The California Department of Insurance should go through proper rulemaking procedures if it wants to regulate Iran-linked investments, a Golden State administrative law official says.

Susan Lapsley, director of the California Office of Administrative Law (OAL), makes that argument in a response to news that California Insurance Commissioner Steve Poizner is suing in a state court in Los Angeles to overturn a recent OAL decision.

Poizner has been trying to keep insurers that do business in California from investing in companies that have dealings with Iran. He recently decided to stop giving insurers credit for investments. Iran-linked

Insurance trade groups asked the OAL to overturn Poizner’s Iran-linked investment policy, arguing that Poizner had failed to put the policy through the comment period required by the California Administrative Procedure Act (APA).

The OAL sided with the insurance groups and found that the Poizner Iran-linked investment requirements were illegal “underground regulations.”

“No state agency, including the Department of Insurance, is exempt from the APA’s requirements absent an express statutory exemption,” Lapsley says in a statement. “The procedural steps established by the APA are designed to give the public a meaningful opportunity to participate in the making of the rules that will govern them.”

Poizner imposed the new Iran-linked investment rules “unilaterally without any public input or comment,” Lapsley says. “This is exactly the type of action the APA is designed to prevent.”

The Association of California Life and Health Insurance Companies, Sacramento, Calif., and the other groups that started the OAL Iran investment requirements action put out a statement saying they agree with the OAL’s determination.

“Our associations do not support or defend any insurer that makes investments that violate state or federal law, which prohibit investments in Iran and other terrorist regimes,” the groups say. “We asked the OAL for a determination simply to resolve the issue of the Department of Insurance’s compliance with the APA.”

- Allison Bell contributed information to this report.