A California appellate court has ruled in favor of the California Department of Insurance (CDI) in a six-year legal dispute with California Insurance Company (CIC), affirming the state regulator’s authority to place insurers into conservation.
The decision seems to reinforce the position that the Insurance Commissioner has broad discretion under state law to act against insurance companies for alleged violations, regardless of financial condition.
The dispute stems from the CDI’s 2019 decision to place CIC into conservation. At the time, CIC maintained an A+ financial strength rating and reported strong capital reserves. The company contended that the action was not based on financial instability but rather aimed at preventing its redomestication to another state. CIC has consistently argued that the regulator’s intervention was unwarranted and unlawful.
According to court filings, the CDI maintained that its authority allows it to take action if it believes an insurer has violated the Insurance Code, without needing to demonstrate financial distress. The appellate court upheld that interpretation, expanding on prior precedent and reinforcing the regulator’s discretion.
CIC officials disputed the ruling, calling it an overreach of regulatory authority. In a statement, CIC executive vice president and general counsel Jeffrey Silver outlined the company’s timeline of events. He claimed CIC was granted approval to redomesticate during a public hearing in October 2019 and that no objections were raised by the CDI at the time. Two weeks later, the company said it agreed to pause its filing at the CDI’s request. On Nov. 4, 2019, the CDI obtained a conservation order through an ex parte proceeding, which CIC said was conducted without prior notice or the company’s participation.
“We were deceived. Had we just filed that one piece of paper with the Secretary of State, we could have avoided this entire mess,” Silver said. He also stated that CIC remained well-capitalized, maintained fast claims processing, and received minimal policyholder complaints.
CIC chairman and founder Steve Menzies said the company has since transferred most of its operations to affiliated carriers outside California. He noted that only CIC was domiciled in the state and that the group continues to expand in other markets, including the US and the European Union.
Menzies characterized the decision as part of a broader trend that, in his view, has made California a more difficult environment for insurers. He pointed to the departure or reduced presence of several national insurers from the state and cited data showing that nearly 90% of California’s property and casualty premiums are now underwritten by non-domestic companies.
CIC maintained that the conservation plan is not financially material to the company or its parent group, but said the regulatory action has imposed administrative and operational burdens. The company indicated it is reviewing its options in light of the court’s decision and continues to advocate for what it describes as a fair and lawful resolution.
The CDI has not issued a public statement responding to CIC’s characterizations of the case. The appellate court’s ruling stands as a validation of the department’s legal authority, though the broader implications for regulatory oversight and insurer operations in the state remain a subject of industry attention.
