California Insurance Co. Says Judge’s Tentative Order Won’t Stop CDI Overreach

A California court’s tentative decision in a dispute between the California Department of Insurance and the California Insurance Company “failed to undo the unprecedented use of the CDI’s conservation mechanism to restrain CIC from its long-planned exit from the state,” the company said in response to a recent development in the matter of the case Commissioner of Insurance vs. California Insurance Company.

Applied Underwriters Inc. sued over a decision by the CDI to put its affiliate, CIC, into conservatorship. A lawsuit was filed in federal court in January to enjoin the CDI from continuing to take what the suit asserts are illegal, actions to block the approved redomestication of CIC and to undermine a financially sound insurer by instituting a conservatorship to gain control of CIC.

A California court recently issued a tentative decision, siding with the CDI to prevent the company from proceeding with its plans to withdraw from the California market.

The suit came after the Office of the Superintendent of Insurance in New Mexico ordered CIC either to comply immediately with all regulations required under its approved redomestication to New Mexico or face financial penalties and possible revocation of the Company’s Certificate of Authority. CDI got approval to place CIC in conservatorship and the CDI filed a follow-up rehabilitation plan that would force CIC to sell its California business to another insurer.

CIC charges Lara and the other officials named with “unlawful” and “bad faith” action in imposing an arbitrary, illogical and illegal conservatorship of CIC to obstruct its New Mexico redomestication, after that move was approved by several states.

The suit asserts the CDI has continued to wage a bad faith campaign to harm CIC by prohibiting the company from transferring its assets and its business to New Mexico in compliance with the approved redomestication and the Order of New Mexico’s Superintendent of Insurance in October of 2019.

The U.S. Supreme Court in January declined to take up the lawsuit.

The most recent development was the latest in what has become an exceedingly complex and long-running case, involving a conservatorship of an insurance carrier, a battle between the CDI and the New Mexico’s insurance department that drew New Mexico’s attorney general into the fray.

Jeffrey Silver, executive vice president and general counsel for CIC, called the CDI’s use of a conservation format to mask both its embarrassment over CIC’s protracted exit from the state in 2019 and the CDI’s desire to seize an opportunity for the distribution of fees and awards to CDI’s preferred vendors, a “stunning overreach” and a “clear warning” to insurers doing business in the state.

“To have learned of our plans to exit from California in 2019, and then to have placed us, an ‘A’ rated carrier, with over $1B of capital and surplus in our group, into a conservation—a status reserved for companies in grave financial danger—was an egregious and ill-motivated act that has cost taxpayers a small fortune and has adversely affected insurance buyers in the state,” Silver said. “Unbridled overreach and self-authorized expansion of regulatory prerogative as a practice send a clear signal to the few domiciled companies writing business in California that their business is a target for a weaponized CDI aiming at increased control of private businesses by any means.”

Silver said the Court’s decision does not greatly affect the insurance group materially, but it does restrain plans to move out of California.

A CDI spokesman declined to offer much comment.

“We respect the judicial process and cannot comment while the ruling is tentative,” he stated in reply to an emailed request for comment. “The judge’s findings speak for themselves.”