Judge Voids Restrictions on Home Insurers’ Choice of Clients on Basis of Previous Claims
In a victory for the insurance industry and a blow to state Insurance Commissioner John Garamendi, a Sacramento judge has struck down an emergency regulation restricting the companies from choosing their customers on the basis of past claims.
Superior Court Judge Raymond M. Cadei ruled that Garamendi had exceeded his authority and contradicted present law in trying to crack down on what Garamendi termed industry misuse of information provided by a database called the Comprehensive Loss Underwriting Exchange.
Cadei also noted in a written opinion that the Legislature had killed a bill supported by Garamendi that would have accomplished many of the same things the commissioner tried to do with the emergency regulation.
Garamendi, responding Wednesday to this week’s decision, said he would appeal it by the end of the week. He said he understood that a stay, allowing the emergency regulation to be enforced, would be automatic while the Court of Appeal considered the matter.
However, Gene Livingston, an attorney for insurance lobbyists who brought the court action, insisted that a stay would not be automatic. He said that would have to be determined by the Court of Appeal.
An angry Garamendi said he found it “strange and new that the failure of a bill in the Legislature is reason for a judge to act to invalidate an emergency regulation.” He vowed to persevere with a new, permanent regulation and an audit of insurance companies to see if they are using false information provided by the database.
The commissioner has held a series of news conferences in recent weeks in various cities, bringing forth homeowners who say they have been denied homeowners policies on the basis of erroneous information.
Industry representatives insist that companies have been losing money on homeowners insurance and need to tighten up underwriting criteria to weed out higher-risk customers. The outside databases, such as the Comprehensive Loss Underwriting Exchange, are used to make these decisions.
Garamendi has warned there are implications that large numbers of people may be rendered uninsurable, blocking them from home purchases because they cannot obtain required insurance.
Often, however, the experience has been that those subject to adverse database reports are able eventually to buy policies, but only at a much higher and occasionally exorbitant price.
Efforts by state Sen. Jackie Speier (D-Hillsborough), with Garamendi’s support, to pass a bill to restrict such practices have failed.
Judge Cadei, who was recently appointed by Gov. Gray Davis, declared in his opinion: “The rulemaking authority of an executive agency ... is circumscribed by the substantive provisions of law governing the agency.” He said regulations “that have the effect of altering or amending those statutes or enlarging or impairing their scope, are void.”
Garamendi had accused industry representatives at the hearing of contending that companies have “the right to use inaccurate, out-of-date, erroneous information in pricing and underwriting homeowners insurance in California.”
