Association of California Insurance Companies v. Jones

2 Cal. 5th 376 (2017)

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Association of California Insurance Companies v. Jones

California Supreme Court
2 Cal. 5th 376 (2017)

  • Written by Nicole Gray , JD

Facts

In 1959, the California legislature enacted the Unfair Insurance Practices Act, which authorized the commissioner of insurance, Dave Jones (defendant), to promulgate regulations from time to time as warranted, after notice and opportunity for public comment had been given, to regulate unfair or deceptive acts or practices in the business of insurance. In accordance with his authority and with proper notice, the commissioner proposed a regulation standardizing the calculation of replacement-cost estimates for homeowners’ insurance. The regulation came after several California wildfires revealed that many residents were underinsured, expecting that their insurance would cover the costs of rebuilding their homes when some coverage fell hundreds of thousands of dollars short. Following an investigation, the commissioner found that the problem stemmed from inconsistent and noncomprehensive replacement-cost calculations. As a result, the commissioner promulgated the proposed regulation standardizing components of replacement-cost estimates and categorizing estimates that did not comport with the regulation as misleading. The regulation did not require insurers to estimate replacement costs; however, when insurers did so, the regulation required that they specify how the estimate was calculated and communicated, and the estimate had to include costs of labor, building materials, and supplies and had to account for geographical location. A few weeks before the regulation was to become effective, the Association of California Insurance Companies and the Personal Insurance Federation of California (plaintiffs) filed suit in a state trial court challenging the validity of the regulation. The trial court invalidated the regulation after finding that it exceeded the commissioner’s authority by defining acts as misleading that were not expressly defined by the state’s legislature. A court of appeals affirmed. The commissioner appealed.

Rule of Law

Issue

Holding and Reasoning (Cuéllar, J.)

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