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Insurance Regulator Too ‘Aggressive,’ Insurers Say

SACRAMENTO, Calif. (CN) - Four insurance companies sued the California Department of Insurance, claiming the agency has become "increasingly aggressive" in its efforts to enforce the state's Unfair Insurance Practices Act.

The companies say the department is trying to enforce the UPA beyond the scope of the original statute, by wanting to impose "millions of dollars in monetary penalties" against insurance companies.

In statute form, the UPA outlines 16 unfair claims settlement practices that companies must avoid in order to be compliant with the law. Prohibited practices include misrepresenting pertinent facts or policy revisions to clients, compelling insured clients to pursue litigation to recover amounts due, and attempting to settle a claim for less than a "reasonable" amount.

But the four plaintiffs known as the Torchmark group of companies said the department has been adding to the original 16 practices, creating 25 "categories of acts" that outline specific conduct to be followed or prohibited in the settlement of claims.

The Torchmark group includes Globe Life and Accident Insurance Company, American Income Life Insurance Company, United American Insurance Company and United Investors Life Insurance Company and is represented in the suit by Robert Hogeboom of the Los Angeles firm Hinshaw & Culbertson.

"The regulations being enforced by the department tell the companies how to run their operations, which was never the intent of the state law," Hogeboom told Courthouse News. "The law only requires companies to avoid certain practices and to run their companies fairly and promptly. Imposing large fines for fairly technical kinds of things is abusive and outside the scope of the UPA."

In their case, the insurers take issue with the fact that the Department of Insurance demanded companies follow detailed regulations like providing specific documentation to claimants, placing restrictions on proof-of-claim requirements and dictating when insurers can issue checks or drafts. For these regulations to have the force of law, Hogeboom said the department must go through the legitimate process.

"They should not be able to apply violations when they have failed to follow the process of giving their interpretations the same weight as the statute," Hogeboom said.

In order for the new regulations to be legitimate, the companies ask the court for an injunction forcing the department to pursue one of three options: make regulations that fit within the 16 acts in the original statute, get the Legislature to expand the scope of the original statute, or launch a hearing process to expand the law to include its desired additions.

Besides calling the department's interpretation of the UPA into question, the insurers also challenge the department's pursuit of a violation against another member of the Torchmark group, arguing that the department is trying to undermine the administrative review process by retroactively applying decisions to previously decided cases against insurance companies.

Hogeboom said he anticipates the Dec. 2 writ and request for an injunction against the department may have a hearing in Sacramento Superior Court within the next nine months.

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