Poizner Sues OAL for Determining Iran-Investment Rule Is ‘Underground Regulation’

Insurance Commissioner Steve Poizner is suing the state Office of Administrative Law over the agency’s determination last month that the commissioner’s attempt to prevent California-licensed insurers from investing in companies doing business in Iran amounted to an “underground regulation.” The OAL, acting on a petition by several insurer trade organizations, found Poizner violated the state’s Administrative Procedures Act by not holding a hearing on or soliciting industry input before implementing the regulation.

The commissioner’s lawsuit, filed in Los Angeles County Superior Court, “contests the OAL’s analysis of this procedural issue and seeks to clarify his authority to address the critical issue of insurer support of the Iranian terror regime and the solvency of insurer investment portfolios,” according to a statement issued by the California Department of Insurance. Attorney General and Gov.-elect Jerry Brown is representing Poizner in the litigation.

In a statement issued last week the carrier trade groups indicated they dispute how the regulation was adopted, not necessarily its intent. “Our associations do not support or defend any insurer that makes investments that violate state or federal law, which prohibit investments in Iran and other terrorist regimes,” according to the statement. Trade groups that sought the OAL’s ruling included the American Insurance Association, Association of California Insurance Companies and Personal Insurance Federation of California.

In implementing the regulation the CDI identified 50 foreign companies with ties to Iran’s defense, nuclear and energy sectors and then prohibited insurers in the state from including on their financial statements investments in these firms. Of the 1,300 carriers licensed in California, about 340 have aggregate holdings in the companies of approximately $6 billion, according to the department.



Investments in the companies by California-licensed insurers last year totaled nearly $1 billion. But in this year’s second quarter, the first quarter the regulation was in effect, new investments in the companies by insurers in the state amounted to only $32 million, the CDI reported.