State Court Rules on Calif. Rescission Rules

THE SUIT

ACLHIC filed a petition contending that the regulations are too expensive and too difficult to implement, and that former California Insurance Commissioner Steve Poizner exceeded his authority when he developed the regulations.

The California Department of Insurance has questioned whether ACLHIC – an association of insurers, rather than an insurer – has standing

to file the suit.

In California, an association can bring a suit if its members have standing to sue in their own right and it is seeking to protect interests that are germane to its purpose, Kenny says.

One section of the proposed regulations would require an insurer to follow specific medical underwriting guidelines if it wants to have the right to rescind a policy or otherwise change the policy terms after an insured files a claim.

The California department does not have the statutory authority to promulgate the section, Kenny says.

The language in the section would define violations of the rescission rules as an unfair claims settlement practice, and the California Legislature already has given a specific description of unfair claims settlement practices and given itself the sole right to define unfair practices, Kenny says.

Another anti-rescission regulation section would require an insurer that wanted the authority to rescind policies to send a complete copy of the application to the insured at the time a policy is delivered. That provision is invalid for the same reason that the medical underwriting requirements section is invalid, Kenny says.

The California department does have statutory authority to establish “reasonable timeframes within which an insurer must conduct a cancellation investigation after submission of a claim,” Kenny says. “The Court cannot conclude that the Department acted arbitrarily, capriciously, or without reasonable or rationale basis” in adopting the section.