Calif. Agents Oppose Expanded Commissioner Control over Licensing

November 21, 2006

Insurance Brokers and Agents of the West (IBA West) has testified in opposition to new proposed regulations that would expand the California Insurance Commissioner’s authority to deny, suspend or revoke broker-agent license applications.

Current provisions in the California Insurance Code give the Commissioner discretion to reject new or renewal applications for licensure, and suspend or revoke existing licenses, upon conviction of felonies or certain misdemeanors, or upon specified other findings. According to IBA West, the proposed regulations would expand the list of misdemeanors that would trigger the Commissioner’s discretion to reject new applications or revoke or suspend renewal applications or existing licenses.

IBA West General Counsel Steve Young said the Association supports efforts to rid the industry of “bad actors,” but testified that the proposed regulations exceeded the permissible boundaries of state law because only the Legislature could increase the list of factors disqualifying persons from holding insurance licenses.

“We appreciate and support the desire of the Insurance Commissioner to maximize consumer protection by ensuring that “bad actors” not be licensed, or remain licensed (as the case may be) to transact insurance in this state,” Young testified. “However, the Commissioner does not have the legal authority to create, on his own, barriers to licensure that are in addition to or different from the detailed criteria already established by the California Legislature ….”

The California Insurance Code contains statutory qualifications for licensure in Sections 1666-1673. Young said the Commissioner has no lawful authority to add to, subtract from, or otherwise modify those criteria.

“No matter how well-intentioned the proposed regulations might be, fact is that the proposed new “guidelines” are either in addition to, or inconsistent with, the criteria set forth in existing statutory law,” Young said.

Young cited the Insurance Code in Sections 1668(m)(2) and (3) that applications for licensure may be denied if the applicant has been convicted of a misdemeanor “(2) …denounced by this code or two other laws regulating insurance; or (3) A public offense having as one of its necessary elements a fraudulent act or an act of dishonesty in acceptance, custody or payment of money or property.” The proposed regulations, however, would prohibit from licensure any person who has not only committed, but even attempted to commit, any misdemeanor that could be said to fall within 10 separate categories:

• Any misdemeanor “which evidences present or potential unfitness to perform the functions authorized the license in the manner consistent with the public health, safety, and welfare,” even if it is not specifically enumerated in the proposed regulations (§2183.2(b));
• Any misdemeanor involving dishonesty or fraud (§2183.2(b)(1));
• Any misdemeanor conviction “arising out of acts performed in the business of insurance or any other licensed business or profession” (§2183.2(b)(2));
• Any misdemeanor involving theft (§2183.2(b)(3));
• Any misdemeanor involving “[s]exually related conduct affecting a person who is an observer or non-consenting participant in the conduct or convictions, or which requires registration …” (§2183.2(b)(4));
• Any misdemeanor that includes “[r]esisting, delaying, or obstructing a public officer …” (§2183.2(b)(5))
• Any misdemeanor involving any “act or offense where the person willfully causes injury to the person or property of another” (§2183.2(b)(6));
• Any misdemeanor involving “[v]iolation of a relation of trust or confidence, or a breach of fiduciary duty” (§2183.2(b)(7));
• Any misdemeanor involving unspecified “[c]onduct which demonstrates a pattern of repeated and willful disregard of law” (§2183.2(b)(8)); and
• Any misdemeanor which involves “[a]ny act which demonstrates a willful attempt to derive a personal financial benefit through the nonpayment or underpayment of taxes, assessments, or levies duly imposed upon the licensee or applicant by federal, state or local government or a willful failure to comply with a court order.” (§2183.2(b)(9)).

“The job of the Commissioner … is to interpret and enforce existing laws, not to create wholly new laws,” Young testified. “What the Commissioner cannot do is what he is doing here; namely, attempting to usurp the powers of the California Legislature to enact sweeping new rules of general application that are inconsistent with the express, applicable provisions of the Insurance Code.” Young said IBA West also opposed the regulations because they would apply to all current licensees, rather than applying only prospectively to future license applications. Because several of the criteria in the Commissioner’s regulations are poorly defined, it is impossible to ascertain precisely what offenses would and would not be affected by the new rules, he said.

IBA West is affiliated In California with the Independent Insurance Agents and Brokers of America (IIABA). Young gave his testimony at a hearing on Nov. 9.

Source: IBA West

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