Dave Jones identifies himself to voters as an activist Insurance Commissioner who champions the insurance consumers’ rights. This is the guy who took on the insurance industry practice of side arbitration agreements in workers compensation policies (which avoided scrutiny of those arbitration agreements in the actual policy forms submitted for approval). While Dave Jones did an excellent job attacking the use of side agreements to force arbitration of workers compensation insurance disputes, his office recently resisted paying attention to disability policy forms containing disability definitions allegedly well outside of the common law. Now that the Court of Appeal has allowed a Mandamus action to proceed, the Commissioner should embrace the opportunity to impose fairness in policy language. Perhaps the legislature can expand the review structure as well to balance the playing field for consumers.
In Ellena v. Department of Insurance, a disability insured sued the Department of Insurance (“DOI”) in a mandamus action seeking to force the DOI to consider revoking approval of the Standard Insurance Company group disability policy forms because they contain disability definitions at variance with the law, making it easier for Standard to deny her claim. (She sued the insurer as well, for breach of its policy obligations; but that part of the case was not before the Court of Appeal.) She alleged two alternative theories: 1) The DOI failed to actually review the policy terms before approving them to determine if they complied with the law, and 2) If the DOI did review the policy terms, which are at variance with the law, approving them constituted an abuse of discretion.
Remarkably, the DOI resisted her claims by arguing 1) that it has no duty to actually read the policy forms submitted for approval, and 2) even if it did so and decided to withdraw approval, any revocation of approval would be prospective and have no effect on the insured’s claims, so that her action is really moot. The trial court found these arguments persuasive and sustained the DOI’s demurrer and this appeal followed.
The official position of the DOI was stated in the Appellate Opinion issued on October 1, 2014 (Ellena v. Department of Insurance, 2014 Cal. App. LEXIS 883) as “The California Insurance Code and administrative regulations impose a duty on insurers to submit disability insurance policy forms to the commissioner, but do not impose a mandatory duty on the commissioner to review or approve the forms.” Fortunately the Appellate Court noted that this is a matter of great public interest and the question posed in the appeal is critical to “determining the proper oversight role of the commissioner and to deciding whether the DOI’s interpretation of the Insurance Code contravenes the express purpose (of the code)… to prevent fraud and unfair trade practices and to insure that the language of all insurance policies can be readily understood and interpreted.” (emphasis added).
The Appellate Court reversed the dismissal by independently examining the plain language of the Insurance Code provisions at §§ 12926, 12921(a) and 10291.5. These are the statutes providing that the Insurance Commissioner “shall require from every Insurer a full compliance with all the provisions of this code; …the commissioner shall perform all duties imposed upon him by the provisions of this code and other laws regulating the business of insurance…and shall enforce execution of those provisions and laws.” The Court directed the Commissioner to carry out the review and approval process for the provisions in question, even long after the policy had issued.
Despite the DOI’s lengthy contentions that it had no mandatory duty to actually review policies before approving them, common sense prevailed. Thus the plaintiff was entitled to seek mandamus to force the Commissioner to review the policy to determine if it complies with applicable law. Commissioner Dave Jones should embrace this opportunity to do so without delay.
After all, the Appellate Court entered a ruling that “…the Insurance Code requires that the commissioner review a disability policy form prior to approving the policy.” There is nothing stopping our Commissioner from aggressively pursuing this opportunity to establish himself as real force for change to impose the rule of law on those insurers who seek to use ambiguous policy language to circumvent long held standards. And our Legislature should take this decision as a sign that it should identify other common types of insurance policy clauses that warrant review and approval by the Commissioner.