Court Ruling Favored by Insurance Industry Can No Longer Be Used to Block Consumer Protections
Santa Monica, CA — The California Supreme Court ordered to “de-publish” a Court of Appeal ruling — AIA v. Garamendi — often touted by insurance companies as limiting the regulatory authority of the Insurance Commissioner, late yesterday. The case held that the Insurance Commissioner had no power under Proposition 103 to adopt regulations to stop the insurance industry from engaging in abusive “use it and lose it” homeowners insurance practices.
The order to “de-publish” the case by the Supreme Court means that the case cannot be cited or relied on by any party in a lawsuit or by a court in any other case.
Insurance companies had sued to invalidate Department regulations that prohibited insurers from employing the “use it and lose it” system to deny homeowners insurance coverage. The Court of Appeal agreed with insurers, tossing out the Commissioner’s regulations. Insurance companies have been using the Court of Appeal decision to try to evade accountability for other improper practices by arguing that the Commissioner has no power to regulate abusive homeowners insurance underwriting practices.
“Insurance companies should not be allowed punish customers for using their own insurance policy,” said Douglas Heller, Executive Director of the Foundation for Taxpayer and Consumer Rights (FTCR), “The Supreme Court’s action will protect the authority the voters gave to the Commissioner to stop rip-offs and abuses like ‘use it and lose it’ that punish homeowners who make claims on their policies.”
Last week, FTCR joined the Department of Insurance in a complaint against Farmers Insurance, seeking to stop the company from improperly surcharging or nonrenewing homeowners. In response to the investigation into their company, Farmers‘ lawyers cited the Court of Appeal ruling in AIA v. Garamendi, claiming that the Commissioner has no authority to stop the insurance company from overcharging homeowners. According to FTCR, the Supreme Court’s decision undermines insurance companies’ efforts to remain above the law, opening the door for needed enforcement actions against rogue insurers and likely leading to new rules clamping down on bad behavior in the insurance industry.
The “use it and lose it” phenomenon has been identified as a major problem for homeowners in recent years. Under the system, some insurance companies refuse to renew customers after they file an insurance claim, regardless of whether or not the insurer ever paid the claim or if the claim was entirely legitimate and did not increase future risk. Consumer groups and Commissioner Garamendi have long sought to end the blanket “use it and lose it” practice in place with some insurance companies. The industry has successfully fought legislative proposals and had pointed to the AIA v. Garamendi ruling to block regulatory enforcement actions.
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