Washington

The life and health insurance industry asked a state court in California on Nov. 30 to stop the state insurance department from enforcing “underground regulations” regarding long-term disability insurance policies without a formal rulemaking process.

In its complaint, the insurance industry seeks to have the court bar the department from enforcing these regulations, whether through data calls requiring insurers to identify policies with provisions inconsistent with the standards, through disapproving new policies, or through withdrawing approval of already approved policies.

Further, the lawsuit asks the court to require the department to undertake a formal rulemaking process before taking further steps to enforce seven uniform standards on all disability insurance policies “past, present or future.” The lawsuit contends that the department can’t enforce these mandates unless it goes through a formal rulemaking process.

The suit was filed in the Superior Court of California in Sacramento and names Insurance Commissioner John Garamendi.

It was filed against what the complaint says is the decision of the department not to approve “on what appeared to be a case-by-case basis” disability income insurance policy provisions that fail to meet “certain subjective and unpublished standards” set by the department.

The complaint was filed against Garamendi by the Association of California Life and Health Insurance Companies, America’s Health Insurance Plans, the American Council of Life Insurers and the California Chamber of Commerce.

The chamber joined as a plaintiff, the trade groups said, because many employers provide disability insurance as a benefit to their employees.

In a statement, the groups said they were filing the suit because if the department’s policies are not modified, “Californians will face sharp increases in the cost of disability insurance.”

Premiums will increase as much as 46% for group disability insurance and 33% for individual coverage if the requirements are enforced, the groups said in citing a study released in mid-November by Milliman Inc., an actuarial consulting firm.

Additionally, the groups said, “California consumers would have fewer disability insurance products available and less protection from disabling injuries and illnesses,” citing the study.

In filing the suit, Brad Wenger, president of the Association of California Life and Health Insurance Companies, said, “Fewer Californians will be able to protect themselves from financial ruin if Commissioner Garamendi’s requirements go forward.

“Left unchallenged, the commissioner’s actions would drive the cost of disability insurance beyond the reach of many employers who provide this benefit to their employees,” Wenger added. “As a result, more Californians would be forced to rely on government programs to support themselves and their families if they are unable to work because of a disabling condition.”

Gary Cohen, the department’s chief counsel, met with representatives of the life and health industry before the suit was filed to discuss the department’s actions and other issues relating to disability.

The commissioner, Cohen maintained, is within his power to withdraw approval of a policy, and the actions are part of an effort to level the playing field between companies entering California’s disability market and those whose policies were approved as much as 20 years ago, before many of the current restrictions were enacted.

“If somebody wanted to come into California now, as a new disability insurer, they would be at a significant disadvantage,” Cohen said.

Additionally, he noted that the approval withdrawal process includes an appeal mechanism through which companies could challenge the commissioner’s decision, which he said gave insurance companies the due process protections normally provided by the formal rulemaking process.

Wenger said in his statement that the insurance industry supports fair regulations that would protect consumers and is willing to work with state regulators but was unwilling to allow the department to, in the industry’s view, circumvent the required procedures for rulemaking.

“The decision to file this complaint against the department was an action of last resort,” he said. “While insurers wish to work with the department, we felt it necessary to object to the manner in which they are proceeding and the costly rules which they are pursuing.”