An insurer's agreement with California's insurance commissioner to settle charges that the carrier collected excessive fees is being challenged by an agents group that says the settlement sets an illegal definition of agents and brokers.
The Insurance Brokers & Agents of the West said it has filed a petition with the California Office of Administrative Law asking the agency to declare that Commissioner John Garamendi acted illegally by attempting to create a precedent setting agreement with American Reliable.
IBA West said it asks the settlement be set aside. The association, in the petition, contends Mr. Garamendi violated state codes when he entered into a settlement with the insurer and put language into the settlement that makes it a precedent setting decision.
The group said it had laid out its case in a 107-page filing with supporting documents.
American Reliable was accused of collecting fees in excess of what was allowed and came to a settlement agreement with the state insurance department at the end of July.
According to IBA West, the commissioner's lawyers inserted in the settlement "a lengthy laundry list of factors" that, in their view, are sufficient to reclassify brokers as agents-in-fact of insurance companies.
There are factors in the settlement that "could subject virtually every insurance broker in California to unjustified liabilities," IBA West said.
"The American Reliable settlement agreement, in our view, grossly misstates the current law of California on important issues of agent vs. broker capacity," said IBA West General Counsel Steve Young in a statement. "However, the even greater concern was the [commissioner's] attempt to give these distorted opinions the force of law by wrongly attempting to designate them as a 'precedential decision.'"
The association argues that the commissioner did not fully follow the law and seek the necessary petitions and hearings before reaching the settlement.
For its part, the department defended its decision, saying it felt it is well within the law.
"The department believes its statements on the law expressed in the American Reliable decision are correct, and that it was well within the commissioner's discretion under the clear language of the government code to deem his decision in that case to be precedential," said Norman D. Williams, a department spokesman, in a statement sent by e-mail. "The department will continue to enforce the law as expressed in the American Reliable decision."
Mr. Garamendi is the Democratic candidate for lieutenant-governor running against Republican State Sen. Tom McClintock.
During his campaign for the nomination, Mr. Garamendi faced a last-minute campaign from insurance companies.
Mr. Garamendi charged that the insurers' efforts were meant to blackmail him into dropping proposed regulations that would limit their ability to factor in customers' geographic locations in setting their auto coverage rates.
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