Trade Associations Prevail in Lawsuit Challenging Calif. Homeowners Emergency Regs

August 26, 2003

Three insurance trade associations announced that a Sacramento Superior Court sustained their challenge to the legality of a homeowners insurance Emergency Regulation issued by the California Department of Insurance (CDI) to all residential property insurers in the state.

The three trade associations — the Personal Insurance Federation of California, the Association of California Insurance Companies and the American Insurance Association — represent more than 70 percent of the homeowners insurance sold in California.

Gene Livingston, partner in the Livingston and Mattesich Law Corporation, filed the Petition for Writ of Mandate on behalf of the trade associations noting that the regulation mandated new requirements on insurers that could ultimately increase the cost and reduce the availability of homeowners insurance in California. “The associations asked the court to invalidate the Emergency Regulation because the Commissioner lacks legal authority to restrict insurers’ choices about what risk to insure. The court agreed and granted the relief requested in the petition, which helps keep homeowners insurance available and affordable in California,” he concluded.

Jeanne Cain, vice-president of the American Insurance Association, Sam Sorich, president of the Association of Insurance Companies and Dan Dunmoyer, president of the Personal Insurance Federation of California said, “today’s ruling shows a recurring pattern by the Insurance Commissioner to promulgate excessive and unauthorized regulations. The Department of Insurance Emergency Regulations cost insurers and their customers a significant amount of money and continue to create confusion and uncertainty in the marketplace.”

Calif. Insurance Commissioner John Garamendi released the following statement in response to the judge’s ruling:

“Today, a judge ruled that it is ok for the insurance industry to use a seriously flawed database to price and deny homeowner’s insurance to Californians. He said that I do not have the right to prohibit the industry from using these outrageous, abusive, unfair and discriminatory practices against California consumers.

“I’m here to tell you that this judge’s decision is dead wrong.

“As Insurance Commissioner, it is my job to protect the consumer. It is my duty to fight for the rights of consumers like Ken Pfeffer of Carlsbad. This 71-year-old homeowner was “blacklisted” after his wife Patricia simply called to ask State Farm a question about their coverage. The end result is that State Farm didn’t pay a dime for anything, but it did raise the Pfeffer’s insurance deductible from $1,000 to $5,000 because of this one inquiry. Folks, that is simply wrong,” Garamendi continued.

“Rachelle Goldberg, who lives in San Diego, faced a similar problem when she asked her insurance company if a broken plate would be covered under her policy. She didn’t file a claim, but her insurer non-renewed her after this question showed up on an electronic database as a claim.

“The same kind of thing is happening all over the state. I have worked diligently to ensure that the industry stops these heinous practices, but every time I try to do my job I get sued. The industry knows this database, called CLUE, (Comprehensive Loss Underwriting Exchange) can contain totally inaccurate information. But for some reason, they don’t want to take the time to verify its accuracy. Instead, they let people like Ken Pfeffer and Rachelle Goldberg suffer. It’s time for this to stop,” Garamendi said.

“The emergency regulations the judge overruled today were specifically designed to prevent the industry from arbitrarily canceling and non-renewing insurance policies. The regulations would have required insurers to verify the information they get from databases is accurate, and that it has some connection to the risk of future claims.

“Well, no surprise, the insurers want to block me from doing what the voters of California elected me to do. They won this round today, but I’m here to tell you this is not the end of the story. I am going to appeal this decision to a higher court, and I will call for legislation to enact laws that provide consumers with these much needed protections,” he added.

“It is clear the insurance industry does not have the best interests of the California consumer in mind. Well, I do. And I’m going to make sure that this abuse and discrimination is not allowed to continue.”

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