27 Cal. App. 5th 391
Cal. Ct. App. 5th2018Background
- The California Insurance Commissioner (Dave Jones) adopted 1992 Fair Claims Settlement Practices Regulations (Regs. 2695.1(a), 2695.2(l), 2695.2(y)) implementing Ins. Code § 790.03(h) and related penalty provisions.
- PacifiCare challenged those three regulations as facially inconsistent with § 790.03(h) and § 790.035 and moved for judgment on the pleadings; the trial court invalidated the regulations and issued a preliminary injunction.
- The regulations at issue: (1) Reg. 2695.1(a) treats an enumerated unfair claims settlement practice as violating § 790.03(h) when "knowingly committed on a single occasion" or "performed with such frequency as to indicate a general business practice"; (2) Reg. 2695.2(l) defines "knowingly committed" to include actual, implied, and constructive knowledge; (3) Reg. 2695.2(y) defines "willful/willfully" as simply a purpose or willingness to commit the act (no specific intent to break law or harm required).
- The Commissioner had previously found PacifiCare committed over 900,000 violations and imposed large penalties; PacifiCare's facial challenge sought to prevent using the regulations in that enforcement.
- The Court of Appeal reversed the injunction, upholding the three regulations as consistent with the UIPA and binding precedent.
Issues
| Issue | Plaintiff's Argument (PacifiCare) | Defendant's Argument (Commissioner) | Held |
|---|---|---|---|
| Whether § 790.03(h) reaches a single "knowing" act or only a pattern/general business practice | § 790.03(h) requires a pattern; it does not authorize liability or enforcement based on a single act | Royal Globe permits single-acting liability; statutes and legislative purpose support single-act enforcement | Court: § 790.03(h) covers either a single knowing act or repeated acts showing a general business practice; regulation consistent and valid |
| Validity of Reg. 2695.2(l) defining "knowingly committed" to include implied/constructive knowledge | "Knowingly" implies deliberate, subjective knowledge; including constructive/implied knowledge eliminates scienter | Corporate and agency knowledge doctrines permit imputed/constructive knowledge; rulemaking was deliberate and furthers enforcement goals | Court: Definition valid; agency rulemaking and corporate-knowledge principles justify inclusion of implied/constructive knowledge |
| Validity of Reg. 2695.2(y) defining "willful/willfully" as purpose/willingness without intent to violate law or injure | The regulation blurs statutory two-tier penalty distinctions in § 790.035 and conflicts with narrower statutory definitions requiring intent | The Penal Code definition reflects settled law; applied in context it preserves distinction between willful and non-willful violations | Court: Regulation valid; applied to § 790.03(h) it does not eliminate the statutory willful/nonwillful distinction |
| Standard of review and deference to Commissioner regulations | PacifiCare: these definitions are interpretive and deserve little deference; facial invalidation appropriate | Commissioner: broad statutory delegation (§ 790.10) and formal rulemaking warrant substantial deference; regulations are consistent and necessary | Court: affords substantial deference (including quasi-legislative aspects), presumes validity, and rejects facial challenge absent textual inconsistency |
Key Cases Cited
- Royal Globe Ins. Co. v. Superior Court, 23 Cal.3d 880 (recognizes § 790.03(h) can be violated by a single knowingly committed act)
- Moradi-Shalal v. Fireman's Fund Ins. Cos., 46 Cal.3d 287 (overruled Royal Globe only as to creation of a private cause of action; commentary on single-act liability is dicta)
- Zhang v. Superior Court, 57 Cal.4th 364 (clarifies Moradi-Shalal limited to private right of action; does not overrule Royal Globe on single-act point)
- Association of California Ins. Companies v. Jones, 2 Cal.5th 376 (discusses breadth of Commissioner's regulatory authority under § 790.10 and deference principles)
- Yamaha Corp. of America v. State Bd. of Equalization, 19 Cal.4th 1 (distinguishes quasi-legislative and interpretive rules and scope of judicial review)
- Trope v. Katz, 11 Cal.4th 274 (dicta vs. holdings—only points actually decided bind future courts)
- Kwan v. Mercedes-Benz of North America, Inc., 23 Cal.App.4th 174 (explains context-sensitive nature of "willful" and when Penal Code definition may be inadequate)
- Dyna-Med, Inc. v. Fair Employment and Housing Com., 43 Cal.3d 1379 (principles of statutory interpretation and avoiding surplusage)