California’s workers’ comp market reached yet another boiling point recently when the State Compensation Insurance Fund filed suit against Insurance Commissioner John Garamendi and the Department of Insurance (CDI) May 28, alleging the Commissioner has attempted to illegally usurp control over the Fund.
State Fund rejects Garamendi’s claim that the organization is subject to jurisdiction under Insurance Code §§ 739 et seq. (Risk-Based Capital for Insurers) due to it’s status as a “public enterprise fund.”
At press time, Garamendi had not yet responded to the lawsuit. Legally, he has 30 days to do so, which he told Insurance Journal, “we fully intend to use.”
In the meantime, Garamendi said he will continue to regulate State Fund as the law dictates.
In the official complaint for declaratory and injunctive relief, State Fund seeks judicial declaration that “the RBC Statutes do not apply to State Fund; that the Insurance Commissioner and the [CDI] do not control the operations and/or assets of the State Fund; that the Insurance Commissioner has exceeded his authority and restated the law by directing the State Fund to dismiss its legislative advocate; and the Insurance Commissioner has exceeded his authority and violated law by directing the State Fund not to write insurance for qualified employers within the State of California.”
Also, that, “the Insurance Commissioner has exceeded his authority and violated the law by directing the State Fund to take specific steps with respect to the means by which it seeks new business; that the Insurance Commissioner and the [CDI] have no authority or basis to seek title to the assets of the State Fund pursuant to Insurance Code §§ 1010 et seq.; and that he has unlawfully interfered with the management of the State Fund by its Board of Directors by, inter alia, demanding that the management of the State Fund be fired.
Following the public release of the suit, a slew of developments ensued. First was the public response from Garamendi and the CDI.
“It is very unfortunate that the State Compensation Insurance Fund has initiated a jurisdictional dispute with the California Department of Insurance,” Garamendi said in a press release. “The allegations raised by State Fund’s lawsuit are incorrect. Our actions in regard to the State Fund have been taken to ensure that it continues to have the ability to provide affordable and available workers’ compensation insurance to California employers.
Garamendi continued, “We have made every attempt to work cooperatively with State Fund to resolve the financial problems that threaten its viability. I believe that our actions have been consistent with applicable state laws.”
Steve Young, legal counsel for IBA West, reviewed the lawsuit and said that while State Fund has challenged whether it is subject to the RBC Statutes in the Insurance Code, a more significant question may be whether the financial triggers are present that would authorize the Insurance Commissioner to take the specific actions set forth in those statutes….
Editor’s Note: See the full story in the June 9 issue of Insurance Journal West.
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