AG vows to present the State’s case against the arbitrary, illegal imposition of conservatorship by the California Department of Insurance to block the Company’s move

Sacramento -- August 26, 2021 -- As California Insurance Company (CIC) continues its battle on several fronts against the arbitrary, illegal imposition of a conservatorship upon CIC by the California Department of Insurance (CDI) to stymie the very redomestication the CDI and other states approved, New Mexico Attorney General Hector Balderas has retained California legal counsel on behalf of the State of New Mexico and filed for leave to submit an amicus curiae brief in the Conservation proceedings in California state court to help to undo what lawmakers, industry leaders and regulators have characterized as an exotic misuse of a “conservatorship” by the CDI. The format is one that is imposed exclusively upon distressed carriers, in danger of insolvency, not companies like A+ rated CIC, known for its financial strength as repeatedly confirmed by the California Conservation and Liquidation Office.

Attorney General Balderas, who successfully petitioned to file amicus briefs earlier on behalf of CIC in related federal cases is now seeking to act in light of the problems caused for New Mexico’s regulators in the redomestication process now that the State of New Mexico has made demands of CIC that are part of its important protocols for insurers entering the state. Recognizing that the redomestication of CIC to New Mexico means jobs, consumer advantages and tax dollars for his state, Attorney General Balderas has acted to factor meaningfully in the case.

Meanwhile, the United States Court of Appeals for the Ninth Circuit will hear CIC’s appeal in its related federal cases on an expedited basis over the CDI’s objections following an earlier ruling on procedural grounds. In this case, CIC could gain its long-sought opportunity to argue against the violation of its constitutional rights prior to the state court hearing in the conservation case.

CIC’s Executive Vice President and General Counsel, Mr. Jeffrey Silver, Esq. stated: “As A-rated CIC has attempted to complete its redomestication to New Mexico, the CDI has used every means, illegal and otherwise, to block the move, even as recently as its objection to the expedited hearing in the United States Court of Appeals for the Ninth Circuit to further delay a hearing on the merits. We seek, after all of these processes, finally to discuss the actual merits before the court despite the CDI’s efforts to the contrary. We were subject to the conservatorship with no hearing or procedural opening to state our case. Together with the appeals in federal court, the actions of Attorney General Balderas reflect the sentiment and opinion of many observers, including the media, that CDI appears to be exercising a ‘vendetta’ against CIC, since New Mexico approved the move, as did the CDI, Iowa, Texas and other states. The CDI then suddenly changed its mind and reversed its decision arbitrarily. It then imposed an illegal conservatorship to block our Company at every turn. We trust that we will finally have the chance to present our case and we thank Attorney General Hector Balderas for taking an affirmative stance to help us secure justice. It is no small matter that Attorney General Balderas, after reviewing this matter, has sought to become involved.

Mr. Silver pointed to the unusual and seemingly punitive nature of the conservatorship. “When San Mateo Superior Court Judge George Miram, in November 2019, issued an order handing control of CIC over to CDI’s Conservation and Liquidation Office, the move was greeted with incredulity by regulators across the nation, who believe that an instrument, conservatorship, created for distressed, financially troubled companies that put policyholders at risk, was strangely misused by the CDI in its dealing with an A+ rated, financially strong and vital company,” he stated.

According to the documents filed by Attorney General Balderas, the CDI has answered only that it sought the conservation order because CIC, “attempted to merge its business with a New Mexico-based insurer without first securing the department’s prior approval.” CIC has argued that CDI officials were present at the administrative hearing in October 2019 in New Mexico and when given the opportunity did not object to the proposed merger. The carrier has also claimed that the CDI’s proposed rehabilitation plan should be considered arbitrary and punitive.

In his filing, Attorney General Balderas has observed that the conservation plan has effectively “forestalled the merger,” and has forced New Mexico officials to threaten regulatory action against the carrier, starting with a show-cause action against CIC, compelling the carrier to finalize its merger and prove it is legally allowed to do business in the state. That action prompted CIC to sue the CDI.

According to the filing, New Mexico’s Office of Superintendent of Insurance held a hearing in October 2019 to discuss the planned merger, which included state insurance officials from California, Iowa, and Texas. California officials did not object to the merger but nonetheless filed an ex-parte application asking that CIC be placed into conservation because the CDI, again, did not approve the merger. In addition, Attorney General Balderas holds that California officials’ “indefinite” conservation plan interferes harmfully with New Mexico’s ability to regulate its estates.

John Franchini, who served as New Mexico’s chief regulator for 16 years and who approved the CIC merger as Superintendent of Insurance, stated: “State insurance regulators are bound to protect the rights of both the policyholders and their insureds. This balance is critical to allow the risk-takers, i.e. insurance companies, to function openly and have faith that the written contract they have provided the public is being followed as the CDI agreed in the interpretation. This allows the policyholders to understand the contract and the risk-takers to pay claims based on written contracts. A balanced insurance market also fosters a predictable claims environment that is acceptable to both parties. The CDI has refused to allow this dependable process to function and has resorted to the Draconian doctrine of regulatory extortion. The CDI has attempted to place the California Insurance Company into a conservatorship, which is designed for financially at-risk companies that might not be able to pay their claims.”

Former Superintendent Franchini continued, “CIC is a successful, well-managed and profitable insurance enterprise. The imposition of conservatorship is intended for companies in danger of being unable to pay their claims. This is not the case with CIC. The negative impacts of this conservatorship would be to dismantle the robust insurance company and ensure its termination, ending hundreds of high-paying jobs, and forcing loyal insureds to lose insurance and attempt to find coverage elsewhere. The action taken by the CDI is an abomination of regulatory abuse that should not be permitted.”

According to Bill Hager, former Commissioner of Insurance of Iowa, the Order creating the Conservatorship holds that CIC did not obtain written approval by the CDI as to the New Mexico merger, but having read the transcript of the related New Mexico hearing he concluded: “It is straightforward. After approving the New Mexico merger, the CDI then did a 180-degree reversal of its representation at the New Mexico hearing and would not sign the merger document on behalf of the CDI. Given all of this, it is verging on wrongful that the CDI has placed CIC in Conservatorship.”

The matter is now proceeding forward in three court actions, two federal, one state.

For further information, contact press@auw.com.

About California Insurance Company (www.nacasualty.com)

California Insurance Company® (CIC) holds an AM Best Financial Strength Rating of ‘A’ (Excellent) and a Long-Term Issuer Credit Rating of ‘a’ (Excellent). The rating pertains to CIC and the seven insurance companies collectively referred to as North American Casualty Group (NAC). According to the ratings agency, “the ratings reflect NAC’s balance sheet strength, which AM Best assesses as very strong, as well as its strong operating performance, limited business profile and appropriate enterprise risk management.” The companies with the affirmed ratings are: California Insurance Company, Continental Indemnity Company, Illinois Insurance Company and Pennsylvania Insurance Company, domiciled in New Mexico; Texas Insurance Company, domiciled in Texas; Oklahoma Property and Casualty Insurance Company, domiciled in Oklahoma; and Florida Casualty Insurance Company, domiciled in Florida.

About Applied Underwriters (www.auw.com)

Applied Underwriters® is a global risk services firm that helps businesses and people manage uncertainty through its business services, insurance and reinsurance solutions. As a company, Applied Underwriters has been distinguished by its innovative approaches to client care and by its strong financial strength. Applied Underwriters operates widely throughout the US, UK, EU and Middle East. Its operational headquarters is located in Omaha, Nebraska.