A California administrator has ruled that a change in thedefinition of an insurance broker instituted by the formerinsurance commissioner is illegal.

California's Office of Administrative Law ruled Monday thatformer Insurance Commissioner John Garamendi's attempt to use asettlement as a precedent-setting rule was illegal and violated thestate's statutes on creating such rules.

In October of last year, the Insurance Brokers & Agents ofthe West filed a petition with the OAL objecting to Mr. Garamendi'sattempts to use a settlement reached with American Reliable as aprecedent-setting agreement.

Under the agreement brokers were redefined as agents and thecommissioner used the agreement to change the definition of brokersto agent-in-fact.

In the OAL's 17-page opinion, it did not rule on the merits ofthe American Reliable agreement, but did find that defining theagreement as precedent-setting violated the state's laws on thisissue.

In a statement, Steve Young, IBA West General Counsel, said:“This is a hugely important decision for all Californians becauseit reaffirms the very important principle that regulatory agenciesmust comply with the rule of law. They cannot circumvent thelegislature or ignore the due process protections that are theessence of the state Administrative Procedures Act.”

He added that if the OAL had ruled in favor of the department,then the “commissioner could have exercised near dictatorial powersto create and enforce new regulatory requirements.”

Byron Tucker, deputy commissioner of communications forInsurance Commissioner Steve Poizner said the department iscurrently evaluating the OAL's decision before deciding if it willappeal the ruling or initiate a formal rule making process.

He pointed out that the OAL's decision in no way addressed “theunderwriting correctness of the department to distinguish betweenan agent and broker.”

Mr. Tucker declined to say when the department would make adecision, but noted that an appeal would have to be filed within 30days, but the rule making process could take up to a year ormore.

(This story was updated at 5:11 p.m. today.)