Administrative Law Judge Invalidates Fair Claims Settlement Practices Regulations by California Department of Insurance
Insurance companies could soon be off the hook for stiff penalties and fines imposed by the California Department of Insurance’s (“CDI”) for violations of the Fair Claims Settlement Practices Regulations (“FCPR”). This is according to California Administrative Law Judge Stephen J. Smith, who recently issued a 51-page ruling finding the CDI’s Fair Claims Settlement Practices Regulations might not be brought as unfair claims acts.
This ruling affects how the CDI has imposed penalties against insurers for claims since the inception of the FCPR in 1992. Since that time, only two cases have gone to adjudication challenging the procedure, and fines, as most insurance companies have chosen to settle. In both cases, the insurance companies – an auto insurer and a life and health insurer – retained Robert Hogeboom, senior insurance regulatory attorney with Barger & Wolen, to represent them.
In the most recent decision, Judge Smith’s ruling was based on the CDI’s Order to Show Cause (“OSC”) action alleging 697 violations against the five Torchmark groups of life and health insurers.
According to Hogeboom, "This ruling is an extraordinary indictment of the FCPR because for the past 20 years the CDI has required insurers to follow the FCPR under threat of an OSC proceeding and large fines."
This may also result in changes to Market Conduct Examinations if they are to serve as the basis for an OSC proceeding.
The decision will impact all lines of insurance regulated by the DOI.