The Commissioner is an Executive in A Judicial Capacity

By: J Dale Debber
Dale Debber
J Dale Debber

The ongoing controversy surrounding California Insurance Commissioner Ricardo Lara raises many troubling issues. As more facts come to light, however, we must distinguish between questions that demand answers from the Commissioner and questions that demand action by policymakers.

As to the former, we know that the Commissioner’s reelection campaign committee received contributions from people with ties to the insurance industry. We understand that some of these individuals had links to Applied Underwriters, who has several disputes currently being adjudicated by administrative law judges (ALJs) within the California Department of Insurance.

We know that these contributions were received in proximity to ALJ decisions being modified by the Commissioner in favor of Applied.  We see the same pattern of conduct – money from the wives of insurance executives – in the case of the pet insurance rate increase. We are witnessing very highly disturbing behavior in the matter of behested contributions.

More revelations are sure to follow.

But let’s focus on the implications of the legal cases.  In such cases, the Commissioner hears appeals from policyholders who request an insurance company take specific action in regard to the application of that insurer’s rate filings, to their policy of insurance, and the carrier denies the request. The most common of these complaints deal with classification issues.

The issues concerning Applied Underwriters’ Equity Comp Program are far more complicated. The point, however, is that in hearing these appeals there is a Department Administrative Law Judge appointed by the Commissioner to preside over the proceedings. After hearing the evidence, the ALJ prepares and delivers to the Commissioner a proposed decision in a form that may be adopted as the decision in the case.

The Commissioner, in other words, is functioning as a judge.

The Commissioner, in other words, is functioning as a judge.

We are therefore led to questions that demand answers from policymakers, and more specifically, the Legislature. Superior Court judges run for election. To address the issue of bias, either real or perceived, the Legislature has adopted a number of laws requiring recusal of a judge.

Specifically, the Code of Civil Procedure requires in Section 170.1(a)(9) disqualification by a judge in a pending matter if the judge has received a contribution in excess of one thousand five hundred dollars ($1500) from a party or lawyer in the proceeding, and the contribution was received in support of the judge’s last election, if the last election was within the last six years, or the contribution was received in anticipation of an upcoming election

California law goes even further. The California Code of Judicial Ethics, Canon 3E, states:

“In any matter before a judge who is or was a candidate for judicial office in a trial court election, the judge shall disclose any contribution or loan of $100 or more from a party, individual lawyer, or law office or firm in that matter as required by this canon, even if the amount of the contribution or loan would not require disqualification.

Such disclosure shall consist of the name of the contributor or lender, the amount of each contribution or loan, the cumulative amount of the contributor’s contributions or lender’s loans, and the date of each contribution or loan. The judge shall make reasonable efforts to obtain current information regarding contributions or loans received by his or her campaign and shall disclose the required information on the record.”

The Insurance Commissioner is an elected official who holds statewide office. The law, so far, does not require of the Commissioner the rejection of contributions from the insurance industry. The Legislature should not go down that path. We have transparency, as the current crisis with Commissioner Lara demonstrates. That is good enough for candidates for the office just as is the case for Superior Court judges.

However, a review of past races for Commissioner shows a wide range of contributions from those who have business with the Department – law firms, in particular, come to mind, so do accounting and investment firms.

When these contributors ask the Commissioner to adjudicate an issue, or are respondents in an appeal from a policyholder, there must be a process for disclosure and recusal, again just as there is for Superior Court judges.

The Legislature returns from summer recess on August 12th. There are bills still alive in the process that can be amended to address this issue. This opportunity should not be lost. Nothing less than the integrity of the Department of Insurance is at stake.

Applied Underwriters was once but is no longer an affiliate of Berkshire Hathaway. Applied’s management bought it. Berkshire Hathaway bears no responsibility for any of the events which have transpired involving Applied Underwriters’ or its subsidiaries including California Insurance Company.