California

California High Court Gives Regulators Vast New Powers

A ruling on insurance could embolden all kinds of state regulators.

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President Donald Trump's spate of executive orders has jump-started a national debate about the wisdom of executive edicts, especially those that stray into the area of lawmaking. While presidential orders grab the spotlight, the issues of administrative overreach and how to properly limit the power exerted by government officials are frequent subjects of court scrutiny at every level of our political system.

For instance, the California Supreme Court issued a Jan. 23 ruling in a case that challenged the insurance commissioner's authority to issue rules governing how insurance companies calculate replacement-cost estimates for homeowners' policies. The trial and appeals courts ruled the commissioner exerted power not granted to him by the legislature, but the high court overruled those decisions.

The decision has broad implications for the California Department of Insurance, which has been granted vast new regulatory powers. And while the 1959 statute at issue relates solely to the insurance industry, the court's opinion could embolden other California regulatory agencies to take wider latitude as they implement business-related regulations.

The regulation in question was promulgated in 2010 under former Insurance Commissioner Steve Poizner, a Republican, and defended by the current commissioner, Dave Jones, a Democrat. Following wildfires in the 2000s, some homeowners complained their policies did not provide enough coverage to cover the total cost of rebuilding. They argued the insurers' replacement-cost estimates, which they relied upon in their coverage purchases, often excluded major items like debris removal that should have been factored into the calculation.

The resulting "replacement cost regulation" requires insurance companies that choose to provide replacement-cost estimates to include a detailed list of requirements and standards that must be followed before communicating any such estimate. Those that provide estimates that diverge from the standard would be deemed to have provided a "misleading" statement—a serious matter under the state's Unfair Insurance Practices Act.

In a brief submitted to the court by two trade associations, the insurance industry argued the commissioner "attempted to run roughshod" over the authority granted by that 1959 law by "expanding the legislatively prescribed list of unfair or deceptive acts spelled out in the UIPA." The industry further argued the insurance code doesn't allow the commissioner to mandate only one type of replacement estimate and that restrictions on communicating other types of cost estimates would abridge the First Amendment.

The lower courts ruled in favor of the industry on the "limits of power" issue, so the courts never examined the legal issues surrounding those other points. The state attorney general's office took the side of the state Department of Insurance. In its 2015 ruling, the appeals court noted that, while the Legislature could "regulate the form and content of replacement cost estimates" if it wanted to, "the UIPA has not as of yet given the commissioner authority to regulate the content and format of replacement cost estimates."

The state Supreme Court, however, found that neither "the UIPA nor any other statute categorically limits the commissioner's authority to issue the regulation. On the contrary: section 790.10 explicitly vests in the commissioner authority to issue 'reasonable rules and regulations' to administer the UIPA. Which is what the commissioner sought to do here."

The industry groups that were party to the case obviously disagreed with the court's opinion with leaders of the Association of California Insurance Companies and the Personal Insurance Federation of California noting in a short statement their belief that "it does not accurately reflect the Legislature's intent."

While this case dealt with the relatively obscure issue of underinsurance—i.e., when consumers have too little insurance to meet their needs—the ruling's implications are potentially quite broad. The term "reasonable rules and regulations" could be taken to mean that an insurance commissioner—and perhaps leaders of other regulatory agencies—is free to delve into lawmaking. Future regulators could use that broad rubric essentially to write vast new regulations and impose them on businesses. That's certainly how Jones appears to be taking it, with his office writing in a Jan. 23 statement that "the Supreme Court ruled the insurance commissioner has broad discretion to adopt rules and regulations as necessary to promote the public welfare."

Under our system of government, legislatures are the proper place to write laws, which are then implemented by the administrative agencies. Should insurers be compelled to provide more coverage than the policyholders purchased? What responsibility do policyholders have in assuring they purchase the right amounts of coverage? There are various remedies for these problems in the marketplace and via the legislative process. The long-term result of this case, however, is to allow an insurance commissioner to try to fix the problem with a regulatory edict.

The Supreme Court left open the opportunity for insurers to challenge the decision on other grounds and the insurers are mulling their options. But the ruling clearly gives insurance commissioners broader discretion than before in crafting and implementing regulations.

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  1. California High Court Gives Regulators Vast New Powers = Prog Moment!!!

    1. Every person who uses the word “prog” regularly was born being strangled by their umbilical cord. Fact.

      1. Would it matter if you were being strangled if you were still attached to your umbilical cord?

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  2. If you don’t live in CA it is arguable that this should be cheered. If you believe progressive authoritarianism is a recipe for misery and failure you have to also figure the wackadoodles in CA will manage to burn the whole thing to the ground sooner or later. It may not be hard to ignore Detroit but ignoring CA’s meltdown will not be easy given it’s size. We need a good exhibit A showing people what happens when you put toddler’s in charge. CA has the potential to be the world’s largest diorama in the museum of progressive stupidity. I’m excited!

    1. What’s Venezuela/Cuba/east Germany/Mao’s China…chopped soylent green?

      1. No professional sports teams in sports that Americans follow, so nobody’s ever heard of them.

      2. Too “ethnic.”

        1. “Manssiere.”

        2. So it’s a rare case of “not local enough”?

    2. Yes. Absolutely agree. I was simply going to post “Good”. Let CA go full Socialist.

    3. But the right people aren’t going to get blamed. Look at Detroit. Progressives aren’t blaming decades of Democrat rule for the failure of that city.

      1. Or maybe a city whose prosperity is based on one industry is destined eventually to go tits-up once that industry goes into decline. So capitalism is at fault there.

        Not that you’re not cherry picking one city among all American cities–almost all of which are run by Democrats, and almost all of which are doing far better than the meth-addled conservative zones.

    4. Yeah California what a shithole, unlike Alabama.

    5. Hell, they’ve managed to ignore the USSR, the Peoples’ Republic of China, Cambodia…..

      What makes you think they’ll acknowledge reality NOW?

      1. The USSR was fine until the US of A started interfering with their capitalist pig ideas.

    6. Illinois is already well on the way to Democrat-run failure, and as with all other big gov’t failed states, the answer always being proffered is: the failing state would be successful if only there were MORE big gov’t.

      California could crash and burn under single-party rule like the USSR, and that would not teach any leftists/progressives/socialists/communists a thing. They’d simply try again at ruining some other state/country, all the while blaming the failure on other complex factors, never on the fact that extractive institutions (see “Why Nations Fail”) such as those that are at the heart of socialism/communism always result in failure.

  3. “President Donald Trump’s spate of executive orders has jump-started a national debate about the wisdom of executive edicts, especially those that stray into the area of lawmaking.”

    Welcome back from your eight years of hibernation. As Glenn Reynolds recently put it: “if you want an adversarial press, you have to elect a Republican as president”

    1. Yep. And other than the eo for ban which was badly implemented with some parts against the law and the waste of a wall, the executive orders are a big meh so far.

    2. To be fair, I’m pretty sure Greenhut has past articles about Obama’s overreach.

    3. Welcome to reason. They may have taken a different tack recently, but they definitely weren’t silent on executive overreach throughout the last (many) administrations.

  4. 1. This is only California; they will secede, so it does not matter in the real world.
    2. It is time for industry to read a bit of history, and realize that they are not bound to any given state. How long would this nonsense last if the insurance companies just stopped writing in California? They would lose a few bucks in the short run, but after the next election there would be new legislators happily restraining the bureaucrats.
    3. When California outlawed the legal fifty caliber Barrett rifles, Barrett cancelled all outstanding orders from the state “law enforcement”, and refuses to sell them anything.

  5. California: hellbent on criminalizing free enterprise.

  6. Awesome! For every regulation Trump cuts, California can give me two new ones!

  7. “Reasonable”

    Weasel word of the decade or century?

    1. No, just the ‘Moment’.
      We’re all waiting on the ‘Moment.’

    2. Almost as bad as “common sense” – well shit that’s two words

  8. “the Supreme Court ruled the insurance commissioner has broad discretion to adopt rules and regulations as necessary to promote the public welfare.”

    Isn’t that pretty much how all regulatory agencies work? The legislature gives an agency some particular grant of authority – which SCOTUS has already long ago ruled that the authority to do X necessarily includes the authority to do A, B, and C if A, B, and C are necessary to accomplish X – and that authority includes the authority to promulgate rules and regulations to carry out the particular agency’s mandate.

    1. And this is where we get into the mess of whether or not that’s an unconstitutional delegation of authority. (No, because the Constitution says Congress is the only one that can make laws but see, the executive-branch agencies aren’t making laws, they’re merely making rules and regulations. Sure, you get punished for breaking a rule or a regulation, but you’re not being punished for breaking the law because it’s totally not a law.) Or whether or not administrative law courts run by the agency itself violates the Constitutional separation of powers. (No, because even though you have to go through this long drawn-out kangaroo court process you can still, after much time and money has been spent, appeal the decision to the real courts. Maybe, if you do it right and you get lucky. So it’s really not a judicial determination, it’s just an administrative determination the court is making.) Or whether or not the judicial branch deferring to the agency’s determination as to whether or not what they’ve done is totally legit and right and proper kind of makes the agency judge, jury, and executioner in their own case. (“Shut up”, he explained.)

      1. I think what Jerry is trying to say is FYTW

      2. I am an engineer for a nuclear power plant, and I deal with regulatory compliance I.e. With the Nuclear Regulatory Commission (NRC). Many of the individual inspectors are reasonable people, especially compared to agencies like the EPA. However, regulatory creep is a HUGE issue. There are essentially 2 reasons why nuke plants are closing and only 4 units are currently being built or coming online line:
        1: cheap domestic fossil fuels. Viva le competition!
        2: compliance costs
        The NRC is a largely self-funded agency. Good for taxpayers at first blush. But that means that each plant owner pays the NRC $263 per man-hour of inspection time.
        Every site has 2-3 resident inspectors who the utility pays 263 an hour for 40 hours for 52 weeks a year. Then ther like 2 big team inspections that last 3 weeks and about 10 1 guy for 1 week inspections. Then there are all kinds of submittsls that have to be approved. So about 2-3 million a year just in direct payment to the NRC.

        1. Of course the company pays me and my group to deal with the NRC and regulations. So tack on another 2 million (salary and benefits for 10 people).

          But the real kicker is the cost of dealing with the existing Regs and the creep that occurs when they “regulate by inspection”. Every time an inspector decides we aren’t doing it right, never made me that no other inspector has pointed it out in 30 years, there’s more money.

          And I try to remind people:
          Chernobyl happened in the Soviet Union (and something even remotely like that can’t happen here-physics and common sense)
          Fukushima had 10000 deaths: all associated with the tsunami! None due to radiation exposure (and it was a tsunami nobody predicted)
          TMI: worst accident in US had NO radiological consequences to the general public.

          1. Do you like being a nuclear engineer? I’m curious because it was my “almost career”.

            1. Yes for the most part I like it. Generally employees are treated pretty well due to safety culture concerns, and many plants have to work hard to keep people since they are generally not near large population centers. I have been working in a regulatory affairs position for 8 years, and I didn’t think I would like that. But actually, it is kind of fun. I don’t do any real engineering, but my engineering background allows me to help argue with inspectors (or with our staff if it is a losing battle!)

              1. Thanks. I sometimes think “what if”, not that I’m not happy in my current career.

                1. I know that feeling……

          2. How many forms do you fill out when a light switch fails?

            I ask because I’m familiar with a particle accelerator facility where a 5 page form was required before using a cordless drill. 5 pages.

            1. That’s funny! Actually, if that level of stuff needs work in the non-safety related areas (turbine building or ancillary areas) it isn’t a big deal. But, a light that might be needed for an operator to see during a fire or loss of power, and there is a significant paper trail!

          3. “regulate by inspection”

            If this “regulate by inspection” is anything like what goes on commonly in oil and chemical refineries large and small across the land then it is clear there will be practically no ‘regulation’ resulting specifically from ‘inspection’.

            Inspectors are much like the cancer-detection industry: only useful when a problem is already in its prime and just steeling beady eyes onto its bold new role of disruption.

            1. Sometimes that is true. However, as soon as a violation is given, then a precedent is set. So even if the Regulation would appear to have been met, there is room for interpretation. And, once something is documented in the other inspection report, good luck changing it. And probably 90 percent of the time, it really is nothing. But of course there are the times that are (look up Davis-Besse Reactor Head leak).
              The NRC issues the lowest level of documented violations like giving out candy to kids. They don’t think they are a big deal individually. And they aren’t usually by themselves. But they add up and pretty soon, millions of dollars are being spent on something that does absolutely nothing to further the health and safety of the public.

          4. (and it was a tsunami nobody predicted)

            Uhm, Japan Sinks (2006). And about every second Japanese disaster movie since the beginning of talkies. Nobody predicted, really?

            1. I will look up Japan Sinks, but from a design perspective, the plant shut down safely from the earthquake. And the tsunami was way beyond their “design basis event”.
              I am waiting for the NRC to initiate rule making for a “design-basis asteroid”.

        2. There are essentially 2 reasons why nuke plants are closing

          You left out Cuomo’s favorite –
          3: Nukes are scary

  9. And the fucking scribe walks a zillion miles in fog out his way to slickly connect bureaucracy-expanding tactics in Cali to Trump’s EO refusal to be an open immigration sewer for Islamic cast-offs like France and Germany… 2017 will likely be the year Reason dives off Ayn’s cortex into the bulging cesspool of European-shaded socialism.

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