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Association of California Ins. Companies v. Jones

California Court of Appeals, Second District, First Division

April 8, 2015

DAVE JONES, as Commissioner, etc., Defendant and Appellant.


APPEAL from a judgment of the Superior Court of Los Angeles County No. BC463124, Gregory Wilson Alarcon, Judge.

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Kamala D. Harris, Attorney General, Paul D. Gifford, Assistant Attorney General, W. Dean Freeman and Lisa W. Chao, Deputy Attorneys General, for Defendant and Appellant.

Amy Bach, Daniel Wade; Kerr & Wagstaffe and Ivo Michael Labar for United Policyholders, Scripps Ranch Civic Association and Rancho Bernardo Community Counsel as Amici Curiae on behalf of Defendant and Appellant.

Greenberg Traurig, Gene Gordon Livingston, Gregory Sperla and Stephen E. Paffrath for Plaintiffs and Respondents.



This appeal asks us to decide whether the Insurance Commissioner (Commissioner) had authority to promulgate California Code of Regulations, title 10, section 2695.183 (the Regulation) under the authority delegated to him by the Unfair Insurance Practices Act (UIPA), Insurance Code sections 790 through 790.15.[1] The trial court found that he did not. We agree and affirm.


The Regulation

The Regulation at issue here involves homeowners insurance, and specifically replacement coverage in the event of a covered event like a fire.[2] In

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general, there are three kinds of replacement cost coverage. Each requires an

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insurer to pay replacement costs up to a limit defined in the policy or up to a

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set amount above the policy limit.[3] If the cost of repairing or rebuilding a home damaged or destroyed by a covered event exceeds that limit, the homeowner has to pay the difference. Section 2051.5, subdivision (a) defines replacement cost, in pertinent part, as “the amount that it would cost the insured to repair, rebuild, or replace the thing lost or injured, without a deduction for physical depreciation, or the policy limit, whichever is less.”

The Regulation was promulgated in 2010 in response to complaints received from homeowners who lost their residences in the wildfires in Southern California in 2003, 2007, and 2008. These complaints arose when homeowners learned that they did not have enough insurance to cover the full cost of repairing or rebuilding their homes because when they bought their homeowners insurance, the estimates of replacement value were too low.[4]

The introductory sentence of the Regulation prohibits a “licensee” from “communicat[ing] an estimate of replacement cost to an applicant or insured

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in connection with an application for renewal of a homeowners’ insurance policy that provides coverage on a replacement cost basis” that does not satisfy the content and format provisions in the Regulation. Subdivision (a) of the Regulation states, among other requirements, that an estimate of replacement cost “shall include expenses that would reasonably be incurred to rebuild the insured structure(s) in its entirety” and requires in subdivision (a)(1) through (4) that the estimate include the cost of labor, building materials and supplies, overhead, profit, demolition, debris removal, permits, and architect’s plans, and in subdivision (a)(5) that the licensee “consider[]" 11 designated “components and features of the insured structure.”

The estimate must itemize “the projected cost” of each expense listed in subdivision (a)(1) through (4), and the assumptions as to the components listed in subdivision (a)(5). (Reg., subd. (g)(2).) A copy of the estimate and any update of the estimate “must” be given to the applicant. (Reg., subds. (g)(1), (h).) Subdivision (e) requires that “reasonable steps” be taken to “verify... sources and methods used to generate the estimate of replacement cost” “no less frequently than annually.” The Regulation also imposes recordkeeping obligations on the licensee. (Reg., subd. (i).)

Of particular significance to the issue before us is subdivision (j) of the Regulation. It provides that “communicat[ing] an estimate of replacement value not comporting with divisions (a) through (e)” to an applicant for homeowners insurance “provid[ing] coverage on a replacement cost basis, ” or any renewal thereof, “constitutes making a statement with respect to the business of insurance which is misleading and which by the exercise of reasonable care should be known to be misleading, pursuant to Insurance Code section 790.03.”

Representatives from plaintiffs, the Association of California Insurance Companies and the Personal Insurance Federation of California (Associations), submitted comments and testified in the May 17, 2010 “homeowners insurance hearing, ” which preceded promulgation of the Regulation. During that hearing, they stated that the Commissioner lacked authority to define new unfair business practices. They questioned whether the administrative record supported the Commissioner’s assertion that there was a high volume of homeowner complaints “specifically about the fact that that they were not provided certain information that they needed to make an informed decision about what insurance coverage limitation they have, ” or that the “underinsured problem” was caused by lack of knowledge. Among other comments, they decried the expense of compliance with the Regulation and predicted that the Regulation would discourage carriers from providing insurance.

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The declaratory relief proceedings

On June 8, 2011, the Associations filed a declaratory relief action. There, they sought a declaration that the Regulation was invalid because the Commissioner lacked authority to “regulate the underwriting of homeowner insurance”; section 790.03 did not authorize “the imposition of a single, detailed method for estimating the replacement cost of houses”; and the Regulation violated insurance companies’ free speech rights under the First Amendment of the United States Constitution.

After the Associations’ motion for judgment on the pleadings was denied, the parties agreed that the case could be tried based on the rulemaking file, written briefs, and oral argument without oral testimony. Trial and oral argument were held on February 4, 2013.

The Associations’ arguments

In their trial brief, the Associations argued that in response to comments at the administrative hearing about the Commissioner’s lack of authority to promulgate the Regulation, the Commissioner cited section 790.10, part of the UIPA and section 1749.85, but that neither provided any such authority. In essence, they argued that the Commissioner’s reliance on section 790.10 ignored the language and structure of the UIPA, which at trial they characterized as “unique, ” particularly its use of the terms “defined” and “determined.” Section 1749.85 merely authorized promulgating standards for calculating replacement cost estimates prepared by appraisers.

Section 790.10 provides: “The commissioner shall, from time to time as conditions warrant, after notice and public hearing, promulgate reasonable rules and regulations, and amendments and additions thereto, as are necessary to administer this article.” The Associations conceded that section 790.10 gave authority to the Commissioner to “administer” the UIPA, but argued that it did not give him authority to define unfair business practices.

More specifically, section 790, part of the UIPA provides: “The purpose of this article is to regulate trade practices in the business of insurance in accordance with the intent of Congress as expressed in the Act of Congress of March 9, 1945 (Public Law 15, Seventy-ninth Congress), by defining, or providing for the determination of, all such practices in this State which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined.” (Italics added.)

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The Associations argued that the Legislature defined “unfair and deceptive acts or practices in the business of insurance” in section 790.03, [5] which states

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that “[t]he following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance.” Included

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in the conduct and acts so defined is subdivision (b), which provides: “Making or disseminating or causing to be made or disseminated before the public in this state, in any newspaper or other publication, or any advertising device, or by public outcry or proclamation, or in any other manner or means whatsoever, any statement containing any assertion, representation, or statement with respect to the business of insurance or with respect to any person in the conduct of his or her insurance business, which is untrue, deceptive, or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue, deceptive, or misleading.”

Section 790.06, subdivision (a) states, in pertinent part: “Whenever the commissioner shall have reason to believe that any person engaged in the business of insurance is engaging in this state in any method of competition or in any act or practice in the conduct of the business that is not defined in Section 790.03, and that the method is unfair or that the act or practice is unfair or deceptive and that a proceeding by him or her in respect thereto would be in the interest of the public, he or she may issue and serve upon that person an order to show cause containing a statement of the methods, acts or practices alleged to be unfair or deceptive... for the purpose of determining whether the alleged methods, acts or practices or any of them should be declared to be unfair or deceptive within the meaning of this article.” (Italics added.)[6]

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The Associations argued that the Regulation rendered replacement cost estimates not in compliance with the Regulation’s content and format requirements “unfair and deceptive” notwithstanding that such conduct is not so “defined” in section 790.03 and that the Commissioner was required to, but

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did not follow the administrative and court procedures set forth in the UIPA in section 790.06 for “determining”whether that conduct should be declared “unfair and deceptive.”[7]

Furthermore, the Regulation renders as unfair and deceptive estimates that are accurate, but not in the format dictated by the Regulation. At the same time, the Regulation does not sanction an inaccurate estimate that complies with the format and content requirements of the Regulation. The Associations cited as an admission the Commissioner’s statement during an administrative hearing that “‘[t]he regulations do not require of replacement value estimates any particular degree of accuracy.’”

The Associations also argued that that the Regulation “Unlawfully Restrict[ed] Underwriting” because despite the exemption for “internal communications within an insurer” in subdivision (l) of the Regulation, in practice, “communications about insurer’s underwriting decisions do come to the attention of applicants and insureds, and particularly so with respect to adverse underwriting decisions.” Because “[t]he amount of homeowners’ insurance is an essential part of the underwriting decision, ” the Regulation “unlawfully restricted homeowner insurers[’] underwriting” and was therefore invalid.

Finally, the Associations argued that the Regulation was subject to the higher level of scrutiny imposed by Central Hudson Gas & Elec. v. Public Serv. Comm’n (1980) 447 U.S. 557 [65 L.Ed.2d 341, 100 S.Ct. 2343] (Central Hudson) on government regulation of commercial speech under the First Amendment, and that the Regulation did not pass constitutional muster under the criteria set forth in Central Hudson.

The Commissioner’s arguments

As discussed post, the Commissioner disavowed reliance on section 1749.85 as a source of authority to promulgate the Regulation except as to that portion of the Regulation regarding training of broker-agents. Instead, his authority to promulgate the Regulation was grounded in section 790.10, and the UIPA must be construed broadly “to promote public welfare.” The Commissioner cited Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805 [258 Cal.Rptr. 161, 771 P.2d 1247] (Calfarm) and Credit Ins. Gen. Agents Assn. v. Payne (1976) 16 Cal.3d 651 [128 Cal.Rptr. 881, 547 P.2d 993] (Payne) to support this proposition. Citing Batt v. City and County

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of San Francisco (2010) 184 Cal.App.4th 163 [109 Cal.Rptr.3d 129], the Commissioner argued that his powers include elaborating on the meaning of key legislative terms.

Indeed, that “the promulgation of a regulation that defines a specific type of misleading statement is within the agency’s rulemaking authority under a broad statutory prohibition against false and misleading statements” was recognized with respect to licensed automobile dealers in Ford Dealers Assn. v. Department of Motor Vehicles (1982) 32 Cal.3d 347 [185 Cal.Rptr. 453, 650 P.2d 328] (Ford Dealers). Similarly, the Commissioner has authority to promulgate a regulation prohibiting a specific type of misleading statement from being communicated to purchasers of homeowners insurance. Therefore, it was a non sequitur for the Associations to argue that, just because estimates of replacement costs were not specifically identified in section 790.03, the Commissioner exceeded his authority in regulating them.

The Commissioner also argued that section 790.06 was not a mechanism for adding new categories of unfair and deceptive insurance business practices. Instead, it is an enforcement tool to “enjoin a particular practice engaged by an individual insurer through procedures similar to an administrative disciplinary action.”

The Commissioner also faulted the Associations for taking the Commissioner’s statement regarding “accuracy” out of context because the statement was followed by a statement at the hearing that “all the regulations do [is] require that any estimate of replace[ment] cost be complete and must not ignore outright any of the basic cost components universally acknowledged to figure into replacement cost.” The Commissioner further argued that accuracy was not required because “the Commissioner does not expect insurers to guarantee replacement cost.”

The Regulation also does not regulate underwriting because it does not specify or otherwise dictate what risks insurance companies should underwrite and does not prevent an insurer from setting minimum or maximum amounts of coverage or any amount of coverage that is different from the estimate of replacement cost; in fact, subdivision (p) of the Regulation expressly so provides. Furthermore, the Regulation does not dictate how the estimate is to be calculated; instead it requires that it be complete, based on current data, and communicated to the consumer.

In response to the Associations’ free speech challenge to the Regulation, the Commissioner argued that restrictions on misleading commercial speech are evaluated under the “reasonably related” test in Zauderer v. Office of Disciplinary Counsel (1985) 471 U.S. 626 [85 L.Ed.2d 652, 105 S.Ct. 2265, 17 Ohio B. 315] (Zauderer)

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and not the intermediate scrutiny criteria set forth in Central Hudson, supra, 447 U.S. 557. Under either standard, however, he argued that the Regulation did not violate the Associations’ free speech rights.

In their reply, the Associations largely repeated arguments from their opening brief. They also gave illustrations of how the Regulation expanded the definition of unfair and deceptive practices in section 790.03, subdivision (b). They hypothesized an estimate from a reputable contractor in a single figure to replace a home, including every detail down to the bathroom floor finishing, that was true, but that would be rendered “misleading” under the Regulation because it failed to itemize its components. The same would be true for an oral estimate because the Regulation requires the estimate to be in writing. In the Associations’ own words, “Mandatory, specified communication is a far cry from prohibiting misleading statements.”

The trial court’s statement of decision

The trial court agreed with the Associations’ contention that the Commissioner did not have authority to promulgate the Regulation. The court reasoned that estimates of replacement costs, although “inherently inaccurate, ” are not misleading. By characterizing all estimates of replacements costs as misleading except ones that complied with the content and format requirements in the Regulation, the Commissioner “expands the meaning of something ‘known’ or which ‘should be known’ to be misleading beyond the parameters of §790.03(b).” The court concluded that section 790.03, subdivision (b) did not give the Commissioner authority “to penalize acts not known or [that] cannot be determined through reasonable care to be misleading.”

The trial court also dismissed the Commissioner’s legal authorities. Thus, the court concluded that Calfarm, supra, 48 Cal.3d 805, involved dicta regarding a void statutory scheme that required the “agency to fill in the blanks, ” and Payne, supra, 16 Cal.3d 651, expressly “caution[ed]” against issuing regulations that conflicted with the enabling statute. Because the Regulation renders conduct not described in section 790.03, subdivision (b) as misleading, the Commissioner was required to follow the procedures in section 790.06, which he had failed to do. Because the trial court found that the Regulation was unauthorized, it did not address the Associations’ other arguments.

The judgment declaring the Regulation invalid was entered on May 7, 2013. On May 9, 2013, the Commissioner filed a notice of appeal.

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Standard of review and the parties’ additional arguments on appeal

The parties do not contest that neither the trial court nor we are required to give deference to an administrative agency’s interpretation of the scope of its own authority.[8] (Western States Petroleum Assn. v. Board of Equalization (2013) 57 Cal.4th 401, 415 [159 Cal.Rptr.3d 702, 304 P.3d 188] ["when an implementing regulation is challenged on the ground that it is ‘in conflict with the statute’ [citation] or does not ‘lay within the lawmaking authority delegated by the Legislature’ [citation], the issue of statutory construction is a question of law on which a court exercises independent judgment”]; 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216, 271 [32 Cal.Rptr.2d 807, 878 P.2d 566] ["That is to say, whether Proposition 103 authorizes the Insurance Commissioner to adopt rate regulations to implement the initiative is indeed examined independently."]; Batt v. City and County of San Francisco, supra, 184 Cal.App.4th at p. 170 [“Such an inquiry obviously requires examination of the statute and the regulation(s), and that examination would be de novo because it entails what we have called, ‘the quintessential judicial function.’”].)

On appeal, the parties generally make the same arguments that they made before the trial court. We will not repeat those here. We summarize only the new matters.

Both the Commissioner and the amici curiae[9] contend that the trial court “conflated” the terms “accurate” and “misleading” because the focus of the Regulation is completeness and not exactness. The Regulation addresses the problem that arises when a replacement cost estimate does not include all reasonable components necessary to rebuild a home. If a consumer relies on such an estimate in selecting a policy limit, the consumer risks being underinsured. The fact that estimates are not always accurate does not negate the need for an insurer to communicate a complete estimate. Accordingly, the Commissioner argues that, just because an estimate is not always accurate, does not mean it cannot be misleading. In support of this position, he cites Ford Dealers, supra, 32 Cal.3d 347.

The Commissioner faulted the trial judge for making section 790.06 a substitute for rulemaking processes. Instead, section 790.06 is an enforcement tool against an individual insurer and not an across-the-board regulation of

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the insurance industry. The trial judge also ignored section 790.05.[10] Irrespective of the existence of the Regulation, section 790.05 sets forth the procedures before an administrative law judge for bringing a noncompliance proceeding against a licensee alleged to have engaged in an unfair and deceptive practice prohibited by section 790.03, including “misleading” statements under section 790.03, subdivision (b).

The Associations supported the trial court’s reasoning. They reiterated that the UIPA is unique, and for that reason Calfarm, Payne, and Ford Dealers are not instructive because they involved either a different kind of insurance, administrative proceeding, or statute.

In addition, the Associations argued the legislative history of section 790.10, when it was added in 1971 to the UIPA, indicates that the Legislature did not intend that section 790.10 be a vehicle for the Commissioner to regulate insurance practices under cover of disseminating misleading statements under section 790.03, subdivision (b). As originally drafted, section 790.10 would have used the word “implement, ” a broader grant of power according to the Associations; instead, the Legislature used the narrower term “administer, ” as the statute currently reads. (Stats. 1971, ch. 975,

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§ 1, p.1887.)[11] The Associations contend that this was confirmed when the Legislature amended section 790.06 in 2000 to “address[] the authority of the Insurance Commissioner when the Commissioner has reason to believe an unfair or deceptive practice has occurred that is not one specifically defined in Insurance Code Section 790.03” by requiring any order to show cause issued under section 790.06 to “contain a statement of the acts or practices alleged to be unfair or deceptive.” (Stats. 2000, ch. 280, § 1, p. 2475.)[12]

Read as a whole, the UIPA did not give the Commissioner authority to promulgate the Regulation

The Commissioner has only the authority conferred on him by the Legislature. (Payne, supra, 16 Cal.3d at p. 656 [“The commissioner, of course, has no power to vary or enlarge the terms of an enabling statute [citation], or to issue regulations which conflict with this or any other statute.”].) We deduce that authority from the language of the statute itself by applying familiar maxims of statutory construction.

In doing so, we give the language its plain meaning. (Day v. City of Fontana (2001) 25 Cal.4th 268, 272 [105 Cal.Rptr.2d 457, 19 P.3d 1196].) We credit all language in a statute lest we render portions of the statute surplusage. “Moreover, it is equally well settled that fundamental rules of statutory construction require ascertainment of the legislative intent ‘so as to effectuate the purpose of the law [and] “every statute should be construed with reference to the whole system of law of which it is a part so that all may be harmonized and have effect.” [Citation.] If possible, significance should be given to every word, phrase, sentence and part of an act in pursuance of the legislative purpose. [Citation.]’” (Kaiser Steel Corp. v. County of Solano (1979) 90 Cal.App.3d 662, 667 [153 Cal.Rptr. 546].) (3) To the extent a statute addresses one subject but not another, we assume that choice was deliberate under the principle of“[e]xpressio unius est exclusio alterius. The expression of some things in a statute necessarily means the exclusion of other things not expressed.” (Gikas v. Zolin (1993) 6 Cal.4th 841. 852 [25 Cal.Rptr.2d 500, 863 P.2d 745].)

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The Commissioner’s reliance on section 790.10 does not sufficiently credit other portions of the UIPA and is not consistent with the structure of the UIPA

The Commissioner is correct that the purpose of the UIPA is to regulate insurance practices “in the public interest. . . ." That is what section 790 does when it refers to “the Act of Congress of March 9, 1945.” That act (15 U.S.C. § 1011) states in pertinent part that “the continued regulation... by the several States of the business of insurance is in the public interest. . . ." To the extent the Commissioner cites Calfarm, supra, 48 Cal.3d 805, for the proposition that it may promulgate Regulations that serve the public interest, Calfarm does not illuminate what is already in the UIPA.[13]

The language of the UIPA reveals the Legislature’s intent to set forth in the statute what unfair or deceptive trade practices are prohibited, and not delegate that function to the Commissioner. Thus, section 790.02 states, “No person shall engage in this State in any trade practice which is defined in this article as, or determined pursuant to this article to be, an unfair method of competition or an unfair or deceptive act or practice in the business of insurance.” (Italics added.)

In section 790.03, the Legislature has defined “as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance” numerous acts or practices, including, among other acts or practices, making false statements “as to the dividends or share of surplus previously paid on similar policies” (subd. (a)); entering into a boycott (subd. (c)); making “any false statement of financial condition of an insurer with intent to deceive” (subd. (d)); “willfully omitting to make a true entry of any material fact pertaining to the business of the insurer in any book... of the insurer” (subd. (e)); unfairly discriminating “between individuals of the same class and equal expectation of life” in life insurance rates (subd. (f)(1)); representing that one is a member of the California Insurance Guarantee Association or insured against insolvency (subd. (g)); and “[k]nowingly” committing one or more of sixteen “unfair claims settlement practices” set forth in subdivision (h). These are in addition to section 790.03, subdivision (b), at issue here, as to disseminating a “statement... which is untrue, deceptive, or misleading, and which is known, or which by the exercise of reasonable care should be known, to be untrue, deceptive, or misleading.”

In addition, section 790.036, subdivision (a) provides that advertising insurance that the insurer does not sell is also “an unfair and deceptive act or

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practice.” There is no similar provision in the UIPA regarding the content and format of replacement costs estimates. This demonstrates that the Legislature was deliberate in choosing what conduct to brand in sections 790.03 and 790.036 as “unfair and deceptive.” Applying the legislative maxim of expressio unius est exclusio alterius, we can infer that the absence of a provision regarding replacement cost estimates was a deliberate choice. Thus, the Commissioner did not have authority to add content and format requirements for replacement cost estimates in homeowner insurance to the list of practices set forth in section 790.03 under the guise of deeming nonconforming estimates misleading under section 790.03, subdivision (b).

Our conclusion is bolstered by those provisions in the UIPA actually denominating the Commissioner’s powers. These focus on the Commissioner’s power (1) to enforce existing prohibitions in the UIPA (§§ 790.035, 790.04, 790.05, 790.07, [14] 790.08); (2) to bring enforcement proceedings against a person the Commissioner has “reason to believe” is engaging “in any method of competition or in any act or practice... not defined in Section 790.03... that... is unfair or deceptive” (§ 790.06); and (3) to “promulgate reasonable rules and regulations” to administer the act (§ 790.10). Read together, these provisions demonstrate that the Legislature did not give the Commissioner power to define by regulation acts or conduct not otherwise deemed unfair or deceptive in the statute.

Thus, section 790.04 gives the Commissioner “power to examine and investigate into the affairs of every person engaged in the business of insurance... in order to determine whether such person has been or is engaged in any unfair method of competition or in any unfair or deceptive act or practice prohibited by Section 790.03 or determined pursuant to this article to be an unfair method of competition or an unfair or deceptive practice in the business of insurance.” (Italics added.)

Section 790.05 sets forth an enforcement process when the Commissioner has “reason to believe that a person has been engaged... in any unfair method of competition or any unfair or deceptive act or practice defined in Section 790.03, and that a proceeding by the commissioner in respect thereto would be to the interest of the public.” That process includes an order to show cause hearing after the Commissioner has served that person with a statement of the charges and the person’s potential liability under section 790.035. The hearing is conducted under the auspices of the Administrative Procedure Act (APA) (Gov. Code, § 11340 et seq.), and any resulting order is reviewable by a court as provided by Insurance Code section 12940 or the

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APA. The Commissioner’s remedies include civil penalties as provided in section 790.035, subdivision (a), [15] and a cease and desist order.

The Commissioner’s argument that incomplete replacement cost estimates are within the ambit of “untrue, deceptive, or misleading” statements in section 790.03, subdivision (b) proves too much. If that were the case, there would be no need for the Regulation because, as the Commissioner points out, he would already have had the means in section 790.05 to assess penalties and issue a cease and desist order against a licensee the Commissioner believed had given a lowball or incomplete estimate in selling homeowner insurance.

The Commissioner’s reliance on section 790.10 also appears circular. As set forth in the preceding discussion, section 790.03 lists specific insurance industry conduct that the Legislature has deemed unfair and deceptive. Replacement cost estimates are not included in that list. The Commissioner argues that, because he believes replacement cost estimates not following the Regulation’s format and content rules are automatically “misleading” under section 790.03, subdivision (b), he has authority to regulate such estimates under his powers of administration in section 790.10.

This interpretation of the UIPA is not only circular, it also renders section 790.06 superfluous. Put differently, under the Commissioner’s interpretation of its authority under the UIPA, he would never have to resort to the procedures in section 790.06 regarding practices not “defined” in section 790.03 because the Commissioner could always argue that conduct not meeting standards in a regulation promulgated under the cover of the Commissioner’s power to administer under section 790.10 would be “misleading.” This is precisely what the Commissioner has done here.

Section 790.06 provides for more multifaceted procedural processes than required by section 790.05 before any conduct identified by the Commissioner not within 790.03 can be sanctioned. Thus, in addition to an order to show cause hearing under the APA, if the conduct is found to be “unfair or deceptive, ” the Commissioner is required to issue a written report “so declaring.” If the conduct has not been discontinued, the Commissioner

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may, through the Attorney General, petition the superior court to enjoin the conduct. Unlike a proceeding under section 790.05, the Commissioner cannot enjoin the purportedly unfair or deceptive conduct without a court order.

Under the heading of “Powers vested in commissioner, ” section 790.08 provides in pertinent part that “[t]he powers vested in the commissioner in this article shall be additional to” the penalties and other remedies “authorized by law with respect to the methods, acts and practices hereby declared to be unfair or deceptive.” (Italics added.) Thus, section 790.08 emphasizes that the enforcement role of the Commissioner is tethered to acts and practices “hereby declared to be unfair or deceptive, ” to wit, defined or determined in the UIPA.

The Commissioner places great reliance on Ford Dealers, supra, 32 Cal.3d 347, in arguing that omitting information can be misleading and the Commissioner has “discretion” to fill in the “details” as to what is misleading under section 790.03 even if the particular insurance act or practice is not listed in section 790.03. In Ford Dealers, the Supreme Court held that the director of the Department of Motor Vehicles (DMV) had the authority to promulgate a regulation requiring, among other things, licensed automobile dealers to disclose certain added-on delivery and preparation charges where the enabling statute, Vehicle Code section 11713, subdivision (a), made unlawful the dissemination of “any statement which is untrue or misleading and which is known, or which by the exercise of reasonable care should be known, to be untrue or misleading.”

Like 790.03, subdivision (b), at issue before us, Vehicle Code section 11713, subdivision (a) is followed by subdivisions identifying other prohibited practices. These include advertising using fonts and a format other than those specified in the statute (subd. (b)); failing to withdraw an advertisement for a vehicle within 48 hours after the vehicle has been sold (subd. (c)); not having the required bond (subd. (e)) and “established place of business” (subd. (f)); including licensing or transfer of title fees which are not due to the state (subd. (g)); and employing an unlicensed salesperson (subd. (h)). Vehicle Code section 11713, subdivision (a) also makes unlawful the dissemination of a misleading statement as “part of a plan... with the intent not to sell any vehicle or service so advertised at the price stated therein, or as so advertised.”[16]

In upholding the regulation, the Supreme Court reasoned that an “administrative agency is not limited to the exact provisions of a statute in adopting regulations to enforce its mandate, ” and the absence of any specific

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statutory provision regarding the subject of the regulation did not mean that the agency did not have authority to promulgate it. (Ford Dealers, supra, 32 Cal.3d at p. 362.) Notably absent from the statutory regime at issue in Ford Dealers were provisions distinguishing between procedures to be employed regarding acts or practices defined by the statute to be unfair and deceptive, and those acts or practices not so defined in the statute, but nonetheless believed by the administrative agency to be similarly unfair and deceptive.[17] We do not doubt that the Legislature could have delegated to the Commissioner the kind of broad authority conferred on the DMV in Ford Dealers; it did not do so in the UIPA.

Payne, supra, 16 Cal.3d 651, offers no more support for the Commissioner’s position. There, the Supreme Court upheld the Commissioner’s authority to limit the amount of compensation paid to agents in the sale of credit life and credit disability insurance. In Payne, the Supreme Court primarily addressed the necessity of the regulation-finding that the administrative record supported the Commissioner. As noted ante, the Associations have not attacked the Regulation on necessity grounds.

The Payne court observed that under statutes governing credit insurance, the Legislature evidenced its intent to “grant the commissioner broad discretion to determine what reasonable rules and regulations in the area of credit insurance are necessary to promote the public welfare.” (Payne, supra, 16 Cal.3d at p. 656.) The Commissioner had authority to promulgate the regulation because the credit insurance statutes gave the Commissioner power under section 779.21 to adopt regulations “‘as may be necessary to carry out the provisions of [the article relating to credit insurance], ’” and under section 779.9 to disapprove a credit insurance form if it contains provisions that are “‘unjust, unfair, inequitable, misleading, deceptive... or are contrary to any provision of the Insurance Code or of any rule or regulation promulgated thereunder.’” (Payne, at p. 656, italics added.)

Once again, these statutes governing credit insurance do not contain the same language or fit into the same statutory context as section 790.03 does in the UIPA. Accordingly, Payne is of limited value to the present analysis-to discern whether in giving the Commissioner power to administer the UIPA in section 790.10, the Legislature intended to give the Commissioner power to define content and format rules for replacement cost estimates and render

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them “misleading” under section 790.03, subdivision (b) just because the estimates did not follow those rules.[18]

The legislative evolution of the UIPA as well as other sections in the Insurance Code supports the conclusion that the Commissioner was without authority to promulgate the Regulation

The UIPA as originally enacted in 1959 (Stats. 1959, ch. 1737, § 1, p. 4187) did not include all the acts and practices currently deemed unfair and deceptive in section 790.03. It also did not include section 790.10. That section first appeared in the UIPA in 1971. (Stats. 1971, ch. 975, § 1, p. 1887.) When the Legislature was considering Assembly Bill No. 1353 (1971 Reg. Sess.), which proposed to add section 790.10, the Assembly Committee on Finance and Insurance’s summary included the following statement: “This bill gives the Insurance Commissioner the authority to promulgate rules and regulations so that if the need therefor arises, he can, without delay, promulgate necessary rules making such practices definite and specific for the benefit of the public without having to wait for the Legislature to act at a later date.” (Assem. Com. on Finance and Insurance, summary of Assem. Bill No. 1353 (1971 Reg. Sess.) p. 1.)[19]

On initial review, this statement of legislative purpose would support the Commissioner’s interpretation of his authority to promulgate the Regulation defining noncomplying replacement cost estimates as “misleading” statements under section 790.03. However, the Legislature’s subsequent additions to section 790.03 are not consistent with this view.

We observe that section 790.03, subdivision (h), regarding unfair claims settlement practices, was added to the UIPA in 1972. (Stats. 1972, ch. 725, § 1, p. 1314.) Section 790.03, subdivision (h) covers categories of claims settlement practices that could have been regulated under the Commissioner’s interpretation of his authority under sections 790.03 and 790.10 without amending the statute. Consider section 790.03, subdivision (h)(1), regarding “[m]isrepresenting to claimants pertinent facts or insurance policy provisions relating to any coverages at issue, ” as one such example.

Similarly, in 1975, the Legislature added definitions (14) and (15) to subdivision (h) of section 790.03, respectively regarding “advising a claimant

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not to obtain the services of an attorney” and “[m]isleading a claimant as to the applicable statute of limitations.” (Stats. 1975, ch. 790, § 1, p. 1812.) Under the Commissioner’s view of his authority, the Commissioner could have defined these practices in a regulation and then denominated them as misleading under section 790.03, subdivision (b) without waiting for enabling legislation.

Indeed, in response to complaints about underinsurance regarding the same wildfires that ultimately led to promulgation of the Regulation, the Legislature in 2005 amended section 2051.5 (Stats. 2005, ch. 447, § 3, p. 3608) and added section 1749.85 (Stats. 2005, ch. 447, § 2, p. 3608).[20] As noted earlier, section 2051.5, subdivision (a) defines replacement cost. The 2005 amendments to subdivision (b)(2) of section 2051.5 expanded alternative living expense payments in the event of a state of emergency. Section 1749.85, subdivision (a) tasked the curriculum committee to make recommendations on training broker-agents on “proper methods of estimating the replacement value of structures, and of explaining the various levels of coverage under a homeowners’ insurance policy.”

We observe that section 1749.85, subdivision (c) states that nothing in “[t]his section” shall be construed to prevent “licensed appraisers, contractors and architects from estimating replacement value of a structure, ” but that if they do, subdivision (d) authorizes the Department of Insurance to adopt a regulation “establish[ing] standards for the calculation” of such estimates. Not even the Commissioner argues that section 1749.85, subdivision (d) authorized the Commissioner to promulgate the Regulation, but at trial the Commissioner asserted that the latter statute supported subdivision (k) of the Regulation regarding, among other things, training of broker-agents. Although neither section 2051.5 nor 1749.85 is part of the UIPA, the Legislature could have acted at the time of these 2005 amendments to legislate the form and content of replacement cost estimates, given consumer complaints about underinsurance, of which the Legislature was well aware, but it did not do so.

Similarly, section 10101, which was added to the Insurance Code in 1992, requires residential property insurers to provide written disclosures in the format specified in section 10102. (Stats. 1992, ch. 1089, § 1, p. 5031.) Section 10102, subdivision (a), which was added to the Insurance Code in 2010-the same year in which the Regulation was promulgated-sets forth the content of the required disclosure, including informing the consumer that the coverage “‘should be high enough so you can rebuild your home, ’” itemizing the kind of rebuilding costs a consumer should anticipate, and warning the

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consumer to obtain insurance in a sufficient amount to cover those costs. (Stats. 2010, ch. 589, § 2.) Section 10103, subdivision (a)(2) further provides that no residential property insurance “may be issued or renewed” unless it recites “‘[t]he limit of liability for this structure (Coverage A) is based on an estimate of the cost to rebuild your home, including an approximate cost for labor and materials in your area, and specific information that you have provided about your home.’” (Stats. 2006, ch. 137, § 2, p. 1779.)

The Legislature could have gone on to define the content and format of replacement cost estimates. It could have added incomplete replacement cost estimates to the list of unfair and deceptive practices in the UIPA. We infer that these omissions were deliberate, and that under the guise of “filling in the details, ” the Commissioner therefore could not do what the Legislature has chosen not to do.

By our opinion today, we are not suggesting that the Legislature could not regulate the form and content of replacement cost estimates if it chooses to do so. We are also not suggesting that the Commissioner could not use the administrative and court processes in section 790.06 to seek a determination that replacement cost estimates not including certain information are unfair and deceptive. Nor are we limiting the Commissioner’s authority under section 790.05 to bring an enforcement action against a licensee who has lowballed or otherwise given an incomplete replacement cost estimate. Our ruling today is limited to one conclusion-that the UIPA has not as of yet given the Commissioner authority to regulate the content and format of replacement cost estimates. Because we conclude that the Commissioner did not have the authority to promulgate the Regulation, we do not reach the Associations’ other arguments.


The judgment is affirmed.

Chaney, Acting P. J., and Johnson, J., concurred.

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