OAL Rules in Favor of IBA West.

SACRAMENTO, Calif. -- On Monday, April 16, 2007, the California Office of Administrative Law (OAL) issued a 17-page determination that then-Insurance Commissioner John Garamendi acted illegally in attempting to designate a settlement agreement his attorneys had negotiated with American Reliable as a legally enforceable "precedent."

"This is a hugely important decision for all Californians because it reaffirms the very important principle that regulatory agencies must comply with the rule of law," said Steve Young, IBA West General Counsel. "They cannot circumvent the Legislature or ignore the due process protections that are at the essence of the state Administrative Procedures Act."

"As the OAL noted in its determination, if Garamendi's tactic had not been overruled, the APA would in practical effect have been completely nullified -- and the Commissioner could have exercised near dictatorial powers to create and enforce new regulatory requirements," added Young.

IBA West petitioned OAL in late September 2006 to issue a formal opinion against Garamendi's "misuse" of California Government Code Section 11425.60, which permits administrative agencies to designate certain decisions as "precedential" -- the consequence of which is that they are given the force of law without going through conventional legislative or rulemaking channels.

The OAL -- in concurring totally with the legal analysis and conclusions submitted on behalf of IBA West by Steve Hirsch, a partner in the San Francisco law firm of Keker & Van Nest agreed that Garamendi's action constituted an illegal "underground regulation" -- stated:

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The IBA West action came after CDI attempted to designate a highly controversial settlement agreement with American Reliable Insurance Company as a legal "precedent." The settlement agreement in question attempted to create new definitions of insurance "agents" and "brokers" that could have subjected virtually every broker in the state to potential "de facto agency" liability. CDI had alleged that American Reliable had violated California law by "permitting" particular retail broker-agents to charge brokers' fees. The allegation was based on the CDI's conclusion that the brokers in question were "de facto agents," or in other words, producers who were acting as brokers, but whose relationship with the insurer was tantamount, in CDI's view, to that of an appointed agency.

IBA West objected strongly to the contentions of the CDI in the settlement agreement, but the sole focus of the petition -- and the extent of the OAL's reviewing authority -- was the manner in which CDI attempted to give its contentions the force of law. The opinion issued by OAL does not challenge the underlying assertions of CDI -- but does in practical effect make it virtually impossible for CDI to use the agreement as an enforcement tool against any other insurance licensee.

IBA West is the leading producer association in the West for insurance brokers and agents. IBA West represents almost 900 regular members of independent agents and insurance broker firms in four Western states - California, Oregon, Washington and Alaska - who employ 14,500 insurance professionals. On average, each individual member firm of IBA West consists of 16 insurance professionals. In California, IBA West is affiliated with the Independent Insurance Agents and Brokers of America (IIABA).