California Insurance Commissioner Steve Poizner took the initiative in 2009 to compel insurance companies doing business in his state to limit their investments in companies that do business with the nuclear, energy and defense sectors of the Iranian economy. And as we reported here, by July of 2010 Mr. Poizner announced that insurers in California had sold about 20% of the assets the industry holds in the 50 companies that the California Department of Insurance had identified as doing business with Iran's prohibited sectors.

Upon petitions from the American Insurance Association and other trade associations, the Office of Administrative Law ("OAL") recently found that Poizner's regulation to limit the investment that insurers can make in the prohibited sectors was not adopted in accordance with formal procedures. According to a recent article in Business Insurance, the nonbinding ruling by the OAL agreed with a group of insurance organizations that Mr. Poizner's rule was a regulation that was subject to the state's Administrative Procedure Act, and that because the rule was a formal regulation, the Department should have gone through the formal rulemaking process. Business Insurance further reported that the California Department of Insurance spokesman's response to the OAL's ruling as follows: “We feel pretty confident that most policyholders aren't enthusiastic about continued investment in Iran's oppressive regime, and while the ruling…is disappointing, we certainly believe morally we took the appropriate steps in this matter.... We're still going to move forward with what we're trying to do. We'll just do it a different way.”

You can view the Business Insurance article here.