California Supreme Court upholds insurance commissioner’s authority to regulate replacement-cost estimates

By Rebecca Campbell | Feb 23, 2017

LOS ANGELES — The California Supreme Court has reversed trial- and appellate-court decisions to hold that state Insurance Commissioner Dave Jones had the authority to circulate California Code of Regulations.

In Assn. of Cal. Insurance Companies v. Jones, the court found that under title 10, section 2695.183, the insurance commission had the authority to set out specific requirements for estimating replacement costs as part of any application for or renewal of homeowners insurance.

After homeowners lost their homes in the Southern California wildfires of 2003, 2007 and 2008, the regulation was introduced in 2010, according to a report on

The Cedar Fire in 2003 caused 15 deaths and burned more than 280,000 acres of land in San Diego County during October and November. Driven by the Santa Ana winds, the blaze spread at a rate of 3,600 acres per hour in its initial 36 hours, according to a report by Lakeside Historical Society.

The year 2008 was considered one of the most devastating for wildfires in California. Even though 4,108 fires occurred, which is reported less than half the amount from 2009, the total area burned exceeded that from previous years, as a report from showed. And in 2007, there were more than 9,000 separate wildfires reported, as the National Interagency Fire Center stated.

However, the homeowners did not realize that they had less than enough insurance to cover the full cost of repairing or rebuilding their homes. This was down to the fact that the insurers’ estimates of replacement value were too low when they initially bought the insurance, according to JD Supra.

A lawsuit was filed by trade groups because the “Insurance Commissioner lacked the statutory authority to impose a single mandatory underwriting criteria for calculating replacement cost.”

Trial and appellate courts agreed, with the appeals court stating that while the commissioner could bring individual enforcement actions on a case-by-case basis, the rules that were applicable to all insurers was down to the Legislature.

However, the Supreme Court reversed the ruling.

To determine the law regarding the regulatory authority of executive agencies in California, the court looked at examples focusing on the Department of Motor Vehicles, the State Board of Accountancy and the Agricultural Labor Relations Board.

The authors of the JD Supra report stated that the Legislature’s grant of authority to “administer” the Unfair Insurance Practices Act included enforcement actions and rule-making.

“[W]here an agency has been granted both the power to adjudicate and to promulgate rules, we generally defer to the agency’s choice of how to proceed … We therefore defer to the commissioner’s decision to address the problem of underinsurance by rule-making,” according to the ruling as reported in the JD Supra article.

After finding that the insurance commissioner had the authority to make the rules, the Supreme Court then proceeded to determine if the regulation was consistent and not in conflict with the UIPA. However, the court rejected the notion that the replacement cost estimate is inaccurate, finding that it was not “misleading.”

The court then reversed the law saying that the commissioner “enacted the replacement cost regulation by exercising valid authority conferred under section 790.10 of the UIPA…section 790.10 explicitly vests in the commissioner authority to issue ‘reasonable rules and regulations’ to administer the UIPA. Which is what the commissioner sought to do here.”

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