ASSOCIATION OF CALIFORNIA INSURANCE COMPANIES v. JONES (To be called and continued to the November 2016 calendar.)Appellant’s Reply Brief on the MeritsCal.March 14, 2016Jn the Supreme Court of the State of Caltfornta ASSOCIATION OF CALIFORNIA INSURANCE COMPANIESand | PERSONAL INSURANCE FEDERATION OF CALIFORNIA, Case No. 8226529 Plaintiffs and Respondents, SUPREME COURT v FILED DAVE JONES,in his capacity as the Commissioner of the California MAR 14 2016 Departmentof Insurance, Defendant and Appellant. Frank A. McGuire Clerk Deputy Court of Appeal, Second Appellate District, Case No. B248622 Los Angeles County Superior Court, Case No. BC463124 The Honorable Gregory W. Alarcon, Judge REPLY BRIEF ON THE MERITS KAMALAD. HARRIS STEPHEN LEW Attorney General of California Supervising Deputy Attorney General EDWARD C. DUMONT * LisA W. CHAO Solicitor General Deputy Attorney General DIANES. SHAW State Bar No. 198536 Senior Assistant Attorney General 300 South Spring Street, Suite 1702 JANILL L. RICHARDS Los Angeles, CA 90013 Principal Deputy Solicitor General (213) 897-2481 LINDA BERG GANDARA Lisa.Chao@do}].ca.gov Deputy Solicitor General Attorneysfor Defendant and Appellant Dave Jones, in his capacity as the Insurance Commissionerofthe State of California p e e ag es TABLE OF CONTENTS Page Introduction and Summary of Argument 00...ceeeceeseteeseoeseseeeseeeseeaeeaeens 1 ATQUMENiecccecteeccseereeneeenecneeeeeennseeeeeeeaeeseeseesresseeesssesseeesereensesseeseeraeen 2 I. Section 790.10 Grants the Commissioner Broad Authority to Clarify and Fill in the Details of Prohibited Acts Defined by the Legislature in Section 790.03 ....escsececseeeteesseeeenersneseeneeesesassneeessieseseeneenenenteneneenseeeeseeses 2 A. Under this Court’s Precedents, Including Ford Dealers, the Commissioner’s Reasonable View of His Rulemaking Authority Is Entitled to RESPOCE a... ee eeesseceeesseceecsserteecseceesssnessneeeseesaressseesseeeeees 5 B. Ford Dealers and Moore Support the View that the Commissioner Has Authority to Fill in the Details of What Constitutes an Untrue, Deceptive, or Misleading Public Statement................ 9 C. That the Unfair Insurance Practices Act in Some Respects Might Be “Self-Executing”is Irrelevant to the Question of the Scope ofthe Commissioner’s Rulemaking Authority ......00..0...... 13 D. Respondents’ Attempts to Counter the Clear Legislative History Supporting the Commissioner’s Rulemaking Authority Are Without Merit ......cee eeeeseeeeeeeeeesseeeeeesseerseeensaeeees 13 E. The Legislature’s Subsequent Actions Confirm That the Commissioner Has Broad Authority to Fill in the Regulatory Details...eeeseeseeseeeeees 15 Il. The Commissioner Acted Within His Authority in Determining That Replacement Cost Estimates That Are Incomplete, or That Do Not Reflect Actual and Current Costs to Rebuild, Are Misleading... 18 A. The replacement cost regulation requires merely that estimates match consumerexpectations............ 19 B. The Court should reject respondents’ belated attempt to argue that there was no serious underinsurance problem necessitating the TEQUIALION 0.0... ceccesessesssscseeesesscesecseecesecsesseecsessasecees 21 III. | Respondents’ Free Speech Argument Is Not Properly Before This Court and Lacks Merit .........ccccccescsseeseeesseeees 22 Conclusion...recsesesesesesesesesesesesesseaeesess seveseesesesessesesesseesesnsseeseees 23 il TABLE OF AUTHORITIES Page CASES Agricultural Labor Relations Bd. v. Superior Court (1976) 16 Cal.3d 392oicceecsecessesstssssesecsessesseesseeccsseaseesseesesseseseess 10 American Coatings Assn., Inc. v. South Coast Air Quality Dist. (2012) 54 Cal4th 446oecccccecseceeescsecseseesssseessecesssessessessssesseesssseesees 7 American Nurses Assn. v. Torlakson (2013) 57 Cal.4th 570ceeccsscsceesscescssessssessecscssessseessecesessesssstsssesessnens 13 Beeman v. Anthem Prescription Management, LLC (2013) 58 Cal.4th 329oeicsecsnsesscesessesesecsseescsesessacesesssssesseseeeseseees 22 California Grocers Assn. v. City ofLos Angeles (2011) 52 Cal.4th 177cececcccssscccssccsessesssssscssseseecesseeeseessssseeeeesseessess 22 Chern v. Bank ofAmerica (1976) 15 Cal.3d 866oeeecccscesceseceeessessesseseseeeeseesseessesesesssessseees 20 Compton v. Countrywide Financial Corp. (9th Cir. 2014) 761 F.3d 1046oeccsecscsecsessessstsessesessssesseeseresees 20 Conservatorship of Wendland (2001) 26 Cal.4th 519iecescesseecsereeeectreesessseesseeeessseessseseeeseenees 23 Cooley v. Superior Court (2002) 29 Cal.4th 228iccecceecsseesesseeseesceseeseseeseseceecersssesseenseentes 16 Ford Dealers Assn. v. Dept. ofMotor Vehicles (1982) 32 Cal.3d 347eicceceesecerecsssssesesesssssessecseeeesseesseees 3 et passim Fox v. San Francisco Residential Rent etc. Bad. (1985) 169 Cal.App.3d 651 oeeeecessssssessssesssesesssecsescssscscssseesescseeeneees 8 Howard Jarvis Taxpayers Assn. v. Padilla (2016) 62 Cal.4th 486 00.cecccscessceseesesesseseseeseesseeesesecsscsessesssceseees 15, 16 In re Conservatorship of Whitley (2010) 50 Cal4th 1218 ooo. cccccccccesesssesssesessesecsessecseesseeesesessssssessesesees 14 ili In re Sabrina H. (2007) 149 CalApp.4th 1403 oo... cccccsecsscessscesseeesssssssssssssscsesceesaes 16 Kasky v. Nike, Inc. (2002) 27 Cal.4th 939occcsccscssssssetsssssscssecsesssecssessssescsseseeseessseneeaes 20 Larkin v. W.C.A.B. (2015) 62 Cal.4th 152 oooiccccccsccssscssscessecccessssscesecsseserasesetseeneneceres 7 Moorev. California State Bd. ofAccountancy (1992) 2 Cal4th 999 ooecececsscssseessessssscnsseesscsecsseseesseeseneees 5, 11, 12 People v. Gutierrez (2014) 58 Cal. 4th 1354ooccccscssssessensesssssecesessesseescsseseeseeseesseeeeens 23 Plaza Hollister Ltd. Partnership v. County ofSan Benito (1999) 72 CalApp.4th 1ccccecssccssesessscessesessecssssecsssssssssesscescssesseases 13 Quesada v. Herb Thyme Farms, Inc. (2015) 62 Cal.4th 298 ooceeccsssesecsseesessesscssscsecsssssensseeseaseesseseasens 22 Ramirez v. Yosemite Water Co., Ine. (1999) 20 Cal.4th 785.0... cceccccsscccscsscssscessscecssecescessseessssccsscnssasesneess 8, 12 State Farm Mut. Auto. Ins. Co. v. Garamendi (2004) 32 Cal.4th 1029occccccsccsssccssceesssssscessssssssssscsesesssscesasesessues 8 UnitedStatesv. Apel (2014) — US.134 S.Ct. 1144iccccseccseceseesseseessessseeneseneees 23 Western States Petroleum Assn. v. Bd. ofEqualization (2013) 57 Cal.4th 401oeececneseesceeceeeseeeseessetseesetscneesenseaees 3,7, 13 Whitcomb Hotel, Inc. v. Cal. Emp. Com. (1944) 24 Cal.2d 753 oi ccccecsesscssscssesssessessessecesscssessesecesesseessersessensenseees 7 Yamaha Corp. ofAmerica v. State Bd. ofEqualization (1998) 19 Cal.4th Loeecccscssscssecsssssesseeesssesesseessseesssesssessesesecess 6, 7 Zauderer v. Office ofDisciplinary Counsel (1985) 471 U.S. 626 oecccsecsceseesesscsessecssesssessessesssessessesssesceesensenes 22 iv STATUTES Bus. & Prof. Code, § 5010 wo... ccccccccccsscssessscscssccssesessrsesssscssssceeusesscesaasenees 11 Bus. & Prof. Code, § S058 woos. ceescesssscesssessecesssssecesssnsesscsevectscceareseseeeecs 11, 12 Bus. & Prof. Code, § 5120... .ccceccccccsscsesceseccseeeseeceeeseessseessesseeeesssssessasons 11 Gov. Code, § 11342.600 oocece csccsseesssesecsecnseseessseseeseseeessesesseeeeaees 3,10 Ins. Code, § 790 wn...cecesees ea eeseensseaseeseeseeaseesensesesresnenanineseeseeaseesssaeeses 2 Ins.Code, §§ 790-790.15 ..ccccscscsssssssssssssssssecssessuessessessersureseeessevesnesneeeseseess 1,2 Ins. Code, § 790.2 ccc cccccssssecessessecessessesssecesssecsssteccecsasecensecssesssauesseneeeneaass 2 Ins. Code, § 790.03 ...ssescseccsessessesseeeeseesssneseesteseseenseeneenneesnen 2, 3, 8, 20° Ins. Code, § 790.03, SUD. (D) ooo... eee cecesssccccesssesccecceecnssesessnerens 1 et passim Ins. Code, § 790.03, SUD. (f)......cecscesssseseesecessceseeeessrecessessrssaesesaeseecesatens 15 Ins. Code, § 790.03, Sub. (A) oo... eeeseeeceeeeceneeseecnneseeseerseaesseeeaeeneenes 3, 15 Ins. Code, § 790.03, subd. (j)muitaseesseesseeeneesseters 3 Ins. Code, § 790.05 woesessceseesssesseseeecsenseseessessersnecseecsaeaescesseceseaeesaeeeueegs 4 Ins. Code, § 790.06 viicccccscsscsssssestesestesessssees sssesvaveatavsnucsnesareuenecansneasenees 9 Ins. Code, § 790.10 ooo. ceeeeessesssecesseseesseacessneseaeessneeeeesseseessesenss 1 et passim Ins. Code, § 790.034 woescesessecsecsessetssessecssesaeeaeesasesscesseeesseeesessassnsesaeees 16 Ins. Code, § LOLOL ooiccscssssecccsscssseessesseecessseeeeececessesesseesecssreeeses 1,17 Ins, Code, §§ 10101-10102 ceccccsccccccscsessssssssssesssssssesessesesssssstsscsessessnssnseees 15 Ins. Code, § 10102 oo. eccccessssssscessscsssccesssneceesseseseceeeeessreeseeesons 1,17, 19 Veh. Code, § LIT13 ccc icecccccssccccessssessesscessescessceccsseeesccesssseeecseevevsnscverseserss 7 CONSTITUTIONAL PROVISIONS USS. Const., Ist Amend. 0.0... cccccccesscesscsscecceesseseessesessssssesessesesseaeavesssanecs 22 COURT RULES Cal. Rules of Court, rule 8.516(a)(1) uo... ccc cecccsssecesssecesssstessseeseceessesesarees 22 REGULATIONS Cal. Code Regs., tit. 10, § 2695.180, subd. (d) ...ccecescessecsessessesssessesessesseeees 1 Cal. Code Regs., tit. 10, § 2695.183 ooeeeceseceseenetseneessetseteeteseeseteneenes 1 Cal. Code Regs., tit. 10, § 2695.183, subd.(a) veeeecccessssssssssssssssssseesessesees 18 Cal. Code Regs., tit. 10, § 2695.183, subds. (a)-(€) ..... ee eeeeeeeneereeeee 19, 20 Cal. Code Regs., tit. 10, § 2695.183, subds. (b)-(d)........ceessceseeeseeeees weve 18 Cal. Code Regs., tit. 10, § 2695.183, subd. (€) occeseseseenecteeteseeees 18 Cal. Code Regs., tit. 10, § 2695.183, subd. (g)(2) ......cceesccesseeseeseeseeeeens 19 Cal. Code Regs., tit. 10, § 2695.183, subd. (1)...eeeeeeeseceseeeeeseeenersees 19 Cal. Code Regs., tit. 10, § 2695.183, subd. (j) .........eeecessesetesseeeseeeeeeeeeees 19 OTHER AUTHORITIES Burton’s Legal Thesaurus (4th ed. 2007) oo... .eeceescsecessseeeseeceeeeeeeeeateeerens 11 vi INTRODUCTION AND SUMMARY OF ARGUMENT Over the course of more than two decades, under the authority of the Unfair Insurance Practices Act (UIPA), Insurance Code sections 790- 790.15, the Legislature and the Insurance Commissioner have worked together to solve the longstanding problem of unintended underinsurance— where homeownerslearn too late that their “replacement cost” policies are insufficient to cover the actual costs of replacing their homeslost to natural disaster.! The Legislature has, for example, mandated standard disclosures that, amongother things, warn consumers ofthe risk of underinsurance and encourage them to obtain current replacementcost estimates from their insurers. (§§ 10101, 10102.) And the Commissioner, exercising his rulemaking authority to clarify what constitutes an untrue, deceptive, or misleading statementin this context, has required that insurers’ estimates includeall costs commonly incurred in rebuilding, and reflect the actual and current costs to rebuild a substantially similar home on the sameparcel. (§§ 790.03, subd. (b); 790.10; Cal. Code Regs., tit. 10, § 2695.183 [replacementcost regulation].) The replacement cost rulemaking process worked exactly as the Legislature intended. As the court of appeal itself acknowledged, the Legislature contemplated that the Commissioner would fill in the details of the UIPA “‘for the benefit of the public without having to wait for the 399Legislature to act at a later date.’” (Opn. 28-29, quoting Assem. Com. on Finance and Insurance, summary of Assem. Bill No. 1353 (1971 Reg. Sess.) p. 1; Opening Brief on the Merits (OBM)6-7.) That is what the Commissionerdid, filling in the details of what constitutes a misleading ' All statutory referencesare to the Insurance Code unless otherwise indicated. As usedin this brief, “insurer” has the same meaningas. “licensee” in section 2695.180, subdivision (d) oftitle 10 of the California Code of Regulations. Be statementin the specific context of replacement cost estimates and ensuring that such estimates match consumers’ expectations and assumptions. The court of appeal’s contrary judgment, voiding the Commissioner’s replacementcost regulation, thus should be reversed. In the main, respondents the Association of California Insurance Companies andthe Personal Insurance Federation of California simply repeat the court of appeal’s analysis. In so doing, they fail squarely to addressthe text of the relevant statutes, case law interpreting similar grants of rulemaking authority, the authoritative legislative history, and the purposesofthe UIPA. Together these sources and authorities establish not only that the Commissionerin general has broad authority to fill out the Legislature’s framework definitions, but that his exercise of authority in this specific instance—clarifying the Legislature’s general definition of prohibited public statements as applied to replacement cost estimates—was well within his rulemaking power. ARGUMENT I. SECTION 790.10 GRANTS THE COMMISSIONER BROAD AUTHORITY TO CLARIFY AND FILL IN THE DETAILS OF PROHIBITED ACTS DEFINED BY THE LEGISLATURE IN SECTION 790.03 The Legislature established a statutory framework—the Unfair Insurance Practices Act—under which the Legislature and the Commissioner together regulate the insurance industry to prevent “unfair methods of competition or unfair or deceptive acts or practices.” (See §§ 790, 790.2.) In section 790.03, the Legislature has defined certain prohibited acts and practices. Some such acts and practices are morespecifically defined, for example, holding oneself out as representing the California Health Benefit ? (Ins. Code, div. 1, pt. 2, ch. 1, article 6.5, §§ 790-790.15.) Exchange without a valid agreement with that entity. (§ 790.03, subd.(j).) Otherprohibited acts and practices are more broadly drawn. (See, e.g., § 790.03, subds. (h)(3) [“Failing to adopt and implement reasonable standards for the promptinvestigation and processing of claims”], and (h)(5) (“Not attempting in goodfaith to effectuate prompt, fair, and equitable settlements of claims in whichliability has become reasonably clear’’].) Relevanthere is the making of a public “statement” with respect to insurance “whichis untrue, deceptive, or misleading ....” (§ 790.03, subd. (b).) Such a general prohibition may providelittle guidanceto the industry, and generally will not serve to change entrenched industry practices that prove to be misleading or confusing to consumers. Accordingly, the Legislature empowered the State’s insurance expert, the Insurance Commissioner,to fill in the details: “The commissioner shall, from time to time as conditions warrant,after notice and public hearing, promulgate reasonable rules and regulations, and amendments andadditions thereto, as are necessary to administerthis article [the UIPA].” (§ 790.10.) As the Commissioner discussed at length, a plain reading of this language, guided by case precedent and by reference to the terms used in the California Administrative Procedure Act (APA), confers broad | authority to adopt regulations. (OBM 20-27;see, e.g., Gov. Code, § 11342.600 [APA,defining “regulation”as a rule of “general application” adopted to “implement, interpret, or make certain or specific the law enforced or administered by it”]; see also Western States Petroleum Assn.v. Bad. ofEqualization (2013) 57 Cal.4th 401, 414; Ford Dealers Assn. v. Dept. ofMotor Vehicles (1982) 32 Cal.3d 347.) The Commissioner’s broad authority tofill in the details of section 790.03, and in particular subdivision (b), prohibiting “untrue, deceptive, or misleading” public statements, is confirmed bythe legislative history. (OBM 28-30.) In enacting section 790.10, the Legislature expressly noted that its purpose wasto allow the Commissioner to act promptly through rulemaking to protect the public, and, in addition, that the Commissioner’s authority in this regard waslimited only by the requirements of the APA. (Ibid.; see also Appellant’s Motion for Judicial Notice (MJN), Ex. H,p. 33 [Assem. Com.on Finance and Insurance, summary of Assem.Bill No. 1353 (1971 Reg. Sess.); Ex. I, pp. 34-37 [Legis. Counsel Opinion of Assem. Bill No. 1353 (Jul. 14, 1971)].) Further, the Legislature’s subsequentactions do notcall the Commissioner’s rulemaking authority into question, but rather confirm that the Legislature relies on the Commissionerandhis expertise to fill in the details necessary to regulate a complex and constantly evolving industry. (OBM 30-32.) And the fact that the Legislature conferred other enforcement tools on the Commissioner, such as the ability to engage in case-by-case enforcement, cannot be read as a constraint on his rulemaking authority to fill in the details of legislatively defined prohibited acts. (OBM 32-36.) The Legislature has entrusted the Commissionerto determine in his discretion whether general rules or case-by-case enforcement, or some combination, will best protect the public and advance the purposesofthe UIPA. (OBM 35-37.) When an insurer provides a consumerwith a replacement cost estimate that it knowsor should know is incomplete, out of date, or otherwise fails to meet consumers’ reasonable expectations about “replacement cost” coverage, the insurer has made a “representation ... with respect to [a] person in the conduct ofhis or her insurance business, which is untrue, deceptive, or misleading.” (§ 790.03, subd. (b).) Section 790.05 squarely authorizes the Commissionerto issue an order to show cause why penalties should not be imposed based upon such conduct. Respondents havepresented nolegal authority or policy-based justification to limit the Commissioner’s authority to retrospectively punishing, rather than prospectively preventing these types of misrepresentations through a | regulation under section 790.10. Respondents’ arguments favoring a severely constrained view of the Commissioner’s rulemaking authority fail to address these points and, ultimately, are at odds with the language, intent, and purpose of the UIPA. A. Underthis Court’s Precedents, Including Ford Dealers, the Commissioner’s Reasonable View of His Rulemaking Authority Is Entitled to Respect Section 790.10 gives the Commissioner the authority to “promulgate reasonable rules and regulations ... as are necessary to administer[the UIPA].” This Court has interpreted analogousgrants of authority as conferring the powerto “fill up the details” of a statutory scheme. (See, e.g., Ford Dealers, supra, 32 Cal.3d at p. 362; see also Moore v. California State Bd. ofAccountancy (1992) 2 Cal.4th 999, 1013-1014.)° Asset out in the Commissioner’s brief, the circumstances, reasoning, and holding ofFord Dealers strongly support the conclusionthat the Commissioner acted within his authority when he promulgated the replacementcost regulation. (See OBM 22-27.) The statutory scheme generally prohibited misleading statements in the context of vehicle sales and gave the Department of Motor Vehicles authority to issue regulations to carry out those provisions. (OBM 22-24, discussing Ford Dealers, supra, 32 Cal.3d at pp. 362-373.) Acting on that authority, the DMV issued regulations barring specific types of misleading statements. (Ford Dealers, > The court of appeal and respondentsassert that section 790.10 does not confer authority on the Commissioner to define new prohibitedacts. (See Opn. 25; Answer Brief on the Merits 33-35.) The Commissionerin this case has not asserted authority to define a new prohibited act, but instead relies on his authority to fill in the details of prohibited acts defined by the Legislature in section 790.03, subdivision (b). . supra, 32 Cal.3d at pp. 354, 356.) Among other things, the DMV’s regulations prohibited dealers from providing consumers with statements containing itemized service charges for which the dealer had already been paid or would be reimbursed. (/d. at p. 362.) This Court upheld the regulations, concluding that “consumers confronted with an itemized charge for services performed on their automobile will assumethat they are paying extra to purchase those specific services.” (Jd. at p. 363.) “Where that is not in fact the case, because the dealer has already been paid for the services, the DMV could reasonably conclude that such an itemized charge is inherently misleading.” (Jbid.) Similarly, here, the UIPA broadly prohibits misleading public statements regarding the business of insurance (§ 790.03, subd. (b)), and authorizes the Commissioner to administer the UIPA (§ 790.10). As the Commissioner determined, his rulemaking authority under the UIPA reasonably encompassesthe authority to determine that specific types of statements that fail to comport with consumer expectations and assumptions about replacement cost coverage are inherently misleading. (See OMB 24-27.) Respondents argue that Ford Dealers is “not controlling here” because the Court “appeared to assume, without expressly deciding, that the regulations at issued in that case were adopted pursuant to a proper delegation oflegislative authority.”* (Answer Brief on the Merits (ABM) 23.) According to respondents, Ford Dealers is no longer good law after this Court’s decision in Yamaha Corp. ofAmerica v. State Bd. of Equalization (1998) 19 Cal.4th 1. (ABM 23, citing Yamaha,at p. 11, fn. 4.) Asrespondents note, the Court in Yamahaclarified that, while courts give “great weight” to the construction of a statute by officials charged with its * The reasonable necessity of the replacementcost regulation is not at issue in this appeal. (OBM 17-18; Opn. 18, fn. 8.) administration, “[t]he court, not the agency, has‘final responsibility for the interpretation of the law’ under which the regulation was issued.” (Yamaha, at p. 11, fn. 4, quoting Whitcomb Hotel, Inc. v. Cal. Emp. Com. (1944) 24 Cal.2d 753, 757.) Contrary to respondents’ argument, the Court in Ford Dealers did not abdicate its responsibility to makethe final legal determination about the scope of the agency’s rulemaking authority. Rather, the Court undertook its own examinationofthe statutory source of the DMV’s rulemaking authority. (See, e.g., Ford Dealers, supra, 32 Cal.3d at pp. 357-362, 362- 363 [interpreting Veh. Code, § 11713].) The approach and outcomein Ford Dealers is thus consistent with the “respectful nondeference” standard articulated in Yamaha. (See Yamaha, supra, 19 Cal.4th at p. 11, fin. 4; see also OBM 18 [stating that standard of review concerning scope of rulemaking authority is “respectful nondeference”]; ABM 23-24 [same].) The Court’s more recent precedents confirm that while courts retain the ultimate responsibility to construe statutes granting rulemaking authority, they accord appropriate “respect to the administrative construction.” (American Coatings Assn., Inc. v. South Coast Air Quality Dist. (2012) 54 Cal.4th 446, 461;° see also Western States, supra, 57 Cal.4th at p. 415 [“[i]n determining whether an agencyhasincorrectly interpreted the statute it purports to implement, a court gives weight to the agency’s construction”; Larkin v. W.C_A.B. (2015) 62 Cal.4th 152, 158 [adjudicatory determinations by expert agency charged with implementing > American Coatings observedthat in reviewing quasi-legislative rulemaking, a court must be “satisfied that the rule in question lay within the lawmaking authority delegated by the Legislature[.]” (54 Cal.4th at p. 460.) Similarly, in reviewing an interpretive rule, the court must take “ultimate responsibility for the construction of the statute....’” (/d. at p. 461, quoting Yamaha, supra, 19 Cal.4th at p. 12.) statute entitled to “great weight”].)° In the particular context of the Insurance Code, this Court has instructed courts to conduct an “independent examination”of the relevant statutes, and also to ask “‘whether in enacting the specific rule’ the Commissioner ‘reasonably interpreted the legislative mandate.’” (State Farm Mut. Auto. Ins. Co. v. Garamendi (2004) 32 Cal.4th 1029, 1040 [rulemakingrelated to different part of code, concerning insurance rates], quoting Fox v. San Francisco Residential Rent etc. Bd. (1985) 169 Cal.App.3d 651, 656.) Just as the DMVin Ford Dealers reasonably determined that a statute authorizingit “to adopt rules and regulations ‘as may be necessary to carry out’” the Vehicle Code conferred on it authority to issue regulations identifying specific classes of misleading statements (Ford Dealers, supra, 32 Cal.3d at pp. 354, 362-363), the Commissioner here reasonably determinedthat section 790.10, broadly authorizing rulemaking to administer the UIPA, conferred on him the authority to issue regulations making clear that replacement cost estimates that are incomplete or do not reflect the actual and current costs of rebuilding are inherently misleading. This construction is entitled to appropriate respect and, as discussed in the Commissioner’s Opening Brief and below,is wholly consistent with the text of section 790.03 andlegislative intent. ° Respondents contend that the Commissioner’s rulemaking authority should not be deemed “quasi-legislative.” (See ABM 25.) The Commissioner acknowledgesthat regulations do not alwaysfall “neatly” into the category of being either quasi-legislative or interpretive, but may rest on a “continuum.” (Ramirez v. Yosemite Water Co., Inc. (1999) 20 Cal.4th 785, 799.) Howevercharacterized, the relevant question is, always, whether the rulemaking authority asserted is consistent with legislative intent. (/bid.) As established in the Opening Brief and in this Reply, the Commissioner’s replacementcost regulation is consistent with the Legislature’s intent. . E E R R S B. Ford Dealers and Moore Support the View that the Commissioner Has Authority to Fill in the Details of What Constitutes an Untrue, Deceptive, or Misleading Public Statement Respondents make additional attempts to distinguish Ford Dealers— first on the ground that the Vehicle Code did not “provid[e] a procedure for the agency to prosecute conduct not elsewhere defined in the Vehicle Code as false or misleading.” (ABM 24,see also id. at 28.) They arguethat, unlike the statute in Ford Dealers, the UIPA contains a provision, section 790.06, that gives gave the Commissionerauthority to determine new, undefined, unlawful acts through individual adjudications. Respondents argue that, by giving the Commissionerthis authority, the Legislature intended that the Commissioner would be limited to using this adjudicatory procedure to identify new unfair practices. (ABM 24-25.) The premise of this argumentis flawed. The replacementcost regulation doesnot establish a new,previously undefined unfair practice.’ The Legislature in section 790.03, subdivision (b) already has defined misleading public statements as an unfair trade practice. The regulation is filling a gap byclarifying that incomplete replacementcost estimates are misleading underthat section and subdivision. Therefore, section 790.06’s procedures for determining a new unfair trade practice are irrelevant to the Commissioner’s authority to issue the replacementcost regulation. Additionally, the Commissioner’s authority to identify particular unfair practices through enforcement proceedings does not limit his ’ Respondent’s “separation ofpowers”argument (see ABM 30-31) is simply a restatementofthe rule that an agency’s powers are determined by statute, and a court cannot expand an agency’s powers beyondthat ; granted by the Legislature. The Commissionerhere asks the Court simply i to interpret and apply, not expand, the rulemaking powerset forth in section 790.10. authority to adopt regulations. Indeed, that the Commissioner has enforcementauthority supports the inference that the Commissioneralso has the complementary authority to clarify general terms that are central to industry compliance. As discussed in the Commissioner’s OpeningBrief, wherean agencyis charged with administering a complex statute, the agency reasonably may chooseto proceed by promulgating rules of general application, case-by-case adjudication and enforcement, or some combination. (OBM 33-35,citing, among other cases, Agricultural Labor Relations Bd. v. Superior Court (1976) 16 Cal.3d 392, 413 [choice of | approachlies in agency’s “sound discretion”].) Notably, respondents have not addressed these arguments and precedents or explained why they do not apply in the contextofthis case. In a further attempt to distinguish Ford Dealers— in a footnote and withoutcitation to authority—respondents argue that the grant of rulemaking authority to theDMVin that case was fundamentally different because the statute conferring rulemaking authority on the DMVusedthe phrase “carry out” rather than “administer.” (ABM 25, fn. 6; see alsoid. 29-30 [reference to dictionary definition of “administer’”’].) Respondents also argue that this Court should infer a limiting intent from the Legislature’s change from “implement”inan early draft of section 790.10 to “administer” in the final law. (ABM 29.) Respondents fail to address the detailed discussion of the proper interpretation of “administer” set out in the Commissioner’s Opening Brief. (ABM 29-30.) As discussed, “administer” is a term of art in the APA, referring to an agency’s activities in carrying out a statute, which include implementing, interpreting, and making specific. (OBM 20-21; see Gov. ~ Code, § 11342.600 [defining a regulation as “every rule, regulation, order, or standard of general application ... adopted by any state agency to implement, interpret, or make specific the law enforced or administered by 10 it, or to govern its procedure”].) The use of the term “administer”in section 790.10 thusis not is a limitation on agency authority; instead,it reflects the agency’s broad charge to carry out the legislative scheme and delegates to the Commissioner concomitant rulemaking authority.® And,in addition, this Court has held that “administer” encompasses the very type of detail-filling regulatory authority exercised by the Commissionerin this case. In Moore, the Court considered the scope of the State Board of Accountancy’s authority to issue regulations concerning misleading titles and designations. (Moore, supra, 2 Cal.4th 999, 1003.) Underthe Accountancy Act, it is unlawful for any unlicensed individual to 99 66use the title “certified public accountant,” “public accountant,” or “any othertitle or designation likely to be confused” with those terms. (/d. at p. 1004; see also Bus. & Prof. Code, §§ 5058, 5120.) The Board is charged with enforcement, and also has the authority to issue regulations “as may be reasonably necessary to administer the Accountancy Act.” (Moore,at p. 1010,italics added; Bus. & Prof. Code, § 5010.) Underits rulemaking authority, the Board adopted a regulation prohibiting “the use ofeither the title ‘accountant’ or the description of the services offered as ‘accounting’ by an unlicensed person.” (Moore,at p. 1004.) The plaintiffs challenged this regulation, arguing that the statute did not expressly prohibit the use of the terms “accountant” and “accounting,” and that the Board had expanded the scopeofits statutory authority “by prohibiting any use of the terms ® Even the dictionary definitions proffered by respondents indicate that the term “administer” refers to an administrative agency’s general authority to carry out a statutory scheme. (See Burton’s Legal Thesaurus (4th ed. 2007) pp. 16 [“administer” is synonymouswith “carry out,” “control,” and “direct’’], 389 [synonymsfor “manage”include “govern” and “regulate’’].) 11 ‘accounting’ or ‘accounting’ by unlicensed persons.” (/d. at p. 1009, italics added.) Rejecting this argument, the Court concluded that the Board’s rulemaking authority “includes the powerto identify by regulation those terms whichit finds are “likely to be confused with ‘certified public | accountant’ or ‘public accountant[.]’” (Moore, supra, 2 Cal.4th at p. 1014, quoting Bus. & Prof. Code, § 5058.) The Board’s enforcementauthority did not undermine, but rather supported this conclusion. (/d. at pp. 1013- 1014.) “To conclude otherwise would contravene the intent and purpose behind the statute.” (/d. at p. 1014; see also Ramirez, supra, 20 Cal.4th at p. 799 [citing with approval, post-Yamaha, both Moore and Ford Dealers.) As with the Accountancy Act, the UIPA prohibits specific unfair practices, but also broadly prohibits any misleading statementto the public regarding the business of insurance. And, as in Moore, the Commissioner is authorized to enforce the statutory scheme through individual adjudications and to issue any regulations necessary for the administration of that scheme. Consistent with both Ford Dealers and Moore,this grant of regulatory authority necessarily includes the authority to fill in the gaps in the UIPA by identifying categories of statements that are inherently misleading. (Ford Dealers, supra, 32 Cal.3d at pp. 362-363; Moore, supra, 2 Cal.4th at pp. 1013-1014.) That is precisely what the Commissioner did in promulgating the replacement cost regulation.” ” Respondents compare section 790.10 with grants of regulatory authority in other statutory schemes, claiming that the differences indicate that the grant of authority in section 790.10 is narrow. (ABM 26-27.) Such differences are not surprising given the broad range of administrative agencies and the varying duties assigned to them. Ford Dealers and Moore are instructive on the particular type of detail-filling rulemakingat issue in this case and support the Commissioner’s view ofhis authority. 12 C. That the Unfair Insurance Practices Act in Some Respects Might Be “Self-Executing”is Irrelevant to the Question of the Scope of the Commissioner’s Rulemaking Authority Respondents rely on the dissent in Western States Petroleum Assn. for the proposition that the UIPAis self-executing, suggesting that this somehow limits the Commissioner’s ability to issue regulations. (ABM 27, citing Western States, supra 57 Cal.4th at p. 436 (conc. & dis. opn. of Kennard, J.).) A self-executing statute is simply a statute that does not require implementing regulations to be effective. (American Nurses Assn. v. Torlakson (2013) 57 Cal.4th 570, 580.) The fact that a statute is self- executing, however, does not mean that the administering agencyis precluded from issuing regulations. (Cf. Plaza Hollister Ltd. Partnership v. County ofSan Benito (1999) 72 Cal.App.4th 1, 28 [discussingself- executing constitutional provisions].) Regardless of whether the UIPA is self-executing in somerespects, the Legislature has expressly authorized the Commissionerto issue regulations, and this express grant controls. D. Respondents’ Attempts to Counter the Clear Legislative History Supporting the Commissioner’s Rulemaking Authority Are Without Merit The legislative history also supports a broad interpretation of the Commissioner’s rulemaking authority. As discussed in the Commissioner’s Opening Brief, the legislative history reflects that, in enacting section 790.10, the Legislature intended to “give[] the Insurance Commissioner the authority to promulgate rules and regulationsso that if the need therefor arises, he can, without delay, promulgate necessary rules making such practices definite and specific for the benefit to the public without having to wait for the Legislation to act at a later date.” (OBM 29, quoting MJN, Ex. H, p. 33 [Assem. Com.on Finance and Insurance, summary of Assem. Bill No. 1353 (1971) Reg. Sess.), emphasis added].) 13 Asthe court of appeal acknowledged,this statementof legislative purpose supports the conclusion that section 790.10 authorizes the Commissionerto issue the replacement cost regulation. (Opn. 29.) Respondents do not even mentionthis bill analysis. Instead, they point to an enrolled bill report that states that the fiscal effect of adding section 790.10 to the UIPAis “[oJne time $1,500 costs.” (ABM 28; Respondents’ Motion for Judicial Notice, Ex. A, [Cal. Dept. of Finance, Enrolled Bill Rep. on Assem.Bill No. 1353 (1971 Reg. Sess.) prepared for Governor Reagan (Oct. 8, 1971)].) Respondents argue that the Legislature must have anticipated very limited regulatory activity, given the low estimated costs. (ABM 28.) Becauseenrolledbill reports are not prepared by orfor the Legislature, however, they are not given great weight and cannotbe usedto contradict the analysis of a legislative committee or the plain languageofa statute. (In re Conservatorship of Whitley (2010) 50 Cal.4th 1206, 1218, fn.3.) As noted, the relevant committee report contemplated prompt, proactive rulemaking, not a one-time, $1,500 hearing. And section 790.10 expressly provides that the Commissioner“shall promulgate reasonable rules and regulations” “from time to time as conditions warrant....” (§ 790.10.) An enrolled bill report “cannot be usedto alter the substance oflegislation[.]” (Whitley, supra, 50 Cal.4th at p. 1218, fn. 3.) Evenifthe enrolledbill report is properly considered,it in fact supports the Commissioner’s interpretation. The report contains two findings: 1) “The insurance code sections which define unfair trade practices, which includes misleading advertising, are rather broad and subject to considerable interpretation”; and 2) “This bill authorizes the Insurance Commissioner to promulgate reasonable rules and regulations necessary to administer the provisions of the existing law.” (Respondents’ Motion for Judicial Notice, Ex. A.) Read together, these findings support 14 the view that the Legislature intended that the Commissioner would address the generality and breadth of the UIPA’s definitions of unfair trade practices through regulation, making these broadstatutory categories more specific. E. The Legislature’s Subsequent Actions Confirm That the Commissioner Has Broad Authority to Fill in the Regulatory Details Since enacting section 790.10, the Legislature has added new categories of prohibited acts to the UIPA and hasenacted new statutes relating to underinsurance and replacementcost estimates. But none of these amendments haslimited the Commissioner’s express authority to issue regulations as necessary to administer the UIPA. Instead, as discussed in the Commissioner’s Opening Brief, the Legislature and the _Commissioner have worked together to address the problem of underinsurance as the UIPA intends. (OBM 7-13, 30-32.) Respondents point to instances where the Legislature has more specifically defined some types of unfair practices (see, e.g., ABM 31-32, discussing § 790.03, subds. (f)(3), (f)(4) [re sex-based differentials], and (h) [re claim-settlement practices]), and whereit has legislated in areas related to underinsurance(see, e.g., ABM 32, citing to §§ 10101-10102 [re disclosure statements on policy issuance or renewal]). They then argue that the canon of expressio unius est exclusio alterius precludes rulemaking to fill in the details of section 790.03, subdivision (b) in the context of replacement cost estimates. (ABM 35-37.) The canon’s requirements are not methere. The expressio unius canon applies wherethereis “some reason to conclude an omission is the product of intentional design.” (Howard Jarvis Taxpayers Assn.v. Padilla (2016) 62 Cal.4th 486, 514.) “The text must contain a specific list or facially comprehensive treatment.” (bid.) The 15 definition in section 790.03, subdivision (b) does not constitute a specific andall-inclusive list of prohibited statements to the public. Rather, it prohibits “any statement ... with respect to the business of insurance... whichis untrue, deceptive, or misleading, and which is known,or... should be known,to be untrue, deceptive, or misleading.” (§ 790.03, subd. (b), emphasis added; see Cooley v. Superior Court (2002) 29 Cal.4th 228, 249 [courts give meaning to every wordofa statute if possible, and avoid constructionsresulting in surplusage].) Further, courts generally have declined to apply the expressio unius “statutory construction tool to an entire code.” (In re Sabrina H. (2007) 149 Cal.App.4th 1403, 1411; see also Howard Jarvis Taxpayers Assn., supra, 62 Cal.4th at p. 514.) Because the UIPA andthe provisions cited by respondents “are widely separated, both in where they are codified and as to how and whenthey were adopted,”there is no basis to infer that the Legislature intentionally omitted misleading replacementcost estimates from the UIPA. (See Howard Jarvis Taxpayers Assn., at pp. 514-515 [rejecting application of expressio unius inference in contextofballot measure seeking advisory opinion].) More specifically, the disclosure statementstatutes simply reflect that the Legislature shares the Commissioner’s concern regardingthe risks associated with unintended underinsurance. (See OBM 7-12, 30.) The Legislature’s recognition of the seriousness of this problem providesnobasis for limiting the Commissioner’s complementary rulemaking authority.'° !° When the Legislature wishes to check or guide the Commissioner’s exercise of his rulemaking authority undersection 790.10, it does so directly. (OBM 29-30 [discussing § 790.034, in which Legislature provided guidance on content of Fair Claims Settlement Practices regulations].) 16 Respondents assert that in enacting sections 10101 and 10102, which mandate certain standard disclosures at the time of policy issuance or renewal, the Legislature intentionally “did not place responsibility for [underinsurance] on insurers ....” (ABM 33, fn. 8; id. at 32.) If respondents’ argumentis that these provisions excused insurers from any responsibility for providing accurate and non-misleading replacementcost estimates, it must be rejected. These provisions ensure that consumers are made awareof the underinsurance problem at key decision points, and are prompted to ask for complete and current estimates, so that they will be in a position to rebuild if their homes are completely destroyed. The regulation serves a different though complementary purpose: ensuring that when consumers makethis request, the estimates insurers provide in response are in fact complete and current, and match consumers’ reasonable expectations about what “replacement cost” insurance means. (See OBM 30; see also App. A [regulation and statutes compared].) There is no basis to conclude that the Legislature intended that only its general prohibition of section 790.03, subdivision (b) would apply, except where the Legislature itself might enact more specific legislation. (See ABM 36-37.) To the contrary, the Legislature intended that the Commissioner would clarify and make definite by regulation specific classes of statements that would fall underthelegislativelydefined prohibition. (MJN, Ex. H, p. 33 [Assem. Com.on Finance and Insurance, summary of Assem.Bill No. 1353 (1971) Reg. Sess.), noting that the purpose of section 790.10 was to authorize the Commissionerto issue regulations to make UIPA’s unfair practices “definite and specific”’].) This reflects an intent “to defer to ... the expertise” of the Commissionerto fill in the regulatory gaps by determiningthat certain classes of misleading statements are inherently misleading. (See Ford Dealers, supra, 32 Cal.3d at pp. 355, 362-363.) 17 J t A M R c a s t l e c e II. THE COMMISSIONER ACTED WITHIN HIS AUTHORITY IN DETERMINING THAT REPLACEMENT COST ESTIMATES THAT ARE INCOMPLETE, OR THAT DO NOT REFLECT ACTUAL AND CURRENT COSTS TO REBUILD, ARE MISLEADING If the Court agrees that the Commissionerhas authorityto fill up the details of what constitutes an untrue, deceptive, or misleading statement, defined by the Legislature in section 790.03, subdivision (b)—which the Commissionerbelieves is well established—then the only remaining question is whether Commissioner’s replacementcost regulation simply | provides a specific example ofa type of prohibited statement. It does. Asdiscussed in the Commissioner’s Opening Brief, the replacement cost regulation grew out of a widespread underinsurance problem revealed by a series of catastrophic wildfires. (OBM 7-11; see also OBM 26,citing MIJN,Ex. D, p. 16 [Sen. Banking, Finance and Insurance Com., Bill Analysis of Sen. Bill No. 2 (2005-2006 Reg. Sess.) as amended Mar.29, 2005].) The Commissioner received numerous complaints from homeowners whose homeshad been destroyed, and wholearnedtoolate that their replacement cost insurance would notin fact cover the cost to replace their homes. (OBM 9-10; see also, e.g., Rulemaking File (RF [vol]:[page]) 11:432, 346, 460, 481, 484.) The Commissioner’s investigation showedthat consumers were being misled into underinsuring their homesby industry practices. (OBM 27,citing RF 1:79-80, 124, 169, 217; 11:351-352, 432; III:583, 789, 826; [V:1030 [summary of the Commissioner’s market conduct examinations]; see also MJN,Ex.D,p. 16 at pp. 16-17; RF IV:1029 [problemsrelated to “quick quotes” software].) Accordingly, the regulation providesthat replacementcost estimatesthat: fail to include certain enumerated expensestypically incurred in rebuilding (Cal. Code Regs., tit. 10, § 2695.183, subd. (a)); do not reflect actual costs to rebuild a substantially similar structure on the same parcel (id. at subds. (b)-(d)); or are out-of-date (id. at subd. (e)), are untrue, deceptive, or 18 misleading and therefore prohibited under section 790.03, subdivision (b) (Cal. Code Regs., tit. 10, § 2695.183, subd.(j)).'! These requirements ensure that homeownersare not misled into unintended underinsurance by estimates that fail to match their reasonable expectations. A. The replacementcost regulation requires merely that estimates match consumer expectations Respondents summarily assert that the replacementcost regulation “would cover something that on its face would not be deemed as ‘unfair,’ 999‘deceptive,’ or ‘misleading[.]’” (ABM 38.) Respondents’ examples focus on individual, hypothetical circumstances where a replacementcost estimate that does not comply with subdivisions (a)-(e) of the regulation might—through happenstance—still result in coverage adequate to pay the costs required for a complete rebuild. (ABM 41.) For example, they posit (without citation) the possibility that an insurer’s failure to keep its replacement cost methodscurrent mightresult in a total replacement cost estimate that is higher than required, if construction costs have declined in the interim. ([bid.)’* '! See OBM 13-15. The regulation contains additional requirements. (See, e.g., Cal. Code Regs., tit. 10, § 2695.183, subds. (g)(2) [itemization and method of communication]; (i) [recordkeeping].) Only violations of the requirements in (a)-(e), however, are deemed to be misleading. (Seeid, subd. (j).) Respondents’ complaints about “content and format” requirements in the regulation’s other subdivisions are not relevantto this appeal. (See, e.g., ABM 42-43.) Whether, for example, an estimate that fails to itemize the elements specified in subdivision (a) is misleading would be decided on a case-by-case basis underthetotality of the circumstances. '? Respondents also assert without citation that the age of a home “may have no bearing on the cost to replace the structure with a new one ....” (ABM 41.) Identifying the home’s age, however, can help identify additional expenses that may be associated with rebuilding, such as the need to meet current code requirements. (See § 10102.) 19 This argumentincorrectly assumesthat whether or not a replacement cost estimate is misleading is judged only by the bottom-line estimate of coverage. That some small number of replacementcost estimates made in violation of subdivisions (a)-(e) of the regulation might not cause underinsurancein a particular instance does not changethe fact that such estimates are misleading in their component details. For example, a replacementcost estimate that relies on out-of-date informationis no less misleading if, due to its reliance, it overestimates the replacement value (and results in the unnecessary expense of over-insurance) thanif, for the same reason, it underestimates the replacementvalue. Estimates that fail to comply with subdivisions(a)-(e) deprive homeownersofthe ability to understand the coverage purchased, ask questions, correct mistakes, and compare policies and prices as between insurers. (See Kasky v. Nike, Inc. (2002) 27 Cal.4th 939, 951 [misleading statements include statementsthat, althoughtrue,have a “capacity, likelihood or tendency to deceive or confuse the public”].) Further, they are “unfair methods of competition” as to other insurers that provide complete, current information about the replacement cost coverage they offer. (§ 790.03.) The purpose of consumer protection laws such as the UIPA is to protect the public against ““‘the probability or likelihood as well as the actuality of deception.’” (See Ford Dealers, supra, 32 Cal.3d at p. 363, quoting Chern v. Bank ofAmerica (1976) 15 Cal.3d 866, 876.) A statement is misleading where “consumersare likely to assume somethingthatis in fact not true’”—here, that a replacement cost estimate includesall expenses that would be typically incurred in completely replacing the destroyed home on the same parcel and in light of current circumstances. (See Ford Dealers, supra, 32 Cal.3d at pp. 363-364; see also Compton v. Countrywide Financial Corp. (9th Cir. 2014) 761 F.3d 1046, 1053 [noting that the inquiry whether an omissionis likely to mislead consumersis objective].) 20 The Commissioner’s replacement cost regulation does no more than ensure that replacement cost estimates are constructed to match consumer expectations, and thus are not misleading. B. The Court should reject respondents’ belated attempt to argue that there was no serious underinsurance problem necessitating the regulation Respondents attempt to diminish the significance ofthe underinsurance problem that precipitated the replacement cost regulation, asserting that the Commissioner received only 70 complaints. (ABM at 52- 53, citing RF V:1254; V1I:1430.) To the extent that respondents’ contention is that the regulation was not reasonably necessary, it may be quickly rejected. At trial and before the court of appeal, respondents “disclaimed any attack on the [replacementcost rJegulation on the basis of lack of necessity.” (Opn. 18, fn. 8.) They should not be allowed to make a necessity argument for the first time before this Court. And, in any event, the Commissioner reasonably concludedthat the underinsurance problem wassignificant and widespread, based on these representative complaints and other evidence. (See, e.g., RF [V:1059 [United Policyholder survey reflecting that more than 75 percent of those responding to the survey were underinsured by an average amount of $240,000, but only 18 percent of those respondents complained to the Commissioner about underinsurance]; OBM7-12 [discussing legislative action to address underinsurance]; MJN, Exs. A through F,pp. 1-30 [legislative analyses identifying confusion over replacement cost estimates as factor contributing to underinsurance]; RF VI:1430 [describing evidence supporting Commissioner decision to issue the replacement cost regulation].) The replacement cost regulation constitutes the Commissioner’s reasonable, industry-wide response to a serious and widespread problem. 21 III. RESPONDENTS’ FREE SPEECH ARGUMENTIS NOT PROPERLY BEFORE THIS COURT AND LACKS MERIT Respondents purport to invoke the canon of constitutional avoidance, arguing that this Court should construe section 790.10 to preclude the Commissioner’s authority to issue the replacement cost regulation, so that the Court may avoid “resolv[ing] whether the [r]egulationis (at least as applied in some circumstances) unconstitutional” under the First Amendment. (ABM 51.) This argument is fundamentally flawedin at least two respects. First, respondents have not pursued or preserved the issue of the regulation’s constitutionality, so there is no constitutional determination to be avoided. Neitherthe trial court nor the court of appeal addressed this issue, and the issue was not raised by the Commissionerin his petition for review, or by respondents in their answerto the petition. (Cal. Rules of Court,rule 8.516(a)(1); see also Quesada v. Herb Thyme Farms, Inc. (2015) 62 Cal.4th 298, 324 [declining to address issue not previously addressed by lower . courts].)" Second, the avoidance canon is not a mechanism for striking down a regulation in its entirety and on its face, but rather is an interpretative tool that applies when courts are faced with twoplausible interpretations of a 3 Thereis, in any event, no merit to respondents’ free speech claim. By requiring the disclosure of complete and accurate factual information regarding replacementcost estimates, the regulation “furthers, rather than hinders, the First Amendment goal of discovery of truth and contributes to the efficiency of the ‘marketplace of ideas.” (Beemanv. Anthem Prescription Management, LLC (2013) 58 Cal.4th 329, 357.) Requirements ofthis type are subject to rational basis review and are constitutional so long as they bear “‘somerational relationship to a conceivable legitimate state purpose.’” (/d. at p. 364, quoting California Grocers Assn. v. City ofLos Angeles (2011) 52 Cal.4th 177, 209; see also Zauderer v. Office ofDisciplinary Counsel (1985) 471 U.S. 626, 651.) The replacement cost regulation indisputably meets this standard. 22 statute, one of whichraises serious constitutional doubts. (People v. Gutierrez (2014) 58 Cal.4th 1354, 1373.) In those circumstances, courts will adopt the construction that “will render [the statute] valid in its entirety, or free from doubtasto its constitutionality, even though the other construction is equally reasonable.” (/bid., quoting Conservatorship of Wendland (2001) 26 Cal.4th 519, 548.) Here, there is no question that section 790.10 is valid, regardless of the interpretation this Court adopts. Assuch, the cannon of constitutional doubts cannot be used to strike down a regulation respondents find objectionable in the guise of interpreting its authorizing statute. (See United States v. Apel (2014) _ U.S. _, 134. S.Ct. 1144, 1153 [courts “do not ‘interpret’ statutes by gerrymandering them with a list of exceptions that happen to describe a party’s case”’].) CONCLUSION The Commissioner respectfully requests that the Court reverse the court of appeal’s judgment, uphold the replacementcost regulation, and remand this matter for entry ofjudgmentin favor of the Commissioner. 23 Dated: March 11, 2016 Respectfully submitted, KAMALA D. HARRIS Attorney General of California EDWARD C. DUMONT Solicitor General DIANES. SHAW Senior Assistant Attorney General JANILL L. RICHARDS Principal Deputy Solicitor General LINDA BERG GANDARA Deputy Solicitor General STEPHEN LEW Supervising Deputy Attorneys General Orne LIsA W. CHAO Deputy Attorney General Attorneysfor Defendant and Appellant Dave Jones, in his capacity as the Insurance Commissioner ofthe State of California 24 CERTIFICATE OF COMPLIANCE I certify that the attached REPLY BRIEF ON THE MERITSusesa 13 point Times New Romanfont and contains 6,683 words. Dated: March 11, 2016 KAMALAD. HARRIS Attorney General of California onCE LisA W. CHAO Deputy Attorney General Attorneysfor Defendant andAppellant Appendix A Comparison of Replacement Cost Estimate Regulation (Cal. Code Regs., tit. 10, § 2695.183, subd.(a)-(e)) and Residential Property Disclosure Statement Statutes (Ins. Code, §§ 10101, 10102) ReplacementCostEstimateRegulation_Disel “No licensee shall communicate an estimate of replacement cost to an applicant or insured in connection with an application for or renewal of a homeowners’ insurance policy that provides coverage on a replacementcost basis, unless the requirements and standardsset forth in subdivisions (a) through (e) below are met:” Section 10101 (disclosure requirement): “On and after July 1, 1993, no policy of residential property insurance maybefirst issued or, with respect to policies already in effect on January 1, 1994,initially renewed in this state by any insurer unless the named insured is provided a copy of the California Residential Property Insurance disclosure statement as contained in Section 10102.” Section 10102 (disclosure contents): “AVOID BEING UNDERINSURED:Insuring your homefor less than its replacement cost may result in your having to pay thousands of dollars out of your own pocketto rebuild your homeifit is completely destroyed. Contact your agent, broker, or insurance company immediately if you believe your policy limits may be inadequate.” “(a) The estimate of replacementcost shall include the expenses that would reasonably be incurred to rebuild the insured structure(s) in its entirety, includingat least the following: (1) Cost of labor, building materials and supplies; (2) Overhead andprofit; (3) Cost of demolition and debris removal; (4) Cost of permits and architect’s plans; and (5) Consideration of components and features of the insured structure, including at least the following: (A) Type of foundation; (B) Type of frame; (C) Roofing materials and type of roof; (D) Siding materials and type ofsiding; (E) Whetherthe structure is located on a slope; — continued “Please note: ... ¢ The estimate to rebuild your home should be based on construction costs in your area and should be adjusted to account for the features of your home. These features include but are not limited to the square footage, type of foundation, numberofstories, and the quality of the materials used for items such as flooring, countertops, windows,cabinetry, lighting and plumbing. * Coverage limits for contents, separate structures, additional living expenses and debris removal are usually based on a percentage ofthe limit for the dwelling. If your dwelling limit is too low, these coverage limits may also be too low.” Regu (F) The square footage ofthe living space; (G) Geographic location of property; (H) Numberofstories and any nonstandard wall heights; (I) Materials used in, and generic typesof, interior features and finishes, such as, where applicable, the type of heating and air conditioning system, walls, flooring, ceiling, fireplaces, kitchen, and bath(s); (J) Age of the structure or the year it wasbuilt; and (K) Size and type of attached garage.” “(b) The estimate of replacementcost shall be based on an estimate ofthe cost to rebuild or replace the structure taking into account the cost to reconstruct the single property being evaluated, as comparedto the cost to build multiple, or tract, dwellings. (c) The estimate of replacementcost shall not be based uponthe resale value of the land, or upon the amountor outstanding balance of any loan.” “Please note: ¢ The cost to rebuild your homeis almost always different from the market value.” “(d) The estimate of replacementcost shall not include a deduction for physical depreciation.” “REPLACEMENT COST COVERAGEis intendedto provide for the cost to repair or replace the damagedor destroyed dwelling, without a deduction for physical depreciation.’ > “(e) The licensee shall no less frequently than annually take reasonable steps to verify that the sources and methodsused to generate the estimate of replacementcost are kept current to reflect changes in the costs of reconstruction and rebuilding, including changes in labor, building materials, and supplies, based upon the geographic location of the insured structure. The estimate of replacementcost shall be created using such reasonably current sources and methods.” “Please note:... ¢ The estimate to rebuild your home should be based on construction costs in yourarea .... * The cost to rebuild your homeshould be adjusted each year to accountforinflation.” “You are encouraged to obtain a current estimate of the cost to rebuild your home from your insurance agent, broker, or insurance companyor an independentappraisal from a local contractor, architect, or real estate appraiser.” DECLARATIONOF SERVICE BY U.S. MAIL Case Name: ACIC v. Dave Jones (DOJ) (Appeal) No.: ° $226529 I declare: I am employed in the Office of the Attorney General, whichis the office of a memberofthe California State Bar, at which member's direction this service is made. I am 18 years of age or older and nota party to this matter. I am familiar with the business practice at the Office of the Attorney General for collection and processing of correspondence for mailing with the United States Postal Service. In accordance with that practice, correspondenceplacedin the internal mail collection system at the Office of the Attorney General is deposited with the United States Postal Service with postage thereon fully prepaid that same day in the ordinary course of business. On March 11, 2016, I served the attached REPLY BRIEF ON THE MERITSbyplacing a true copy thereof enclosed in a sealed envelopein the internal mail collection system at the Office of the Attorney General at 300 South Spring Street, Suite 1702, Los Angeles, CA 90013, addressed as follows: Clerk, Court of Appeal GeneLivingston, Esq. Second Appellate District, Division One- Greenberg Traurig LLP 300 South Spring Street, 2nd Floor 1201 "K"Street, Suite 1100 Los Angeles, California 90013 Sacramento, California 95814 (Hand-Delivered) (Attorneysfor Plaintiffs and Respondents) Clerk, Los Angeles County Superior Court - Gibson, Dunn & Crutcher LLP Honorable Gregory W. Alarcon Theodore J. Boutrous Jr. Department36 - Julian W. Poon 111 North Hill Street Vanessa C. Adriance Los Angeles, California 90012 333 South Grand Avenue Los Angeles, California 90071 I declare under penalty of perjury underthe laws of the State of California the foregoingis true and correct and that this declaration was executed on March 11, 2016, at Los Angeles, California. Linda Richardson shy Lctb—~ t Declarant Signature LA2015501583 52014794.doc