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CA Department of Insurance

Insurance Commissioner Jones wins major battle against insurance industry as Supreme Court affirms his regulatory authority

News: 2017 Press Release

For Release: January 23, 2017
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Insurance Commissioner Jones wins major battle against insurance industry as Supreme Court affirms his regulatory authority
Insurance industry lawsuit against commissioner challenged his authority to issue consumer protection regulation

SACRAMENTO, Calif. — In a sweeping victory for consumers, Insurance Commissioner Dave Jones today announced the California Supreme Court, in a 7-0 decision, affirmed his authority against a major insurance industry legal challenge.

Rejecting the insurance industry's arguments, the Supreme Court ruled the insurance commissioner has broad discretion to adopt rules and regulations as necessary to promote the public welfare. The insurance industry lost their challenge to Jones' consumer protection regulations that require insurers replacement cost estimates actually reflect the complete cost of rebuilding a policyholder's home after a fire.

"We have won an important victory for California consumers over the insurance industry with the Supreme Court's decision today upholding our consumer protection regulation," said Insurance Commissioner Dave Jones. "The Supreme Court rejected the insurance industry's effort to strike down the department's regulation, which protects consumers from misleading insurer estimates of home replacement costs, which left homeowners without adequate coverage or ability to rebuild their homes after fires."

"Climate change, years of drought, and more devastating wildfires have changed the landscape of California and led to a year-round fire season. This regulation offers homeowners peace of mind, should disaster strike," Jones added.

The regulations were needed because insurance companies were misleading consumers by giving them incomplete home replacement cost estimates, sometimes by removing key components from the actual estimates they calculated, in order to undercut competitors with lower premium. The practice unfairly left consumers who relied on their insurers' estimates unaware they were underinsured, and many could not rebuild after fires destroyed their homes.

The insurance industry, led by the Association of California Insurance Companies and the Personal Insurance Federation of California, used its lawsuit challenging the regulation to challenge the Insurance commissioner's authority to adopt regulations that protect consumers from insurers' unfair and misleading practices.

While the insurance industry did not argue insurers would have difficulty complying with the regulation, or that the general rule requiring all insurers' replacement-cost estimates include all costs necessary to replace a home is a bad idea, the industry argued that the regulation was overreaching by the commissioner.

Today, the Supreme Court rejected the challenge and affirmed the commissioner has broad authority under the Unfair Insurance Practices Act to adopt regulations prohibiting insurers from unfair practices, like misleading consumers into believing they have replacement-cost insurance coverage that is not intended to cover all costs of replacement.   

Media Note:

  • Link to Supreme Court ruling on case #S226529.

  • The California Department of Insurance, established in 1868, is the largest consumer protection agency in California. Insurers collect $310 billion in premiums annually in California. Since 2011 the California Department of Insurance received more than 1,000,000 calls from consumers and helped recover over $469 million in claims and premiums. Please visit the Department of Insurance website at Non-media inquiries should be directed to the Consumer Hotline at 800.927.4357. Telecommunications Devices for the Deaf (TDD), please dial 800.482.4833.

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