the authority he needed, and we are very disappointed that the Court failed to recognize the proposed regulations for what they were--a naked power grab."
Click here to read the ruling.