ASSOCIATION OF CALIFORNIA INSURANCE COMPANIES v. JONES (To be called and continued to the November 2016 calendar.)

Respondents’ Answer Brief on the Merits

Cal.January 11, 2016

FILED JAN 1 1 2046 No. 8226529 IN THE SUPREME COURT OF CALIFORNIA Frank A.MeGuire Clerk ASSOCIATION OF CALIFORNIA INSURANCE COMPANIESANDDspulyeee PERSONAL INSURANCEFEDERATION OF CALIFORNIA, Plaintiffs and Respondents, Vv. DAVE JONESIN HIS CAPACITY AS COMMISSIONER OF THE CALIFORNIA DEPARTMENTOF INSURANCE, Defendant and Appellant. After A Decision By The Court OfAppeal Second Appellate District, Case No. B248622 Los Angeles County Superior Court Case No. BC463124 The Honorable Gregory W.Alarcon, Judge Presiding ANSWERBRIEF ON THE MERITS GREENBERG TRAURIG, LLP GIBSON, DUNN & CRUTCHER LLP GENE LIVINGSTON, SBN 44280, THEODORE J. BOUTROUSJR., SBN 132099, LIVINGSTONG@GTLAW.COM TBOUTROUS(@GIBSONDUNN.COM STEPHEN E. PAFFRATH, SBN 195932, JULIAN W. POON, SBN 219843, PAFFRATHS@GTLAW.COM JPOON@GIBSONDUNN.COM 1201 “K” STREET, SUITE 100 VANESSA C. ADRIANCE, SBN 247464, SACRAMENTO, CALIFORNIA 95814 VADRIANCE@GIBSONDUNN.COM TELEPHONE:916.442.1111 333 SOUTH GRAND AVENUE LOS ANGELES, CA 90071-3197 TELEPHONE:213.229.7000 ATTORNEYS FOR PLAINTIFFS AND RESPONDENTS ASSOCIATION OF CALIFORNIA INSURANCE COMPANIESAND PERSONAL INSURANCE FEDERATION OF CALIFORNIA No. 8226529 IN THE SUPREME COURT OF CALIFORNIA ASSOCIATION OF CALIFORNIA INSURANCE COMPANIESAND PERSONAL INSURANCE FEDERATION OF CALIFORNIA, Plaintiffs and Respondents, Vv. DAVE JONESIN HIS CAPACITY AS COMMISSIONER OF THE CALIFORNIA DEPARTMENTOF INSURANCE, Defendant and Appellant. After A Decision By The Court OfAppeal Second Appellate District, Case No. B248622 Los Angeles County Superior Court Case No. BC463124 The Honorable Gregory W. Alarcon, Judge Presiding ANSWERBRIEF ON THE MERITS GREENBERG TRAURIG, LLP GIBSON, DUNN & CRUTCHER LLP GENE LIVINGSTON, SBN 44280, THEODORE J. BOUTROUSJR., SBN 132099, LIVINGSTONG@GTLAW.COM TBOUTROUS@GIBSONDUNN.COM STEPHEN E. PAFFRATH, SBN 195932, JULIAN W. POON, SBN 219843, PAFFRATHS@GTLAW.COM JPOON@GIBSONDUNN.COM 1201 “K” STREET, SUITE 100 VANESSA C, ADRIANCE, SBN 247464, SACRAMENTO, CALIFORNIA 95814 VADRIANCE@GIBSONDUNN.COM TELEPHONE: 916.442.1111 333 SOUTH GRAND AVENUE LOS ANGELES, CA 90071-3197 TELEPHONE:213.229.7000 ATTORNEYSFOR PLAINTIFFS AND RESPONDENTS _ ASSOCIATION OF CALIFORNIA INSURANCE COMPANIES AND PERSONAL INSURANCE FEDERATION OF CALIFORNIA TABLE OF CONTENTS Page I. QUESTION PRESENTED...eceseessceeeeeeeeceeeseseneessessesecseneneeneaeas 1 Il. INTRODUCTION....eeessssvesesesesesesesesasessessscequcsseacscseseseseetsess 1 Wl. FACTUAL AND PROCEDURALHISTORY......cccessesesseneetseeees6 A. The Statutory Scheme...cecessseesssssseeeesseesesseesnensente6 B. The Regulation At Issue oo...cccescesessseeseeesseceeseeneeseeeeneas 10 C. Procedural History ............:csssccsesssssecseesssessecsseesessereseesaeeees 14 1. Rulemaking History...eeereseeesereesseseesenesennes 14 2. Procedural History Of This Litigation...16 TV. . STANDARD OF REVIEW ..........cccsccsecceseesseeenseceeeseseseeesseeseseeseeenaes20 V. ARGUMENT........ccscsscsscccsseesecceserenssseeecesseesseeeneessacsessesserateasesaeeneeeses25 A. The UIPA Does Not Confer The Type of Broad Quasi- Legislative Authority The Commissioner Has Claimed HEL, .....eceeeeecccsceccccsssseccceccesseeessneecessaceeseesesesneeeeseaeeeseaeeesensees25 1. The Commissioner’s Overbroad Assertion Of His Authority Under UIPA Conflicts With The Statutory Text And Structure...eeeeeeeereeeeneees25 2. Sections 790.03(b) And 790.10 Do Not Confer Authority On The Commissioner To Define New Categories Of Unfair Or Deceptive Insurance Practices. .........cccceeesseeeesseresereeeeseesseeseneeeees33 3. Section 790.06 Provides A Limited, Case-By- . Case Mechanism To Determine Whether Novel Instances OfUnenumerated Practices The Commissioner Views As Unfair Or Deceptive Should Be Treated As Such Under The UIPA...........43 B. The Canon OfAvoidance Of Constitutional Doubts Also Favors Affirmance..........ceecesessceecesseeessssesecsscsseoeseraees48 TABLE OF CONTENTS (continued) Page C. Public Policy Considerations Also Do Not Support The Commissioner’s Attempted Overreach Here..................52 VI. CONCLUSION...cee eecccecssceesecteeeececesseesescnecseesseseseeseesessceseesrseaeeas 54 CERTIFICATION OF WORD COUNT......cc ccccesccestseessreeseecsestneseseneseees 56 -Li- TABLE OF AUTHORITIES Page(s) Cases 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216oeeeesesetseseesseeeeneeeeneeesetessescssessaseseeeseens 18 44 Liquormart, Inc. v. RI. (1996) 517 U.S. 484 oo.cceecsseeteesetseteetesseesacessneeseeeeeeeeees 48, 50, 51 Am. Coatings Assn., Inc. v. South Coast Air Quality Dist. (2012) 54 Cal.4th 446 oooeescsesseseesseeeceeserereseerssesssseseneenneeenees26 Assn. ofCal. Ins. Cos. v. Jones (2015) 352 P.3d 390...eeeeeescecneteeeeeceesseeesssossuacsssesesseesatereeseeeess20 Assn. for Retarded Citizens ofCal. v. Dept. ofDevelopmental | Services (1985) 38 Cal.3d 384 oeeeesseeeseseeesseeeesseesseeesseeeseseseseeeseeeaeesseesaes21 Estate ofBanerjee . (1978) 21 Cal.3d 527 ...cceccececsscecesssstecscceseesssnecenecensersseetsneeeseenaeeenes36 Batt v. City and County ofSan Francisco | (2010) 184 Cal.App.4th 163 ......ceescccsssesseeesseceseessseessaeeereeenesenes 18 Beeman v. Anthem Prescription Management, LLC (2013) 58 Cal.4th 329 ooeceeseeeseeeseecsncerseseaseesesseesessesenetensees48 Bixby v. Pierno (1971) 4 Cal.3d 130 wo.ceeessessccsesseseecsececsccesseeeseeesrsseeseessessnesnees22 Blevins v. Mullally : (1913) 22 Cal.App. 519eeeceecessesesessceceeesseceserersnessserseseseseneeeenes36 Bodinson Manufacturing Co. v. Cal. Employment Com. (1941) 17 Cal.2d 321 occcesceseteeeesceeseecseeeseaeeeeeeeseeeseasenesensesaes22 Cal. Welfare Rights Organization v. Brian (1974) 11 Cal.3d 237 oo. ciceecccssecensseeccsecesseeseaeeceaeesaeessseetseesanennsesaes20 Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805 oo. ceececcsscesseeesesseecesreeseceseetseesetsevseseeseneeeeaes47 Carmel Valley Fire Protection Dist. v. State ofCal. (2001) 25 Cal4th 287 oo. eeceeeceescneeeesesseseeesseeseessessessssssaeseeeeeaes30 ili TABLE OF AUTHORITIES (continued) Page(s) Central Hudson Gas & Electric Corp. v. Public Service Comm’n ofN.Y. (1980) 447 U.S. 557oeeeesceeencesetscneeeesscesneeeesseessaeeenessessesensesseeeneess 51 Clark v. Martinez (2005) 543 U.S. 371eeeeeenceessesessceeeseceseceessreesseseneseeseeseneesenseseeees 52 Clean Air Constituency v. Cal. State Air Resources Bd. (1974) 11 Cal.3d 801 eeeeccseesenseceseeeeesesenseseseetecseeetseseressesees31 Cooper v. Swoap (1974) 11 Cal.3d 856 oecceeeteecetececeeseesesacensasessecseesecsstserssensens21 Credit Ins. Gen. Agents Assn. v. Payne (1976) 16 Cal.3d 651 oo. cccceccccssetsscessesceseceseesescesseeeseseesteeees 27, 47 Day v. City ofFontana (2001) 25 Cal.4th 268........... sesssceseeseeeeesersceeessesesscecsseesesseseeseaseneeeses22 Environmental Protection Information Center v. Dept. of Forestry & Fire Protection (1996) 43 CalApp.4th LOL] oo.ecceeesseecseeesseresseceseesssssseeeeseees21 Esberg v. Union Oil Co. (2002) 28 Cal.4th 262 oo... cescsecesssseeeeecesseeeeseeeseeeeeeseesseessaseneeeeees23 Ford Dealers Assn. v. DMV (1982) 32 Cal.3d 347 oieescsscseesceceteeeeseeeseeeees 19, 23, 24, 25,47 Gikas v. Zolin (1993) 6 Cal4th 841 ooeeceseseeestecseseceeeseseeesaeeeneteeteesseessseseees36 Grafton Partners L.P. v. Super. Ct. (2005) 36 Cal.4th 944 ooeescscecssssseeseessseceeseeecsseeesessessessnsesseseaees35 Harrott v. County ofKings (2001) 25 Cal.4th 1138 ooesceesecssccssecessresseeessseesessssseeesesensees27 Inre J.W. (2002) 29 Cal.4th 210 occccseseeccsseceeseessseeserecseeeneesessessensessessees35 Laisne v. State Bd. ofOptometry (1942) 19 Cal.2d 831 oo.eeccceceesssescceeeceseeeeseesseeerenerseteeeaeeseseeasens 30 Le Francois v. Goel (2005) 35 Cal.4th 1094 ooocecceeseseecsessseeeeseecsseceseessearesseeseeesees52 -iv- TABLE OF AUTHORITIES (continued) Page(s) Lopez v. Monterey County (1999) 525 U.S. 266.0... ececesceseeseereececseceseeecsaseossseseesasesesesserseeeerenes29 Marbury v. Madison (1803) 5 U.S. (1 Cranch) 137 oeeeceseeecsecsesctsecssseeseseseeeaereees22 McClung v. Employment Development Dept. (2004) 34 Cal.4th 467 oo.cece eecccceeeeseeeseeeesseesossessseseseessaeeeesneenseees22 Morris v. Williams (1967) 67 Cal.2d 773 .o...ecccscccssssesccsescesseeseeeeceeeesseesscseeseeeeseseeseesneensees21 Mutual Life Ins. Co. v. City ofLos Angeles (1990) 50 Cal.3d 402 oeecceseeeestessessseeeeceseersesessesessssaesssesnessersens36 NAACP v. Button (1963) 371 US. 415oececeeseeesceneteeseesseseseceossecessesssorsssseeesnerseeeaeeas 51 People v. Johnson (1988) 47 Cal.3d 576cecesecscessesesececeecesceeeseseseceesseesesseeeseeeeseseraees36 Preston v. State Bd. ofEqualization (2001) 25 Cal.4th 197 oo... seecsseecseeesereseeecsaetseeescesersseeecneeneseerees21 Ramirez v. Yosemite Water Co., Inc. (1999) 20 Cal.4th 785 oo...cee eecesesssceseeeeeesscessseesnsessccsscsseesseeeeseaees20 Riley v. Nat. Federation ofBlind ofN.C., Inc. (1988) 487 U.S. 781 oo. eeceeesceeeeeeeseeesseeescneesseeseeseeeseesansoetes 49,51 In re Smith (2008) 42 Cal.4th 1251 oecceesecsesseereseseseeeseesasereesaeessereeneners 51 Smith v. Super. Ct. (2006) 39 Cal.4th 77 oo... eeeesccsseeeeessceesseseneessceseecneesscsesseeensesseensenes22 Sorrell v. IMS Health,Inc. (2011) 131 S.Ct. 2653 oo... cee cecesesseecseceseeesaeeceaeeeseeeeeeeseeeesnenas 48, 51 Thompson v. Western States Medical Center (2002) 535 U.S. 357 ...cccescccssscssscecesseececeeseeesaneceeeeseeeaessesseesseersesenseas48 Va. State Bd. ofPharmacy v. Va. Citizens Consumer Council, Inc. (1976) 425 U.S. 748oeeeeseeceseseeeeeeeseeeseeeeseeusesesesseesseeseescseesneseeees48 TABLE OF AUTHORITIES (continued) Page(s) Western States Petroleum Assn. v. Bd. ofEqualization (2013) 57 Cal.4th 401 oo...eesesccnecesereeeeeeeneens 18, 21, 22, 26, 27 Wildlife Alive v. Chickering . (1976) 18 Cal.3d 190 ooccessscstcsseecesseeersecseesscssssesessssseesseesees36 WSS Industrial Construction, Inc. v. Great West Contractors, (2008) 162 Cal.App.4th 581 ccccccscsscssssscsscccssssssssessssessssssessssssesee37 Yamaha Corp. ofAmerica v. State Bd. ofEqualization (1998) 19 Cal.4th 1eccsceeeereereeeeseeesseneeeeees 20, 21, 22, 23, 24 Yates v. U.S. . (2015) 135 S.Ct. 1074... esecscscctseseesteesesseeeseeeesecsseseeseeeeesssssesesenes 35 Statutes and Regulations Cal. Code Regs., tit. 10, § 2695.180 ..cccessssssssssscssssssssssssssesesessssssssssseeee 13, 14 Cal. Code Regs., tit. 10, § 2695.183 oooeeeceneeceseeenseeseetteeeeneeees passim Gov. Code, § 11342.) oeeeeceeeseesseeseeeseeeeseesssaseesesresessaeeresseeesteeeeeeeneeny2 Gov. Code, § 11342.2 .ceiccccscesessssseesesesceecssssnecssneeseeeeaceeseesseesessessseeeeeaeenees2 Gov. Code, § 11350... ceeeeeeseereeeeeeees esavenesessesesecsescsesesuessscscacssssssssassees 16 Gov. Code, § 12276 ...ccccccsccccssccessneceeceesecssesssececeeesssaneecssasesseesessaeecsseseseaaees27 Gov. Code, § 12276.5 ...ccccscssssssscstscessssssseessessneescsnscceeeseesocesssesesesseeeenaees27 Ins. Code, § 790 oo... ccesccccsssscccsssecsssceesccsseesaeserseceeeeenssaneetenes 1, 6, 8, 26, 33, 35 Ins. Code, § 790.02... sesessessseestesessesssniessnsseessssesensessnesssnesseesnseesees 18, 34 Ins. Code, § 790.03 ....cccccsessssessssscssssesscsesssssessseeseceeeeseseeseseseseseeaesssenees passim Ins. Code, § 790.04 oo. ceccsseecesssnneeececesccssneeceeeeeeseceeseseeeeeseeeeeesssseeseseaasaees 8 Ins. Code, § 790.05 oceeescscsecssssseecececssecsseceeeeceseeeesssareesssnees 4,5, 8, 18, 35 Ins. Code, § 790.06 oo... eeeeeetsccseeecseeccesenseeestensaaessaseeseseenaeeseeeeeseneeees passim Ins. Code, § 790.07 .....eccccsscccsceccssceceeeseessccsaneeeceeseessseeessseeesesecesneeesneesesenes44 Ins. Code, § 790.08 0... cceesscccsssccesneeeccenscsecevscceeeceetsesuaecesaeessaeessetueesseeesneees 19 Ins. Code, § 790.10 oeeeeesecccesssseeceeeeeseeeeseeeeeeeeeeeeeeesseseeees 4,9, 15, 27, 31 Ins. Code, § 790.035 sesssssssssssssssssssssesssssssssesssssssssnsssssessesssssssseeseesese 8.18, 35 -Vi- TABLE OF AUTHORITIES (continued) Page(s) Ins. Code, § 790.036 ......ccessecsccsseeceeceeecsesesersessesseesessessoseeasessesseesseseeseesvegs 18 Ins. Code, § 10101 v.ececceseecssessessssseesssesseesseeseaens esvessecssesuesssessesssseeans 32, 37 Ins. Code, § 10102 oieeeeeeseesesseecesneessscrsacecosesscssscessssssesssssesessceaneesegens32 Stats. 1972, ch. 725, § Lice ceccseesssssssecesecceeeeesessaesesseeneeesseseseseneeseseoeseeeoees31 Stats. 1975, ch. 790, § Lic... ccssecsssesssncesetscesececeesceesenerseeeseeeseeessesesseoeseeeeees31 Stats, 1978, ch. 186, § Loveeeeeesseeeeeeeeesesseesssesessesssseseessssesssesssensesseaseeeons31 Stats. 1983, ch. 1261, § Lv.cseesseeseecseecseeeeessecseteeesseesseesesesesereeseeeesens 31 Constitutional Provisions Cal. Const., art. 1, § 2 ccc ceccscccsssccsssseseceeeseeesceceeesneseeesseesesssenseeseesennesseaneeeeuee 5 Cal. Const., art. TID, § 3.........cceccccsssccssseseceeeseeeecesssseeesssesssenescsssensseseeseeseeseeeenee9 Cal. Const., art. VI, § 1 ou. eecesceceeesesseseeeceseesesssceeeseseeeeeseneenessaneeseeseeseese23 U.S. Const., Ist Amend. ............ccccsssscsssscseccessseccceceeestsseeecesensessneeeeees 5, 16, 48 Other Authorities 2A Sutherland Statutory Construction (7th ed. 2008) . Statutory Interpretation, § 47:23 oo...cece cssecseeeeeeeeeteeseeseeseesesaneeens36 Asimow, THE SCOPE OF JUDICIAL REVIEW OF DECISIONS OF CALIFORNIA ADMINISTRATIVE AGENCIES, 42 UCLA L. Rev. 1157 (1995) .....ccecccscssscerscstessneesseeeraceeseseeeesesseseatesateneeeseaeees23 Black’s Law Dictionary (10th ed. 2014)...eeeeecece eeeeneersesseneeeseeseees29 -Vii- 1. QUESTION PRESENTED This Court granted review of the following question: “Did the Commissioner act within his statutory authority in promulgating regulations designed to prevent insurers from providing homeownerspurchasing or renewing insurance policies with ‘replacementcost’ estimates that the Commissioner reasonably calculated would be incomplete and potentially misleading?” The Court wasalso interested in “whether the Commissionerhas the statutory authority to promulgate a regulation specifying that the communication of a replacement cost estimate which omits one or more of the components in subdivisions (a)-(e) of § 2695.183 oftit. 10 of the Cal. Code Regs.is a ‘misleading’ statement with respect to the business of insurance.” II. INTRODUCTION The Court of Appealandthetrial court both correctly held that the Commissioner’s attempt to promulgate a regulation defining new unfair insurance practices exceeds the power granted to the Commissionerby the Legislature in the Unfair Insurance Practices Act (the “UIPA”). (Ins. Code, § 790 et seq.) Title 10, Section 2695.183 of the California Code of H R U M a e e ' An Addendum excerpting the text of the relevant statutory and regulatory provisionsis attached hereto. Regulations (the “Replacement Cost Regulation”or the “Regulation”) seeks to impose detailed and cumbersomenew content and format requirements on insurers in providing their insureds or prospective insureds with estimates ofreplacement costs for their homes. Theeffect of the Replacement Cost Regulation is to deem insurancepractices unfair or deceptive, expanding the legislatively-prescribed list of unfair or deceptive acts or practices spelled out in the UIPA beyondthe authority granted to the Commissioner by the UIPA.It also sidesteps the more limited, case-by- case process the Legislature specified in the UIPA for the Commissionerto addressparticular instancesofallegedly unfair or deceptive practices not covered by the detailed and very specific list of “[p]rohibited acts” delineated by the Legislature. (Cal. Code Regs., tit. 10, § 2695.183.) There is simply no statutory authority for the Commissionerto dothis. To be valid, a regulation must be encompassed within the scope of authority conferred by the Legislature, consistent with the terms of the governing statute, and reasonably necessary. (Gov. Code §§ 11342.1 & 11342.2.) The challenged Regulation here is not valid: as the plain language of the UIPA makesclear, the Commissioneris not authorized to define new categories of unfair insurancepractices or “[p]rohibited acts.” * The Commissioner hasreferred to § 2695.183 as the “Replacement Cost Regulation” in his Opening Brief on the Merits. (Opening Brief on the Merits (““OBM”)at p. 2.) The UIPAreservesthe authority to “define” new unfair insurance practices to the Legislature. It only authorizes the Commissionerto “determine,” with the concurrence ofa superior court judge and on a case-by-casebasis, whetherparticular instances of conduct alleged to be unfair should be treated as such for purposes of the UIPA. Thestatute does not authorize the Commissioner to unilaterally do so in an across-the-board quasi- legislative fashion that effectively adds new subdivisions and “[p]rohibited acts” to those set forth and defined by the Legislature in section 790.03. The Commissionernotonly concedes, but trumpets, the fact that the Regulation does just that, claimingthat “it is questionable whetherthe adjudicatory process could everresult in a set of required replacementcost estimate components that are as clear and comprehensiveas providedin the [Regulation].” (OBM at pp. 35-36.) But the UIPA does not provide the authority for the Commissionerto take this action. The Legislature not only prescribed a very detailed, specific list of unfair or deceptive practices and a method for the Commissioner to address additional instances of allegedly novel unfair or deceptive practices that mightfall outside that list—in sections 790.03 and 790.06, respectively— but also clearly delineated the scope of the Commissioner’s powers and authority in a mannerthat the Commissioner has exceeded by promulgating the Replacement Cost Regulation. Moreover, the unlawfulness of the Commissioner’s unwarranted attempt to expand the scopeofhis authority is also confirmed by the terms of section 790.10, which authorize the Commissioneronly to “administer” the statute. The Regulation is either pointless or an unlawful expansion of the Commissioner’s power. If the Regulation does not constitute an expansion of, or addition to, the detailed list of unfair practices proscribed by the Legislature in section 790.03, then it would be pointless and unnecessary. Anyunfair practices covered by section 790.03 can already be addressed by the Commissioner without need for the Regulation through enforcement proceedings authorized by section 790.05. And if the Regulation does define new categories of unfair or deceptive insurance practices, thenit represents an improper attempt by the Commissionerto sidestep the method provided by the Legislature for addressing novelinstancesofallegedly ‘unfair or deceptive practices not clearly covered by section 790.03’s legislatively-prescribed list of “[p]rohibited acts”—namely, section 790.06’s case-by-case order-to-show-cause proceedings before a superior court. The Commissioner’s extra-statutory attempt to arrogate more powers than allowed by the Legislature should be disapproved by this Court, as it was by the courts below. The well-established canon of avoidance of constitutional doubts also militates against the Commissioner’s expansive reading ofhis 4 authority under the UIPA. Such a reading would raise serious constitutional doubts, including under the First Amendmentto the United States Constitution and underarticle I, section 2 of the California Constitution, by both impermissibly restricting some speech and unconstitutionally compelling other speech. Public policy considerations also do not support the Commissioner’s attempted overreach. The Commissionerhas claimed that the Replacement Cost Regulation was necessary to guard against underinsurance. Ofthe 40,000 claimsthat resulted from the 2007 wildfires, “the department. received only 70 complaints related to underinsurance,” amounting to complaints on only 0.175% of filed claims. (Administrative Record (“AR’’) 1254.) Assuming, arguendo,that all these complaints had merit, the statutory scheme already provides the Commissionerwith the tools needed to address any perceived instances of unfair practices engaged in by insurance companies, again through sections 790.05 and 790.06 (among other provisions). For these reasons, set forth more fully below, this Court should affirm the Court of Appeal’s (andtrial court’s) judgment invalidating the Commissioner’s challenged Replacement Cost Regulation as exceeding his authority under the UIPA. Ii. FACTUAL AND PROCEDURAL HISTORY A. The Statutory Scheme The Unfair Insurance Practices Act (“UIPA”) begins with section 790, which providesthat “[t]he purposeofthis article is to regulate trade practices in the business of insurance . . by defining, or providing for the determination ofall such practices in this State which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined.” (Ins. Code § 790,° italics added.) Section 790 drawsa distinction between unfair practices that are “defined”in the statute and particular instances ofthose that may be “determined” to be such (on a case-by-casebasis). Section 790.03 defines what constitute “unfair methods of competition or unfair or deceptive acts or practices” under the UIPA.It states that “[t]he following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance,” and providesa detailed, lengthy list of specific “[p]rohibited acts,” many of which in turn have detailed sub-parts. (§ 790.03.) Section 790.03 contains subdivisions (a) through (j), several of which havetheir own numerous subparts. (See generally § 790.03; see also id. at subd. (h) [listing 16 separate subparts].) 3 All references are to the Insurance Code unless indicated otherwise. This detailed list includes specific prohibitions on failing to acknowledge and act reasonably promptly upon claims-related communications with insureds (§ 790.03, subd. (h)(2)), advising a claimant not to obtain the services of an attorney (id. at subd. (h)(14)), misleading a claimantas to the applicable statute of limitations (éd. at subd. (h)(15)), and cancelling or refusing to renew a policy in violation of another section of the Insurance Code(id. at subd. (i)). By enacting such a meticulously detailed list, the Legislature made clear that in this particular statute, no need exists nor would it be appropriate for the Commissioner himself to add to or modify this legislatively-prescribedlist in the quasi-legislative fashion he has with his Replacement Cost Regulation. Subdivision (b) of section 790.03 defines as an unfair practice “Making or disseminating or causing to be made or disseminated before the public in this state, in any newspaperor other publication, or any advertising device, or by public outcry or proclamation, or in any other manner ot means whatsoever, any statement containing any assertion, representation, or statement with respect to the business of insurance or with respect to any person in the conductofhis or her insurance business, whichis untrue, deceptive, or misleading, and which is known,or which by the exercise of reasonable care should be known,to be untrue, deceptive, or misleading.” (/d. at subd. (b).) It is this section on which the Commissionerrelies in promulgating the Replacement Cost Regulation. 7 The UIPAalso provides enforcement mechanismsto redress violations of section 790.03. It provides for civil penalties (§ 790.035), authorizes the Commissionerto “examineand investigate into the affairs of every person engaged in the business of insurancein the State in order to determine whether such person has beenoris engaged in any unfair method of competition or in any unfair or deceptive act or practice” (§ 790.04), and grants the Commissioner authority to initiate enforcement proceedings to remedy the commission of “[p]rohibited acts” under section 790.03 (§ 790.05). Complementing section 790.03, section 790.06 provides a procedure, anticipated by section 790, for “determining,” on a case-by-case basis and with the concurrenceofa superior court judge, whetherparticular conduct constitutes an instance of a novel unfair or deceptive practice not covered by section 790.03’s detailed list. Specifically, section 790.06 provides that: Whenever the commissioner shall have reason to believe that any person engaged in the business of insurance is engaging in this state in any method of competition or in any act or practice in the conduct of the businessthat is not defined in section 790.03, and that the methodis unfair or that the act or practice is unfair or deceptive . . . he or she may issue and serve upon that person an order to show cause ... for the purpose of determining whetherthe alleged methods, acts or practices or any of them should be declared to be unfair or deceptive within the meaning of this article. (§ 790.06, subd.(a), italics added.) This section provides the Commissioner with a mechanism to address any unfair practices that do not fall squarely within the detailed list of “[p]rohibited acts” proscribed by the Legislature in section 790.03 without creating an entirely new category of prohibited acts. The authority granted by section790.06 is also clearly circumscribed by the language of that section, which limits the determination of unfair practices to acts that “should be declared to be unfair or deceptive within the meaning ofthis article.” (Ibid., italics added.) Finally, section 790.10 provides that “[t]he [C]ommissionershall, from time to time as conditions warrant, after notice and public hearing, promulgate reasonable rules and regulations, and amendments and additions thereto, as are necessary to administerthis article.” (§ 790.10,italics added.) Thestatute’s termsandstructure clearly delineate the boundsofthe Commissioner’s authority. The Legislature has reservedto itself the authority to define unfair or deceptive insurance practices. The Commissioneris not authorizedto create,in quasi-legislative fashion, whole new categories of unfair or deceptive practices; only the Legislature may add to or modify section 790.03’s highly specific and lengthy list of. “Tp]rohibited acts” in that manner. (Cal. Const., art. III, § 3 [“The powers of state governmentare legislative, executive, and judicial. Persons charged with the exercise of one power maynot exercise either of the 9 others except as permitted by this Constitution.”].) While the Commissioner may investigate instances of novel practices not specifically enumerated in section 790.03 that he contends should also be considered unfair or deceptive, and while he also has the authority to seek relief from a superior court, on a case-by-case basis, under section 790.06,the Commissioner may not add to or modify section 790.03’s legislatively- prescribed list of prohibited acts. The Commissioneris limited, in other words, to exercising only the authority that has been conferred on him to “administer” the UIPA. B. The Regulation At Issue The Replacement Cost Regulation, codified at California Code of Regulations, Title 10, section 2695.183, imposes on all providers of homeowners’ insurancea single set of highly detailed content and format requirements for providing insureds and prospective insureds with estimates of the cost of replacing a house or other dwelling damaged by a natural disaster or other covered occurrence. The Regulation provides in relevant part: “No licensee shall communicate an estimate ofreplacement cost to an applicant or insured in connection with an application for or renewal of a homeowners’ insurance policy that provides coverage on a replacement costbasis, unless the requirements and standardsset forth in subdivisions (a) through (e) below are met.” (Cal. Code Regs., tit. 10, § 2695.183.) 10 Subdivisions (a) through (e) of section 2695.183 set out the following “requirements and standards”for replacement cost estimates: (a) The estimate of replacementcost shall include the expenses that would reasonably be incurred to rebuild the insured structure(s) in its entirety, including at 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 insuredstructure, including at least the following: (A) Type of foundation; (B) Type of frame; (C) Roofing materials and type ofroof; (D) Siding materials and type of siding; (E) Whetherthe structure is located on a slope; (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 andair conditioning system, walls, flooring, ceiling, fireplaces, kitchen and bath(s); (J) Age ofthe structure or the year it was built; and , (K) Size and type of attached garage. (Id. at subd.(a).) Subdivisions (b) through (e) provide as follows: (b) The estimate of replacementcost shall be based on an estimate of the cost to rebuild or replace the structure taking into account the cost to reconstruct the single property being evaluated, as compared to the cost to build multiple, or tract, dwellings. 11 (c) The estimate ofreplacement cost shall not be based uponthe resale value of the land, or upon the amountor outstanding balance of any loan. (d) The estimate of replacementcost shall not include a deduction for physical depreciation. (e) The licensee shall no less frequently than annually take responsible steps to verify that the sources and methods used to generate the estimate of replacement cost are kept current to reflect changesin the costs of reconstruction and rebuilding, including changesin labor, building materials, and supplies, based upon the geographic location ofthe insured structure. The estimate ofreplacement cost shall be created using such reasonably current sources and methods. (Ud. at subds. (b)-(e).) The Regulation continues in subdivision (g)(2)* and makes explicit that an estimate, to be acceptable, must be broken out in fourparts: An estimate ofreplacement cost provided in connection with an application for or renewal of a homeowners’ insurance policy that provides coverage on a replacementcost basis must itemize the projected cost for each element specified in paragraphs(a)(1) through (4), and shall identify the assumptions made for each of the components and features listed in paragraphs(a)(5), ofthis Section 2695.183. (Cd. at subd.(g).) * Subdivision (f) of the Replacement Cost Regulation makes the provisions of the Regulation binding onall personsor entities licensed by the Commissionerto act as insurance agents, brokers, or solicitors. Subdivision (g)(1) requires that replacement cost estimates be provided to applicants. Subdivision (h) requires that ifreplacementcost estimates are updated or revised, copies must be providedto the applicant. Subdivision (i) requires licensees to maintain certain recordsrelating to replacement costs. Subdivisions (k) through (q) address how the Replacement Cost Regulation should be construed. (See Addendum.) 12 Subdivision (j) purports to render any estimate calculated or communicated in any manner different than that specified by the Commissioner’s very detailed Replacement Cost Regulation to be misleading as a matter oflaw (i.e., an unfair or deceptive insurance practice). It provides: To communicate an estimate of replacement value not comporting with subdivisions (a) through (e) ofthis Section 2695.183 to an applicant or insured in connection with an application for or renewal of a homeowners’ insurance policy that provides coverage on a replacementcostbasis constitutes making a statement with respect to the business of insurance which is misleading and which bythe exercise of reasonable care should be knownto be misleading, pursuant to Insurance Code section 790.03. (Ud. at subd. (j).) Section2695.183 repeatedly uses the phrase “estimate of replacement cost.” That phrase is defined in section 2695.180(e) as follows: ‘Estimate of replacement value’ shall have the same meaning as ‘estimate of replacementcost’ and meansany estimate, statement, calculation, approximation or opinion, whether expressedorally or in writing, regarding the projected replacementvalueofa particular structure or structures. (Id. at subd.(e).) The overall effect of the Replacement Cost Regulation is to create a long, detailed list of new purported unfair or deceptive insurance practices, none ofwhich are enumeratedin section 790.03. Subdivisions (a) though (e), even taken by themselves, thus create new standards,in quasi- 13 legislative fashion, governing the primary conductofall licensees, including insurers, brokers, and agents (see Cal. Code Regs.,tit. 10, §2695.180), in making replacementcost estimates, above and beyond the already specific and detailed list of standards and “[p]rohibited acts” prescribed by the Legislature in section 790.03. (Cal. Code Regs., tit. 10, § 2695.183, subds. (a)-(e).) C. ProceduralHistory 1. Rulemaking History On April 2, 2010, the Commissioner gave notice ofhis proposal to adopt a series ofregulations in response to complaints of underinsurance by homeowners following catastrophic wildfires. (AR | 101.) Included inthe proposal wasthe original text of what would becomethe Regulation challenged here—section 2695.183, Standards for Estimates ofReplacement Value. (AR 1077-1079.) The Commissionerclaimed that the Replacement Cost Regulation was necessary because in someinstances homeowners had claimed that their insurance was inadequate to coverthe cost ofrebuilding their homes after a total loss caused by wildfires. The Commissioner supported this assertion by pointing to a scattering of unsubstantiated and unverified homeowner complaints. (AR 1081.) Respondents—the Association of California Insurance Companies and the Personal Insurance Federation of California “Respondents”or “the 14 Associations”)—submitted comments to the Commissioner, highlighting the Commissioner’s lack of authority to define new categories of unfair or deceptive insurancepractices or to regulate homeowners’ insurance in the mannerthat section 2695.183 purports to. (AR 1185-1196, 1204-1207.) Numerousother parties submitted comments as well. (AR 1165-1233.) The Commissioner promulgated revised regulations, but did not make any changes addressing the Associations’ concerns about the Commissioner’s lack of authority to promulgate section 2695.183. (AR 1258-1262, 1269-1273.) Respondents submitted additional commentsto the revised regulation, again asserting that the Commissioner lacked authority to adopt the proposed regulations. (AR 1239-1247, 1253-1257.) The Commissioner did not address the Associations’ comments regarding his lack of authority in the final version ofthe Regulation (AR 12- 15) and adopted it on November 16, 2010. (AR 5.) In adopting the Regulation, the Commissioner also prepared a Final Statement ofReasonsin which he responded to comments submitted by interested parties, but again did not address commentsregarding his lack of authority, except to cite sections 790.10 and 790.03. (AR 1388-1542.) The Commissioner’s Replacement Cost Regulation becameeffective on June 27, 2011. (AR2.) 15 2. Procedural History Of This Litigation The Associations filed a complaint for declaratory relief pursuant to Government Code section 11350 on June 8, 2011, challenging the validity of the Regulation on three grounds: l. The Commissioner has exceeded his authority under the UIPAby purporting to define new categories ofunfair or deceptive insurance practices extending beyond those specifically proscribed by the Legislature in section 790.03 of the Insurance Code; 2. The Regulation unlawfully restricts insurers’ underwriting - of homeowners insurance, which the Commissioner has no authority to regulate; and 3. The Regulation contravenes the First Amendmentto the United States Constitution. (Joint Appendix (“JA”) 1-17.) On March 25, 2013, the trial court issued its statement of decision granting the relief sought by the Associations. (JA 292-297.) Thetrial court held that “[plursuant to Government Codesection 11350, the regulation section 2695.183 is invalid [in] that the Commissioner exceeded his authority by attempting to define additional acts or practices as unfair or deceptive by regulation rather than by the procedureset outin section 790.06.” (JA 296.) The court reasoned that “[b]y characterizing all estimates ofreplacementcosts as misleading (save the one provided by section 2695.183) Defendantin exercising its authority under Cal. Ins. Code § 790.10, expands the meaning of something ‘known’or which ‘ should be 16 known’to be misleading beyond the parameters of Cal. Ins. Code § 790.03(b).” (JA 295.) The court continued, explaining that “[t]he limits of the authority granted by §790.03 are underscored by Cal. Ins. Code § 790.06, which provides a special process by which the commissioner can determine how acts not listed in §790.03 can be defined as unfair or deceptive.” “To follow Defendant’s interpretation of §790.03(b) would be to obviate the need for §790.06, and statutes should be interpreted in such a wayas to make them consistent with each other (citation omitted). Therefore, because §2695.183 improperly alters the scope of § 790.03(b), its adoption cannotbe justified.” (JA 295.) The court concluded that the Regulation transcended the Commissioner’s authority under the UIPA by addingto the already lengthy, detailed list of unfair practices and “[p]rohibited acts” specified by the Legislature in section 790.03. The court reasoned that the Commissioner may only address novelinstances of alleged unfair practices not set forth in section 790.03 through section 790.06’s case-by-case order-to-show-cause procedure before a superior court. The Commissionerfiled his notice of appeal on May9, 2013. (JA 318-320.) On April 8, 2015, the Court of Appeal issued its thorough, well-reasoned published opinion affirmingthe trial court’s decision that the Commissioner lacked authority to promulgate the Replacement Cost 17 Regulation. The Court ofAppeal’s decision correctly emphasized from the outset that courts need not defer to an administrative agency’s interpretation of the scope of its own authority. (Opinion (“Opn.”) at p. 18, citing Western States Petroleum Assn. v. Bd. ofEqualization (2013) 57 Cal.4th 401, 415 (“Western States Petroleum”); 20th Century Ins. Co. v. Garamendi(1994) 8 Cal.4th 216, 271; Batt v. City and County ofSan Francisco (2010) 184 Cal.App.4th 163, 170.) The court then explainedthat the plain language of the UIPA “reveals the Legislature’s intent to set forth in the statute what unfair or deceptive trade practices are prohibited, and not delegate that function to the Commissioner.” (/d. at p. 22.) Indeed, the express language of sections 790.02, 790.03, and 790.036 demonstrate that “the Legislature was deliberate in choosing what conduct to brand . . as ‘unfair and deceptive.’” (/d. at p. 23.) When read together with those provisions that delineate the Commissioner’s powers (§§ 790.035-790.09), the court concludedthat “the Legislature did not give the Commissioner powerto define by regulation acts or conduct not otherwise deemed unfair or deceptive in the statute.” (Opn.at p. 23.) The court rejected the Commissioner’s argument that incomplete A G R E E R E O H . ” D e a e O R M E RR ER EE OT ™ replacement cost estimates are encompassed bysection 790.03, subdivision (b)’s reference to “untrue, deceptive, or misleading” statements by pointing out that, were that the case, there would be no needforthe Regulation because section 790.05 already empowers the Commissionerto 18 assess penalties and issue cease-and-desist orders against licensees who give “lowball or incomplete estimate[s].” (/d. at pp. 24-25.) Likewise, section 790.06 offers a “multifaceted procedural process[]” that the Commissioner must comply with, including seeking a court order, before he may take actions to seek relief from any conductnot falling within the terms of section 790.03. (Ud. at p. 25.) The court also emphasized that section 790.08 clarifies that the enforcementrole of the Commissioneris tethered to acts and practices “‘hereby declared to be unfair or deceptive,’ to wit, defined or determined in the UIPA.” (Jd. at p. 26.) The Court ofAppeal then addressed the Commissioner’s reliance on Ford Dealers Assn. v. DMV(1982) 32 Cal.3d 347 (“Ford Dealers’). (Id. at pp. 26-27.) It distinguished the statute at issue in Ford Dealers from the UIPAon the grounds that the UIPA provides a mechanism for the Commissioner to determine on a case-by-case basis and with the concurrence of a superior court judge whetherparticular instances of conductalleged to be unfair or deceptive should be treated as such for purposesofthe UIPA, while the statute in Ford Dealers had no such provision. The UIPAtherefore provides a limited gap-filling mechanism that was not available in Ford Dealers. The Court ofAppeal concluded that although “the Legislature could have delegated to the Commissioner the kind of broad authority conferred on the DMV in Ford Dealers; it did e not do so in the UIPA.” (Opn.at p. 27.) 19 Finally, the court relied on the lengthy history of the Legislature’s detailed involvementin defining categories of “[p]rohibited acts” and unfair or deceptive insurance practices under section 790.03 (as well as other provisions ofthe Insurance Code) to provide further support forits conclusion that the Commissioner could not, “under the guiseof‘filling in the details,’” do what the Legislature chose not to do. (dd.at p. 31.) The Commissionerpetitioned this Court for review on May 19, 2015. This Court granted review on July 15, 2015, directing the parties to “also” address “whether the Commissionerhasthe statutory authority to promulgate a regulation specifying that the communication of a replacement cost estimate which omits one or more of the components in § 2695.183(a)-(e) is a “misleading” statement with respect to the business of insurance.” (Assn. ofCal. Ins. Cos. v. Jones (2015) 352 P.3d 390, 822- 823.) IV. STANDARD OF REVIEW This Court has repeatedly reaffirmed the fundamental principle that an administrative agency may not adopt a regulation that exceeds the scope of, or is inconsistent with, the Legislature’s grant of authority to the agency. (See, e.g., Ramirez v. Yosemite Water Co., Inc. (1999) 20 Cal.4th 785, 800; Yamaha Corp. ofAmerica v. State Bd. ofEqualization (1998) 19 Cal.4th 1, 11 (“Yamaha’’); Cal. Welfare Rights Organization v. Brian (1974) 11 Cal.3d 237, 242.) “Administrative regulations that alter or amend the 20 statute or enlarge or impair its scope are void and courts notonly may, but it is their obligation to strike down such regulations.” (Morris v. Williams (1967) 67 Cal.2d 773,748; see also, e.g., Preston v. State Bd. of Equalization (2001) 25 Cal.4th 197, 219 [“[r]Jegulation [that] exceeds the scope of the Board’s authority [] is invalid”); Assn. for Retarded Citizens of Cal. v. Dept. ofDevelopmental Services (1985) 38 Cal.3d 384, 391 [Administrative action that is not authorized by, or is inconsistent with, acts of the Legislature is void.”]; Cooper v. Swoap (1974) 11 Cal.3d 856, 864 [“It is axiomatic, of course, that administrative regulations promulgated underthe aegis of a general statutory schemeare only valid insofar as they are authorized by and consistent with the controlling statutes.”].) This Court exercises its independent judgment when determining whether a regulation comes within the scope of the authority the Legislature has delegated to an administrative agency. (Yamaha, supra, 19 Cal.4th at p. 11, fn. 4.) “The court, not the agency,has ‘final responsibility for the interpretation of the law’ under which the regulation wasissued.” (Ibid.; see also Western States Petroleum, supra, 57 Cal.4th at p. 415 [“[T]he issue of statutory construction is a question of law on which a court exercises independent judgment.”].) The applicable standard ofreviewis, therefore, “respectful nondeference.” (Yamaha, supra, 19 Cal. 4th at p. 11, fn. 4, citing Environmental Protection Information Center v. Dept. of Forestry & Fire Protection (1996) 43 Cal.App.4th 1011, 1022.) 21 In determining whether a regulation lies within an agency’s rulemaking authority, a court’s “fundamental task is to ascertain the Legislature’s intent so as to effectuate the purpose of the statute.” (Smithv. Super. Ct. (2006) 39 Cal.4th 77, 83.) Courts lookfirst to the statutory language to ascertain its usual and ordinary meaning. (/bid.) “If there is no ambiguity,” courts “presume the lawmakers meant whatthey said, and the plain meaning of the language governs.” (Day v. City ofFontana (2001) 25 Cal.4th 268, 272.) | Therule articulated in Yamaha and Western States Petroleum is consistent with bedrockprinciples of separation ofpowers, pursuantto which this Court (and other courts) interpret statutes such as the UIPA, and declare what the law is. (See, e.g., Bodinson Manufacturing Co. v. Cal. Employment Com. (1941) 17 Cal.2d 321, 326 [“The ultimate interpretation of a statute is an exercise of the judicial power.”]; McClung v. Employment Development Dept. (2004) 34 Cal.4th 467, 472 [“Ultimately, the interpretation of a statute is an exercise of the judicial power the Constitution assigns to the courts.”]; Bixby v. Pierno (1971) 4 Cal.3d 130, 141, citing Marbury v. Madison (1803) 5 U.S. (1 Cranch) 137, 175-178.) The powerofstatutory interpretation is conferred upon the courts by the California Constitution and, absent a contrary constitutional provision (none _ is on point here), may not be exercised by any other body. (Bodinson Manufacturing Co. v. Cal. Employment Com., supra, 17 Cal. 2d at 326, 22 citations omitted; see also Cal. Const., art. VI, § 1.) It is thus the role ofthe Court to “ascertain the intent of the drafters so as to effectuate the purpose of the law.” (Esberg v. Union Oil Co. (2002) 28 Cal.4th 262, 268.) Contrary to the Commissioner’s view, Ford Dealers does notcontrol here. Ford Dealers was decidedprior to this Court’s thorough and scholarly examination in Yamaha ofthe proper standard of review for assessing the legality of a challenged agency regulation. In Ford Dealers, the Court appeared to assume, without expressly deciding, that the regulations at issue in that case were adopted pursuant to a proper delegation of legislative authority. The Court thus applied a “strong presumption of regularity”to the regulation and afforded substantial deference to the agency’s policy judgmentin the absence of “an arbitrary and capricious decision.” (Ford Dealers, supra, 32 Cal.3d at p. 355.) But, sixteen years later, in Yamaha, this Court held thatits prior decisions, like Ford Dealers, “may overstate the level of deference” applicable to agency decisions. (Yamaha, supra, 19 Cal.4th at p. 11, fn. 4.)° In particular, the > In the intervening sixteen years, commentators havealso criticized Ford Dealers’s formulation of the applicable standard of review: “[I]t might mean that the court must accept a reasonable agencyinterpretation with whichit disagrees, in which case it would diverge from the mainstream doctrine.” (Asimow, THE SCOPE OF JUDICIAL REVIEW OF DECISIONS OF CALIFORNIA ADMINISTRATIVE AGENCIES, 42 UCLAL.Rev. 1157 (1995), p. 1201; see also Asimow, Letter in Support of Commissioner’s Petition for Review (June 11, 2015), at p. 3 [interpreting the Court’s 23 Court cautionedthatit “does not... defer to an agency’s view when deciding whether a regulation lies within the scope ofthe authority delegated by the Legislature.” (Ibid., italics added.) Indeed, the Commissioner appears to acceptthatthis is the pertinent standard that governs here. (OBM atp. 18 [“The standard is .. . ‘respectful _ nondeference.’”].) Thus, the Commissioner’s reliance on Ford Dealers is inapt. | Ford Dealersis also readily distinguishable on its facts. The Vehicle Code provisionsat issue in that case are entirely unlike the UIPA provisions on which the Commissionerrelies here. Notably absent from the Vehicle Code wasa section providing a procedure for the agency to prosecute conductnot elsewhere defined in the Vehicle Code asfalse or misleading. But here, of course, such a mechanism wasspecifically provided for by the Legislature in section 790.06 of the UIPA. That section creates a judicial procedure for addressing any conductalleged to be “unfair or deceptive within the meaning ofthisarticle” but“that is not defined in Section 790.03.” (§ 790.06.) Although the Department ofMotor Vehicles may haveneededto promulgate regulationsto fill gaps left by the absence of an analogue in the Vehicle Code to section 790.06 of the UIPA,the Yamaha decision as providing that “the court should not abdicate its function of being the ultimate arbiter of statutes”’].) 24 Commissioner has no authority to “fill up the details” he believes were omitted in section 790.03 because the Legislature has providedjust such a gap-filler in section 790.06. The Legislature’s decision to provide for the mechanism set forth in section 790.06 evincesits intent to define unfair insurancepracticeslegislatively, rather than by delegating quasi-legislative authority to the Commissioner to do so. (OBM atp. 24.)° V. ARGUMENT A. The UIPA Does Not Confer The Type of Broad Quasi- Legislative Authority The Commissioner Has Claimed Here. 1. The Commissioner’s Overbroad Assertion Of His Authority Under UIPA Conflicts With The Statutory Text And Structure. The Commissioner’s claim that the Legislature has granted him broad quasi-legislative authority to proscribe new categories of unfair or deceptive practices and prohibited acts is flatly contradicted by the plain language andstructure ofthestatute itself, as well as its legislative ° The Commissioneralso points to similarities in the regulation promulgated by the DMV in Ford Dealers and section 2695.183. (OBM atp. 23.) But any similarities in the regulationsare irrelevant— the question is the breadth of the authority granted by the delegating statutes—and thestatute at issue in Ford Dealers providedfor a far broader delegation of power than the UIPA does. In Ford Dealers, the director of the DMV wasauthorized to “adopt rules and regulations ‘as may be necessary to carry out the provisions’ of the Vehicle Code.” (Ford Dealers, supra, 32 Cal.3d at p. 354.) The Court in Ford Dealers recognized this broad grant of poweras a directive to “implement,” rather than administer, the statute. 25 history. As an initial matter, the UIPA is not “a statute [that] identifies a complex problem (suchasair pollution), sets forth a general goal... , and then broadly empowers an agency to study the problem andto adopt appropriate guidelines.” (Western States Petroleum, supra, 57 Cal.4th at p. 436 (conc. & dis. opn. of (Kennard, J.); cf., e.g., Am. Coatings Assn., Inc. v. South Coast Air Quality Dist. (2012) 54 Cal.4th 446, 452 [concludingthat because the Air Resources Boards had been “charged with developing the state implementation plan,” the regulations adopted to do so were a valid exercise of the agency’s delegated power].) In contrast to such capacious statutory schemes, the Legislature has set forth a very detailed and specific list of practices and “[p]rohibited acts” in the UIPAthatit has defined as unfair or deceptive. (See § 790.03.) The Legislature also has not enacted any language empowering the Commissioner to make new law. (See generally § 790 et. seq.; compare, e.g., Am. Coatings Assn., Inc. v. South Coast Air Quality Dist., supra, 54 Cal.4th at p. 452 [“Under California law... [California Air Quality ManagementDistricts] are required to ‘adopt and enforce rules and regulations to achieve and maintain the state and federal ambientair quality standardsin all areas affected by emission sources undertheir jurisdiction, and shall enforce all applicable provisions of state and federal law.’ [Health & Saf. Code,] § 40001, subd.(a).”]; Western States Petroleum, supra, 57 Cal.4th at p. 414 [“Government Codesection 15606, subdivision 26 (c) authorizes the Boardto ‘[p]rescribe rules and regulations to govern local boards of equalization when equalizing, and assessors when assessing....’”]; Harrott v. County ofKings (2001) 25 Cal.4th 1138, 1150 [“« Subdivision (h) of section 12276.5 provides in pertinent part: “The Attorney Generalshall promulgatea list that specifies all firearms designated as assault weaponsin Section 12276 or declared to be assault weaponspursuantto this section.’”] with section 790.10 [“The commissioner shall, from time to time as conditions warrant, after notice and public hearing, promulgate reasonable rules and regulations, and amendments and additions thereto, as are necessary to administer this article.”].) The UIPAthusconstitutes a classic “self-executing” statutory scheme that does not require agency actionto spell out whatparticularacts are prohibited—the Legislature has already done so, in section 790.03 and its many subparts and subdivisions. (See Western States Petroleum, supra, 57 Cal.4th at p. 436 (conc. & dis. opn. of Kennard,J.); see also Opn. at pp. 27-28 [contrasting the Regulation and UIPA with otherstatutory schemes granting “broad discretion” to agencies, and citing Credit Ins. Gen. Agents Assn. v. Payne (1976) 16 Cal.3d 651, 656].) The UIPAis “fully self- executing and enforceableirrespective of the [Commissioner’s] rules interpreting how it should be appliedin specific situations.” (Western 27 States Petroleum, supra, 57 Cal.4th at p. 436 (conc. & dis. opn. ofKennard, J.).) In addition, when it adopted the UIPA,the Legislature actually provided a mechanism for the Commissionerto redress particular instances of novel practices the Commissioner contends are unfair or deceptive but | that fall outside the ambit of section 790.03’s detailed list. That mechanism, of course, is section 790.06’s case-by-case order-to-show- cause procedure before a superior court—one that does not empowerthe Commissionerto exercise quasi-legislative authority. This reading of the UIPAis confirmedbyits legislative history. For example, the enrolled bill report provided to the Governor by the Department ofFinance includes a description ofthe anticipatedfiscal effect—specifically, “One time $1,500 hearing costs”’ for promulgating regulations to administer the UIPA. (Appellant’s Requestfor Judicial Notice (“Appellant’s RJN’”) Exh. A.) Given how lowthis figure is, and the fact that it refers to “one time”costs, it appears clear that all the Legislature anticipated was limited post-enactmentactivity by the Department of Insurance, and that the Legislature did not expect that the Commissioner 7 This would be approximately $4,300 in today’s dollars, according to the United States Department of Labor’s online inflation calculator, available at http://www.bls.gov/data/inflation_calculator.htm. 28 would engage in quasi-legislative lawmaking of the sort represented by the Replacement Cost Regulation. The limited scope of the Commissioner’s authority under the UIPA is also confirmed by at least one other important andtelling portion of the legislative history. Thebill, when introduced, providedthat the Commissioner had authority to adopt regulations to “implement” the UIPA. On July 9, 1971, AB 1353 was amended,replacing the word “implement” with “administer.” (See Plaintiffs and Respondents’ Motion for Judicial Notice (“RJN’’) Exh. B [July 9, 1971 Version ofAB 1353].) That change further demonstrates that the Legislature recognized that: (1) it had fully defined, in a self-executing way, the particular acts and practices thatit deemed unfair or deceptive in its detailed and specific list in section 790.03, with a limited, case-by-case, gap-filling mechanism for novel instances of allegedly unfair or deceptive practices in section 790.06’s order-to-show- cause procedure, and (2) the Commissioner may only “administer”the UIPA. Giving authority to the Commissioner to “administer” the UIPA providesa limited delegation of authority. “Administering” confers authority only “[t]o have charge of; manage.” (See Appellant’s RJN Exh. D [American Heritage Dict. (2d college ed. 1982) p. 79]; see also Black’s Law Dictionary (10th ed. 2014) [defining “administer” as “[t]o provide or arrange (something)officially as part of one’s job”]; Lopez v. Monterey 29 County (1999) 525 U.S. 266, 266 [the term “‘administer’ is consistently defined in purely nondiscretionary terms”].) The overreach by the Commissioner embodied in the Replacement Cost Regulation also violates well-established principles of separation of powers,because it transgresses the boundariesset by the Legislature in adopting the UIPA. (See Laisne v. State Bd. ofOptometry (1942) 19 Cal.2d 831, 835 [““When one department or an agency thereof exercises the complete powerthat has been by the Constitution expressly limited to another, then such action violates the implied mandate ofthe Constitution.”]; see also Carmel Valley Fire Protection Dist. v. State of Cal. (2001) 25 Cal.4th 287, 297 [reaffirming that “the primary purpose of the separation-of-powersdoctrine is to prevent the combination in the handsof a single person or group ofthe basic or fundamental powers of government.” (Citations omitted.)].) Under these circumstancescourts have “not hesitated to strike down provisions of law that either accrete to a single Branch powers more appropriately diffused among separate Branchesor that underminethe authority and independence of one or another coordinate Branch.” (Carmel Valley Fire Protection Dist. v. State ofCal., supra, 25 Cal.4th at p. 297,citations omitted.) Althoughthelegislative branch of government “properly may delegate some quasi-legislative or rulemaking authority to administrative agencies,” the head of “an executive agency created by statute[] has only as 30 much rulemaking powerasis invested in [him or her] by statute.” (/d. at p. 299,citations omitted.) Underlying these principles is “the belief that the Legislature as the most representative organ of government should settle insofar as possible controverted issues of policy” and “must determine crucial issues wheneverit has the time, information and competenceto deal with them.” (Clean Air Constituency v. Cal. State AirResources Bd. (1974)11 Cal.3d 801, 817.) In the years since the passage of the UIPA, the Legislature has further confirmed its intention to retain and continue to exercise its authority to define(in the statute itself) what acts and practices the Legislature itself deems unfair or deceptive, and thus prohibited. The year after section 790.10 was adopted, for example, the Legislature added subdivision (h) to section 790.03 forbidding fourteen specific “unfair claimssettlement practices.” (Stats. 1972, ch. 725, § 1, p. 1314.) In 1975, it added two more paragraphs enumerating specific unfair claims settlement practices under subdivision (h). (Stats. 1975, ch. 790, § 1, p. 1812.) In 1978, it added the secondandthird paragraphs under subdivision(f) mandating that subdivision (f) be interpreted to require differentials based upon the sex of the insured and carving out a limited exception thereto. (Stats. 1978, ch. 186, § 1, p. 416.) And in 1983, it added the fourth paragraph under subdivision(f) stating that, notwithstanding subdivision (f), sex-based differentials in rates or dividendsor benefits are 31 not required for certain categories of policies. (Stats. 1983, ch. 1261, § 1, eff. Sept. 30, 1983.) In 1992, following the Oakland Hills wildfire the previousyear, the Legislature enacted section 10101 et seq. These provisions were updated in 2010 to specifically address some of the causes of underinsurance, such as insureds failing to notify insurers about improvements to their homes and the effect of inflation on the cost of homerepairs. Sections 10101 and 10102 required insurers to deliver to insureds a copy ofthe California Residential Property Insurance disclosure statement. (§§ 10101-10102.) That statement described for insureds the types of insurance policies, including actual cash value coverage, replacement cost coverage, extended replacement cost coverage, and guaranteed replacement cost coverage. It also described building code upgrade coverage and urged insuredsto read their policies carefully. (§ 10102.) Section 10102 containsa sectiontitled “The Residential Dwelling Coverage Limit,” which informed insureds that coverage should be high enough to rebuild a homeifit is completely destroyed. After conducting hearings that covered the underinsurance phenomenon,the Legislature responded not by giving the Commissioner free rein to engage in quasi-legislative rulemaking, but by requiring additional disclosures and keeping responsibility for determining coverage 32 limits on insureds rather than shifting that responsibility to insurers as the Commissioner seeks to do.* In this case, the Legislature’s intent is clear—the Commissioner may only “administer” the UIPA, and may only utilize the more limited, non- legislative procedures the Legislature has specified for the Commissioner to redress the lengthy and highly specific list of prohibited acts proscribed by the Legislature, as well as novel instances of unenumerated practices the Commissioner viewsas unfair or deceptive. By attempting to arrogate the powerand long-closely-guarded legislative prerogative to define what constitute unfair or deceptive insurance practices under the UIPA,the Commissionerhas transgressed whatthe plain text and structure ofthis particular statute permits. 2. Sections 790.03(b) And 790.10 Do Not Confer Authority On The Commissioner To Define New Categories Of Unfair Or Deceptive Insurance Practices. The purpose ofthe UIPA “is to regulate trade practices in the business of insurance . . .by defining, or providingfor the determination of, all such practices in this State which constitute unfair methods of 8 The Legislature also emphasizedthat underinsurance stemmed from cost factors, and in particular, construction costs that exceeded the insurance coverage provided. It did not (unlike the Commissioner) place responsibility for this situation on insurers, nor did it find that underinsurance wastheresult of an “unfair” or “deceptive”practice. 33 competition or unfair or deceptiveacts or practices, and by prohibiting the tradepractices so defined or determined.” (§ 790, italics added.) In section 790.03 of the UIPA, the Legislature explicitly defined the acts or practices it considers to be unfair or deceptive. Section 790.03 is extremely detailed, containing subdivisions (a) through (j) (many of those with their own detailed subparts) delineating the specific conduct that constitutes “unfair methods of competition and unfair and deceptive acts” under the UIPA. (§ 790.03.) Absent from the statute, however, is any mechanism for the Commissioner to add to or modify this finely-reticulated andlegislatively-prescribedlist, or to otherwise define, in quasi-legislative fashion, new categories of unfair or deceptive acts beyond those set forth in section 790.03. The Legislature has reserved that powerforitself and, over the years, has continuedto exercise that closely-guarded prerogative itself. Hadthe Legislature intended to create a third mechanism for regulating unfair practices by permitting the Commissionerto create regulationslike the ones at issue here, it almost certainly would have harmonizedthe entire statutory structure and made conforming changesin the other sections of the UIPA. For example, section 790.02 of the UIPA prohibits persons from engagingin trade practices that are “defined in this article as, or determined pursuant to this article to be, an unfair method of competition or an unfair or deceptive act or practice in the business of insurance.” This section makes no reference to practices that the 34 Commissionerhas designated to be unfair or deceptive through regulation. (See § 790.02.) Likewise, the penalties and enforcement provisions of the UIPA do not contain any suggestion that unfair or deceptive practices could be defined through regulations promulgated by the Commissioner. (See §§ 790.035, 790.05.) Nor does any other section of the UIPA make such a reference. (See generally § 790 et. seq.) A statute and its terms must be read in pari materia with the terms associated with it. The Court should therefore construe section 790.03 in a waythat is harmonious with the entire UIPA,and doesnot create new unfair practices that do not fit with the rest of the statutory structure. (See Yates v. U.S. (2015) 135 S.Ct. 1074, 1085 (plur. opn. ofGinsburg, J.) [concluding that the phrase “tangible object” in the Sarbanes-Oxley Act cannot be understood to refer to a fish—evenif a fish is a “tangible object”—because the term mustbe read in light of the statutory context]; see also Grafton Partners L.P. v. Super. Ct. (2005) 36 Cal.4th 944, 960 [“[T]he meaning of a word maybe ascertainedby referenceto the meaning of other terms which the Legislature has associated with it in the statute[.]’’].) In construing a statute “to ascertain the Legislature’s intent so as to effectuate the purpose ofthe law,” the Court is guided by well-established canonsofstatutory construction, such as expressio unius est exclusio alterius. Un re J.W. (2002) 29 Cal.4th 210, 209, citation omitted.) Where, as here, a statute addresses one subject but not another, that choice to omit 35 certain subjects should be seen as a deliberate act by the Legislature, and one that should be honored by courts in carrying out the Legislature’s | intent. (Gikas v. Zolin (1993) 6 Cal.4th 841, 852.) Expressio unius is based on the “common-sense premise that when people say onething, they do not mean something else.” (2A Sutherland Statutory Construction (7th ed. 2008) Statutory Interpretation, § 47:23; see also Gikas v. Zolin, supra, 6 Cal.4th at p. 852 [The expression of some thingsin a statute necessarily meansthe exclusion of other things not expressed.”].) “[W]here exceptions to a general rule are specified bystatute, other exceptions are not to be implied or presumed.” (Mutual Life Ins. Co.v. City ofLos Angeles (1990) 50 Cal.3d 402, 410, citing Wildlife Alive v. Chickering (1976) 18 Cal.3d 190, 195; see also People v. Johnson (1988) 47 Cal.3d 576, 593 [“{U]nder the doctrine of expressio unius est exclusio alterius we mustinfer that the listing of terms and conditions is complete, and that there are no additional requirements which bind petitioner.[]” (Citation omitted.)].) The maxim “should be applied ‘where appropriate and necessary to the just enforcementofthe provisions of a statute.’” (Estate ofBanerjee (1978) 21 Cal.3d 527, 539, citing Blevins v. Mullally (1913) 22 Cal.App. 519, 529.) Thus, the Legislature’s decision to specify, at length and in detail, particular acts as being unfair or deceptive (and thus “prohibited’”) should be read as precluding the addition or creation of additional categories of unfair, deceptive, or otherwise 36 prohibited acts or practices by anyone other than the Legislatureitself. This approach is only further confirmed by the history of amendments to section 790.03 and the passage and amendmentsto sections 10101 et seq. discussed in Section V.A.1, ante. These amendments to the UIPA andthe Insurance Codefurther demonstrate that the Legislature has always intendedto reserve to itself the task of defining what practices it considers to be unfair or deceptive under the UIPA,andto not delegate that task to the Commissioner. (Cf. WSS Industrial Construction, Inc. v. Great West Contractors, Inc. (2008) 162 Cal.App.4th 581, 589 [noting, in confirming the intent of the Legislature, that over time a “trend” had emerged in changesto a statute].) The omission ofa particular practice from the UIPA should be regarded as theresult of a conscious choice by the Legislature. The Commissionerargues that sections 790.10 and 790.03 confer such authority on him, claiming that section 790.10 “delegates quasi- legislative rulemaking authority to the Commissioner to issue substantive rules of general applicability.” (OBM at p. 20.) But the Commissioner’s claim that he “has the power to promulgate all reasonable rules and regulations, of whatever type and purpose, that the Commissioner determinesare necessary to carry out his responsibility to ‘administer’ the Unfair Insurance Practices Act”(id. at pp. 20-21) is wholly inconsistent with the UIPA’stext andstructure, which clearly reserve to the Legislature the powerto define unfair or deceptive practices, while 37 delegating to the Commissioner only the powerto “determine,” on a case- by-case basis and with the concurrence of a superior court judge under section 790.06, whether particular instances of novel practices the Commissioner contendsare unfair or deceptive should be treated as such under the UIPA. The Commissioner’s argument that section 790.03(b) includes within it the very practices covered by the Replacement Cost Regulation — also proves too much. This broad reading would cover something that on its face would not be deemedas “unfair,” “deceptive,” or “misleading,” but for the Regulation. But if the Regulation does not define new categories of unfair or deceptive insurance practices—specifically, anything that does not conform to all of the Replacement Cost Regulation’s detailed content and format requirements—then there should be no need for the Regulation. That is because, underthat reading of the Regulation, whatever the | Regulation covers should already be covered by section 790.03. The Commissioner would therefore already be able, without the Regulation, to redress the very practices targeted by the Regulation through the enforcement and other mechanismsprescribed by the Legislature in section 790.05 and other provisions of the UIPA. The Commissioner not only concedes, but trumpets, the fact that the | Regulation goes beyond what the UIPA would otherwise permit him to do, claiming that “it is questionable whether the adjudicatory process could 38 ever result in a set of required replacement cost estimate componentsthat are as clear and comprehensiveas provided in the [Regulation].” (OBM at pp. 35-36.) It is therefore indisputable that the Replacement Cost Regulation proscribes additional acts or practices that the Commissioner contendsare unfair or deceptive—again, simply because they depart in some way from the Regulation’s many detailed content and format requirements—and that go beyond whatthe Legislature has proscribed in section 790.03 (or other provisions of the UIPA), and that the Commissionerhas therefore exceeded his authority under the UIPA. (See Section V.A.1, ante.) The only provision the Legislature has authorized for the Commissionerto “fill up the gaps”in terms of any novelinstances of unenumerated practices the Commissioner contends are unfair or deceptive is, again, the far more limited, case-by-case and with-the-concurrence-of-a- superior-court-judge procedure set forth in section 790.06. The Commissioner also attempts to characterize the Replacement Cost Regulation as nothing more than a requirement that an estimate should be complete. (OBMatp. 35.) But this argument also proves too much and cannot withstand scrutiny. The UIPA already requires that estimates be truthful, not deceptive, and not misleading (see § 790.03, subd. (a)), so if that were all the Regulation proscribes, it would, again, be superfluous. The idea that certain types of estimates are necessarily misleading is also contradicted by the indisputable fact that estimates are necessarily nothing 39 more(orless) than reasonable approximations based on a specific set of facts. They are not—and cannot be—guarantees of a specific cost or outcome, and the necessary components ofa particular estimate and the best way to communicate that estimate are necessarily contingent upon the specific circumstances surroundingit. In reality, the Replacement Cost Regulation goes much further than requiring complete estimates. It creates, in quasi-legislative fashion, new categories of “misleading” practices—again, anything that does not conform to all of the Commissioner’s many detailed content and format requirements—that (but for the Regulation) would not, in manyinstances, be “misleading”(or “deceptive” or “unfair”) at all. What might constitute a “misleading” estimate or a truthful one will necessarily be different, depending on the facts and circumstancesofa particular scenario. In other words, the Regulation deemsparticular estimates to be misleading, independentofthe particular facts and circumstances surrounding the estimate in question. Indeed, the Commissioner himself concedes that an estimate that does not comply with the Regulation may not be misleading, instead characterizing such an estimate as merely “potentially” misleading in his own framing of the Question Presented. This exceeds the Commissioner’s powers: the UIPA simply does not confer on the Commissioner the power to deem a practice misleading through regulation. And the Commissioner’s admission that the Regulation brings within its 40 sweepnot only misleading estimates but also those that are “potentially” misleading is nothing less than an admission that he has gone beyond the UIPA’s grant of authority. The Regulation contains a long list of requirements for replacement cost estimates, including those found in subdivisions(a) through(e), the omission of any one of which would violate the Regulation even though such an omission may or maynotresult in a misleading estimate. For example, subpart (a)(5)(J) requires estimates to consider the age of the structure or the year it was built. But this may have no bearing on the cost to replace the structure with a new onein the face of a naturaldisaster. Subdivision (e) requires verification and updating of replacementcost estimates annually—evenif costs have not changed atall, or have decreased. Thus, if, for example, an insurer issues a replacement cost estimate and construction costs decrease the following year, an insurer might beat risk of being in violation of subdivision (e) of the Regulation, even though the estimate provided a dollar amount higher than required to cover reconstruction. The ultimate effect of the Regulation is to dictate how insurers may communicate with insureds and potential insureds, and to deem certain communications misleading, without consideration for the facts and circumstances surroundinga particular replacementcost estimate, and without regard to whether or not the estimate is accurate. An insurer could 41 provide an estimate that is perfectly reasonable—even accurate to the penny—butif it does not spell out the specific itemslisted in subsections (a) through (e) of the Replacement Cost Regulation,that estimate would be deemed to be misleading under the Regulation. The UIPA doesnot delegate to the Commissionerthe ability to regulate insurers’ communications with their customers in this way, and decide that perfectly accurate communicationsare “misleading.” Insurers must be able to engage in dialogue with their customers without fear of violating the manifold details of the Regulation. The dialogues betweeninsurers and insurance purchasers are inevitably dictated by the particular facts of each situation, and a particular estimateis not necessarily misleading |just because it may omit one of the items delineated in subsections (a) through (e) of the Regulation. For example, a communication betweenan insurer and a prospective purchaser might focus on a particular portion of a replacementcost estimate, and not discuss the other items detailed in the Regulation. Such a conversation would violate the Regulation, even though it would not necessarily be misleading and would not necessarily violate the UIPA. The remainder of the Regulation creates a variety of procedural hurdles to overcome, which, again, are hardly essential to ensuring that a replacement-cost estimate is not misleading. For example, the Regulation requires that insurance licensees calculate and communicate estimates in 42 lockstep with the Regulation’s many detailed content and format requirements, break out estimates into four separate components, characterize the manyfactors that may impactcost, and specify everything in writing. (See Cal. Code Regs., tit. 10, § 2695.183.) These requirements indisputably go well beyond anything that section 790.03 could possibly be read to require. The Commissioner’s promulgation of his Replacement Cost Regulation also cannotbe considered “administering” within the meaning of 790.10. (See Section V.A.1, ante.) 3. Section 790.06 Provides A Limited, Case-By-Case Mechanism To Determine Whether Novel Instances Of Unenumerated Practices The Commissioner Views As Unfair Or Deceptive Should Be Treated As Such Under The UIPA. The Legislature created a separate method for the Commissionerto “determine” whether novelinstancesof acts or practices not covered by section 790.03 should be treated as unfair or deceptive, and remedied as such, under the UIPA. In section 790.06, the Legislature providedthat: Wheneverthe commissionershall have reason to believe that any person engagedin the businessof insurance is engaging in this state in any method of competition orin any act or practice in the conduct ofthe business that is not defined in Section 790.03, and that the methodis unfair or that the act or practice is unfair or deceptive and that a proceeding by him or her in respect thereto would be in the interest of the public, he or she mayissue andserve upon that person an order to show cause... for the purpose of determining whetherthe alleged methods, acts or practices or any ofthem should be declared to be unfair or deceptive within the meaning ofthis article. 43 (§ 790.06, subd.(a), italics added.) If the Commissioner believes an insurance licensee is engaging in a novel instance of an unfair or deceptive act or practice not defined as such in section 790.03, the Commissioner may issue an order to show cause undersection 790.06, so that a court may ultimately determine whetherthe challenged conduct should be “determined”to be unfair or deceptive for purposes of the UIPA. Ifthe Commissionerinsists that the challenged conduct should be deemed unfair or deceptive for purposes oftheUIPA, then the Commissioner must issue a written report explaining why. (Seeid. at subd.(b).) Ifthe report chargesa violation and the challenged conduct has not been discontinued, the Commissioner, through the Attorney General, may petition a court to enjoin the licensee from continuing to engagein that conduct. (See ibid.) Evidence in addition to the record taken before the Commissioner maybe considered by the court. The Commissioner may modify the findingsas a result of the additional evidence. (Jd. at subd. (c).) If the court finds that the challenged conduct is unfair or deceptive, the court may issue an order enjoining the licensee from continuing to engage in it. (See id. at subd.(d).) Section 790.07 then provides for penalties to be imposed on any person who“has violated a cease and desist order issued pursuantto Section 790.05 or a court order issued pursuant to Section 790.06.” 44 (§ 790.07.) That section,like other provisions of the UIPA, recognizes two methods by whichacts or practices may be declared to be unfair or deceptive—(i) defined by the Legislature in section 790.03, and(ii) determined by the Commissioner and a court, on a case-by-case basis, to be unfair or deceptive pursuantto section 790.06. Section 790.06’s legislatively-prescribed, limited, case-by-case procedure permitting the Commissioner to “determine”if a practice is unfair or deceptive contains important checks and balances andspecific safeguards mandated by the Legislature. The insurer, for example, has an opportunity in these case-by-case administrative adjudicatory proceedings to offer evidence to demonstrate that, under the particular facts and ~ circumstances of any given case, the challenged conduct could not have resulted in any reasonable insured (or prospective insured) being misled. (See § 790.06, subd. (a).) The insurer can also opt to voluntarily discontinue the challenged conduct, without any penalties being imposed. (Seeid. at subd. (b).) And evenifthe insurer does not voluntarily disclose, the insurer is not subject to any injunctive relief unless and until a court first finds that the Commissioner’s findings are supported by the weight of the evidence. (See ibid.) Section 790.06is also the sole “gap-filling” procedure or mechanism authorized by the Legislature in the UIPA. (See Section V.A.1, ante.) Undersection 790.06, the Commissioner mayinitiate judicial proceedings 45 if the Commissionerhas “reason to believe that any personengagedin the business of insurance is engaging in this state in any method of competition or in any act or practice in the conduct of the businessthat is not defined in Section 790.03, and that the methodis unfair or that the act or practice is unfair or deceptive and that a proceeding by him orherin respect thereto would bein the interest of the public.” (§ 790.06, subd. (a).) By doing so, the Legislature madeclearthat it did not intend to, and did not, delegate the kind of sweeping, quasi-legislative power the Commissioner has arrogated here, through regulations such as its Replacement Cost Regulation, which contravene the plain terms andstructure ofthe statute. Thelegislative history of section 790.06 only serves to confirm that the Legislature never intended to give the Commissioner unfettered authority to create new unfair practices but rather intended section 790.06 to be the sole method for identifying and curbing practices that did notfall within the sweep of 790.03, yet are within the meaning ofthe statute. The Bill Analysis prepared for the Senate Insurance Committee in support of SB 1500, which strengthened the section 790.06 process in the year 2000, makesthis clear. It states that “[p]resent law defines a set of unfair methods of competition and unfair deceptive acts or practices in the business of insurance. (Section 790.03 of the Insurance Code).” It then goes on to explain the purpose of SB 1500: “This bill addresses the authority of the Insurance Commissioner when the Commissionerhas 46 reason to believe an unfair or deceptive practice has occurred that is not one specifically defined in Insurance Code section 790.03. In that instance, the Commissioner may issue an order to show cause upon aperson....” (RJN Ex. C [Bill Analysis, Senate Committee on Insurance (April 26, 2000)].) The Bill Analysis therefore confirmsthat the Legislature did notintend the Commissioner to address perceived new unfair practices through regulation but rather expected him orher to use the mechanism provided by section 790.06 to do so. The section 790.06 mechanism is unique and renders wholly inaptthe casesrelied on by the Commissioner dealing with Proposition 103, life and disability insurance laws, or Vehicle Code provisions considered by the Court in Ford Dealers. The Court ofAppeal agreed that the UIPA is different from other statutory schemes whenit concluded that the cases relied upon by the Commissioner, including FordDealers, Payne, and Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, were notinstructive because they involved different kinds ofinsurance, administrative proceedings, or statutes. (See Opn. at pp. 20, 24-28.) None ofthose cases involve the kind of statutory structure at issue here, with prohibited acts defined by the Legislature in a very detailed, lengthy statutory list (§ 790.03), coupled with a limited, case-by- case “gap-filling” procedure to deal with particular instances of novel practices not covered bythat legislatively-proscribedlist of prohibited acts (§ 790.06). 47 B. The Canon Of Avoidance OfConstitutional Doubts Also Favors Affirmance. The well-established canon of avoidance of constitutional doubts also militates against adopting the Commissioner’s breathtaking interpretation of his purportedly quasi-legislative authority under the statute. The United States Supreme Court has long held that the dissemination of“truthful information about entirely lawful activity” could not constitutionally be prohibited absent extraordinary circumstances. (Va. State Bd. ofPharmacy v. Va. Citizens Consumer Council, Inc. (1976) 425 U.S. 748, 773; see also Sorrell v. IMS Health, Inc. (2011) 131 S.Ct. 2653, 2670-2671 “[T]he ‘fear that people would make bad decisionsif given truthful information’ cannot justify content-based burdens on speech.” (Citing Thompson v. Western States Medical Center (2002) 535U.S. 357, 358-359.)]; 44 Liquormart, Inc. v. R.I. (1996) 517 U.S. 484,503 [The First Amendmentdirects us to be especially skeptical of regulations that seek to keep people in the dark for what the government perceivesto be their own good. That teaching applies equally to state attempts to deprive consumers of accurate information about their chosen products . . .”]; see also Beeman v. Anthem Prescription Management, LLC (2013) 58 Cal.4th 329, 353 [emphasizing the importance ofthe “free flow of commercial information,” citing Va. State Bd. ofPharmacy v. Va. Citizens Consumer Council, Inc., supra, 425 U.S. at 765].) 48 Butthis is precisely what the Commissioner has attempted to do here _ by promulgating his Replacement Cost Regulation. The Regulationlimits truthful communications between insurers and insureds. For example, if a contractor submitted an estimate for services to rebuild a home, which included every detail downtothe finishes, all ofwhich were true, the estimate could nonetheless be deemed “misleading” under the Regulation if it failed to itemize its components. The same would be true for an entirely truthful oral estimate, as the Regulation requires that all estimates be in writing. The Regulation thus unduly restrains how insurers share information that may beentirely truthful with insureds and potential insureds. Nor may the government compel speech—evenfactual speech. The First Amendmentprotects “the decision ofboth what to say and whatnotto say.” (Riley v. Nat. Federation ofBlind ofN.C., Inc. (1988) 487 U.S. 781, 797-798 [concluding that factual statements in state-mandated fundraising disclosures unduly burdenedprotected speech].) Here, the Regulation compels insurers to estimate replacement cost accordingto a rigid formula, in all circumstances, to the exclusion of informative, fact-based disclosures appropriate to the applicant or insured’s particular circumstances. Specifically, the Regulation requires insurance providers to makecertain specific communications to potential insureds regarding replacementcost estimates, and dictates the form and timing of those communications. At 49 the sametime, the Regulation bans other communications between insurers and their clients that do not satisfy the specific details of the Regulation. The Regulation thus chills open, honest communications between insurers and insurance purchasersasinsurers risk violating the Regulation if they fail to check off all of the many boxes mandated by the Regulation in their communications with insurance purchasers, whetheror not those many requirements apply undera particular set of circumstances. The Commissioner contendsthat the Regulation is necessary to protect consumers. (OBM at pp. 1-2.) But, by prohibiting truthful speech to insureds, the Regulation goes far beyond typical consumerprotection and disclosure laws. As the U.S. Supreme Court has recognized, the regulation of truthful speech is more likely to hinder public debate on issues of important public policy than it is to protect consumers from harm: It is the State’s interest in protecting consumers from ‘commercial harms’ that provides ‘the typical reason why- commercial speech can be subject to greater governmental regulation than noncommercial speech.’ Yet bans that target truthful, nonmisleading commercial messages rarely protect consumers from such harms. Instead, such bans often serve only to obscure an ‘underlying governmental policy’ that could be implemented without regulating speech. In this way, these commercial speech bans not only hinder consumer choice, but also impede debate over central issues ofpublic policy. (44 Liquormart, Inc. v. R.1., supra, 517 U.S. at pp. 502-03, italics added & citations omitted.) For this reason, the Court has held that “a State’s paternalistic assumption that the public will use truthful, nonmisleading 50 commercial information unwisely cannotjustify a decision to suppressit.” (Id. at p. 497; see also Sorrell v. IMS Health Inc., supra, 131 S. Ct. at p. 2671 [The State may not burden the speech ofothers in orderto tilt public debate in a preferred direction.”].) By dictating what may and may not be said to applicants and insureds about replacementcosts and the precise mannerin which those statements may be madeto applicants and insureds, the Commissionerhas enacted precisely the type of “unwarranted governmental regulation” on speech against which the First Amendment was designed to protect. (Central HudsonGas & Electric Corp. v. Public Service Comm’n ofN.Y. (1980) 447 U.S. 557, 561; cf. id. at p. 564 {emphasizing that the government’s powerto regulate commercial speech that is “neither misleading nor related to unlawful activity” is sharply circumscribed]; Riley v. Nat’l Fed’n ofthe Blind ofN.C., Inc., supra, 487 USS.at p. 801 [“Broad prophylactic rules in the area of free expression are suspect. Precision of regulation must be the touchstone in an area so closely touching our most precious freedoms.” (Citing NAACP v. Button (1963) 371 U.S. 415, 438)].) The Court need not definitively resolve whether the Regulation is (at least as applied in some circumstances) unconstitutional though, because it can and should simply construe the statute to avoid these serious constitutional doubts. This Court, after all, “construe[s] statutes, when reasonable, to avoid difficult constitutional questions.” (Un re Smith (2008) 51 42 Cal.4th 1251, 1269, citing Le Francois v. Goel (2005) 35 Cal.4th 1094, 1105; see also Clark v. Martinez (2005) 543.U.S. 371, 380-381 [“[W]hen deciding which of twoplausible statutory constructions to adopt, a court must consider the necessary consequencesof its choice. If one of them would raise a multitude of constitutional problems, the other should prevail.”].) Applying this well-established canon of statutory interpretation providesadditional support for affirming the lower courts’ well-considered invalidation ofthe Commissioner’s Replacement Cost Regulation. OF Public Policy Considerations Also Do Not Support The Commissioner’s Attempted Overreach Here. Finally, public policy considerations also do not support the Commissioner’s unlawful attempted power grab here. The Commissioner. attempts to rely on the emotional tug of a handful of consumer complaints to support his assertion of quasi-legislative powers, notwithstanding the specifically defined termsofthe particular statute at issue. (AR 1103.) But even assuming that these complaints are well-founded, they still do not provide any support for allowing the Commissioner to promulgate his Replacement Cost Regulation. First, as the Commissioner stated in his November 2009 press release, “the department received only 70 complaints related to underinsurance stemming from the nearly 40,000 claims”that resulted from the 2007 wildfires. (AR 1254.) Indeed, at another point in the 52 Administrative Record, the Commissionerstated that there were evenfewer complaints, claiming only that there were “more thanfifty” such files. (AR 1430.) In other words, even according to the Commissioner, only 0.175% of claimants have lodged complaints of underinsurance. (See ibid.) Second,if these complaints (or others) are well-founded and should be redressed underthe UIPA, then the Commissioneralready has the legislatively-prescribed tools to do so underthe statute, including section 790.05’s enforcement proceedings and section 790.06’s case-by-case order- to-show-causeproceedings. Utilizing these more limited, measured, and case-specific procedures specified by the Legislature would befeasible, particularly given the small number of complaints (50-70, in the wake of the 2007 wildfires) the Commissioner has been able to point to here. The record here contains no evidence regarding how the Commissioner addressed or attempted to address these complaints. There is no evidence in the record showing that attempts by the Commissionerto address these complaints were hampered by the absence of a Replacement Cost Estimate Regulation, or that the Regulation would solve the problem presented by these complaints. Consequently, the Commissioner’s attempt to exceed the scope of authority the Legislature has conferred on him, under the plain terms and structure of the particular statute at issue (the UIPA), also finds no support 53 in any ofthe public policy considerations to which the Commissioner has alluded. VI. CONCLUSION The Legislature has reserved foritself, and closely guarded and exercised over the years, the power to define what constitute unfair or deceptive insurance practices under the UIPA,spelling out specifically and in considerable detail, in section 790.03, what acts and practicesit considers unfair or deceptive, and thus prohibited under the UIPA. The Legislature also carved out a limited case-by-case procedureto allow the Commissioner, with the concurrence of asuperior court judge, to deal with particular instances ofnovel practices not enumerated in section 790.03 yet within the meaning of the statute and considered to be unfair or deceptive by the Commissioner. Bypromulgating his Replacement Cost Regulation, the Commissioner has attempted to run roughshodoverthis carefully constructed and circumscribed statutory scheme, in order to arrogate quasi- legislative powers the Legislature has not conferred on him in the UIPA. 54 The Court of Appeal and thetrial court both correctly held that the Commissioner’s Replacement Cost Regulation exceeded the scope of the Commissioner’s authority under the UIPA,and thus invalidated the Regulation. This Court should reach the same conclusion andaffirm. DATED:January 11, 2016 GREENBERG TRAURIG, LLP GENE LIVINGSTON, SBN 44280 STEPHEN E. PAFFRATH, SBN 195932 55 Respectfully submitted, GIBSON, DUNN & CRUTCHER LLP THEODORE J. BOUTROUSJR., SBN 132099 JULIAN W. POON, SBN 219843 VANESSA C. ADRIANCE, SBN 247464 B Ar voctub oreo Theo doke J. Boutrous Jr. Attorneysfor Plaintiffs-Respondents ASSOCIATION OF CALIFORNIA INSURANCE COMPANIESand PERSONAL INSURANCE FEDERATION OF CALIFORNIA CERTIFICATION OF WORD COUNT Pursuant to Rule 8.204(c)(1), California Rules of Court, the undersigned hereby certifies that this Answer Brief on the Merits contains 12,958 words, excludingthetables andthiscertificate, according to the word count generated by the computer program usedto producethis document. — Dated: January 11, 2016 Julian W: Poon Attorneysfor Plaintiffs-Respondents ASSOCIATION OF CALIFORNIA INSURANCE COMPANIESand PERSONAL INSURANCE FEDERATION OF CALIFORNIA 56 ADDENDUM Insurance CodeSection 790 The purposeofthis article is to regulate trade practices in the business of insurance in accordance with the intent of Congress as expressed in the Act of Congress ofMarch 9, 1945 (Public Law 15, Seventy-ninth Congress),’ by defining, or providing for the determinationof, all such practices in this State which constitute unfair methods of competition or unfair or deceptive acts or practices and by prohibiting the trade practices so defined or determined. Insurance Code Section 790.02 Noperson shall engagein this State in any trade practice which is defined in this article as, or determined pursuantto this article to be, an unfair method of competition or an unfair or deceptive act or practice in the business of insurance. Insurance Code Section 790.03 The following are hereby defined as unfair methods of competition and unfair and deceptive acts or practices in the business of insurance. (a) Making, issuing, circulating, or causing to be made, issuedorcirculated, any estimate, illustration, circular, or statement misrepresenting the terms of any policy issued or to be issued or the benefits or advantages promised thereby or the dividends or share of the surplusto be received thereon, or making any false or misleading statementas to the dividendsor share of surplus previously paid on similar policies, or making any misleading representation or any misrepresentation as to the financial condition of any insurer, or as to the legal reserve system upon which anylife insurer operates, or using any nameortitle of any policy or class of policies misrepresenting the true nature thereof, or making any misrepresentation to any policyholder insured in any company for the purpose of inducing or tending to induce the policyholder to lapse, forfeit, or surrenderhis or her insurance. . (b) Making or disseminating or causing to be made or disseminated before the public in this state, in any newspaperor other publication, or any ° 15 U.S.C. § 1011 et seq. 57 advertising device, or by public outcry or proclamation,or in any other manner or means whatsoever, any statement containing any assertion, representation, or statement with respect to the business of insurance or with respect to any person in the conductofhisor her insurance business, which is untrue, deceptive, or misleading, and which is known,or which by the exercise of reasonable care should be known,to be untrue, deceptive, or misleading. (c) Entering into any agreement to commit, or by any concerted action committing, any act of boycott, coercion,or intimidation resulting in or tending to result in unreasonable restraint of, or monopoly in, the business of insurance. . (d) Filing with any supervisory or other public official, or making, publishing, disseminating, circulating, or delivering to any person, or placing before the public, or causing directly or indirectly, to be made, published, disseminated, circulated, delivered to any person, or placed before the public any false statement of financial condition of an insurer with intent to deceive. (e) Makingany false entry in any book, report, or statement of any insurer with intent to deceive any agent or examiner lawfully appointed to examine into its condition or into anyofits affairs, or any public official to whom the insurer is required by law to report, or who has authority by law to examineinto its condition or into any ofits affairs, or, with like intent, willfully omitting to make true entry of any material fact pertaining to the businessofthe insurer in any book, report, or statement of the insurer. (f)(1) Making or permitting any unfair discrimination between individuals of the same class and equal expectation oflife in the rates charged for any contract oflife insuranceor oflife annuity or in the dividends or other benefits payable thereon,or in any other of the terms and conditions of the contract. (2) This subdivision shall be interpreted, for any contract of ordinary life insuranceor individuallife annuity applied for and issued on orafter January 1, 1981, to require differentials based upon the sex of the individual insured or annuitant in the rates or dividends or benefits, or any combination thereof. This requirementis satisfied if those differentials are substantially supported by valid pertinent data segregated by sex, including, but not limited to, mortality data segregated by sex. 58 (3) However, for any contract of ordinary life insurance or individuallife annuity applied for and issued on or after January 1, 1981, but before the compliance date, in lieu of those differentials based on data segregated by sex, rates, or dividends or benefits, or any combination thereof, for ordinary life insurance or individuallife annuity on a female life may be calculated as follows: (A) according to an age not less than three years nor more than six years younger than the actual age ofthe female insured or female annuitant, in the case of a contract of ordinary life insurance with a face valuegreater than five thousand dollars ($5,000) or a contract of individual life annuity; and (B) according to an age not more than six years younger than the actual age of the female insured, in the case of a contract of ordinary life insurance with a face value offive thousand dollars ($5,000) or less. “Compliance date” as used in this paragraph shall mean the date or dates established as the operative date or dates by future amendments to this code directing and authorizing life insurers to use a mortality table containing mortality data segregated by sex for the calculation of adjusted premiumsandpresent values for nonforfeiture benefits and valuation reserves as specified in Sections 10163.1 and 10489.2 or successor sections. (4) Notwithstanding the provisions ofthis subdivision, sex-based differentials in rates or dividends or benefits, or any combination thereof, shall not be required for (A) any contract oflife insuranceorlife annuity issued pursuant to arrangements which may be considered terms, conditions, or privileges of employmentas these termsare usedin Title VII of the Civil Rights Act of 1964 (Public Law 88-352), as amended, and (B) tax sheltered annuities for employees ofpublic schools or of tax-exempt organizations described in Section 501(c)(3) of the Internal Revenue Code. (g) Making or disseminating, or causing to be madeor disseminated, before the public in this state, in any newspaperorother publication, or any other advertising device, or by public outcry or proclamation, or in any other manneror means whatever, whetherdirectly or by implication, any statement that a named insurer, or namedinsurers, are membersofthe California Insurance Guarantee Association, or insured against insolvency as defined in Section 119.5. This subdivision shall not be interpreted to prohibit any activity of the California Insurance Guarantee Association or the commissioner authorized, directly or by implication, by Article 14.2 (commencing with Section 1063). 10 Internal Revenue Code sections are in Title 26 of the U.S.C. 59 (h) Knowingly committing or performing with such frequencyas to indicate a general businesspractice any of the following unfair claims settlement practices: (1) Misrepresenting to claimants pertinent facts or insurance policy provisionsrelating to any coveragesat issue. (2) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurancepolicies. (3) Failing to adopt and implement reasonable standards for the prompt investigation and processing of claims arising under insurancepolicies. (4) Failing to affirm or deny coverage of claims within a reasonable time after proof of loss requirements have been completed and submitted by the insured. (5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of claims in which liability has become reasonablyclear. (6) Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by the insureds, whenthe insureds have made claims for amounts reasonably similar to the amounts ultimately recovered. (7) Attempting to settle a claim by an insuredfor less than the amount to which a reasonable person would have believed he or she wasentitled by reference to written or printed advertising material accompanying or made part of an application. (8) Attempting to settle claims on the basis of an application that was altered without notice to, or knowledge or consent of, the insured, his or her representative, agent, or broker. (9) Failing, after payment of a claim, to inform insuredsor beneficiaries, upon request by them, of the coverage under which paymenthas been made. (10) Making knownto insuredsor claimants a practice of the insurer of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromisesless than the amount awardedin arbitration. 60 (11) Delaying the investigation or payment of claims by requiring an insured, claimant, or the physician ofeither, to submit a preliminary claim report, and then requiring the subsequent submission of formal proofof loss forms, both of which submissions contain substantially the same information. (12) Failing to settle claims promptly, where liability has become apparent, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage. (13) Failing to provide promptly a reasonable explanation ofthe basis relied on in the insurancepolicy, in relation to the facts or applicable law, for the denial of a claim or for the offer of a compromise settlement. (14) Directly advising a claimant not to obtain the services of an attorney. (15) Misleading a claimantas to the applicablestatute oflimitations. (16) Delaying the paymentor provision of hospital, medical, or surgical benefits for services provided with respect to acquired immunedeficiency syndrome or AIDS-related complex for more than 60 daysafter the insurer has received a claim for those benefits, where the delay in claim paymentis for the purpose of investigating whether the condition preexisted the coverage. However, this 60-day period shall not include any time during whichthe insurer is awaiting a response for relevant medical information from a health care provider. (i) Canceling or refusing to renew a policy in violation of Section 676.10. (j) Holding oneself out as representing, constituting, or otherwise providing services on behalf ofthe California Health Benefit Exchange established pursuant to Section 100500 of the Government Code without a valid agreement with the California Health Benefit Exchange to engagein those activities. Insurance Code Section 790.035 (a) Any person whoengagesin any unfair method of competition or any unfair or deceptive act or practice defined in Section 790.03 is liable to the state for a civil penalty to be fixed by the commissioner, not to exceed five thousand dollars ($5,000) for each act, or, if the act or practice was willful, a civil penalty not to exceed ten thousand dollars ($10,000) for each act. The commissionershall have the discretion to establish what constitutes an 61 act. However, when the issuance, amendment, or servicing of a policy or endorsementis inadvertent, all of those acts shall be a single act for the purposeofthis section. (b) The penalty imposedbythis section shall be imposed by and determined by the commissioner as provided by Section 790.05. The penalty imposed bythis section is appealable by means of any remedy provided by Section 12940 or by Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code. Insurance Code Section 790.04 The commissioner shall have power to examine and investigate into the affairs of every person engaged in the business of insurancein the State in order to determine whether such person has been or is engaged in any unfair method of competition or in any unfair or deceptive act or practice prohibited by Section 790.03 or determined pursuantto this article to be an unfair method of competition or an unfair or deceptive practice in the business of insurance. Such investigation may be conducted pursuantto Article 2 (commencing at Section 11180) of Chapter 2, Part 1, Division 3, Title 2 of the Government Code. Insurance Code Section 790.05 Wheneverthe commissionershall have reason to believe that a person has been engagedor is engagingin this state in any unfair method of competition or any unfair or deceptive act or practice defined in Section 790.03, and that a proceeding by the commissioner in respect thereto would be to the interest of the public, he or she shall issue and serve uponthat person an order to show cause containing a statementofthe chargesin that respect, a statement of that person's potential liability under Section 790.035, and a notice of a hearing thereon to be held at a time andplace fixed therein, which shall not be less than 30 days after the service thereof, for the purpose of determining whether the commissioner should issue an orderto that person to, pay the penalty imposed by Section 790.035, and to cease and desist those methods, acts, or practices or any of them. If the charges or any of them are foundto bejustified the commissioner shall issue and causeto be served upon that person an order requiring that person to pay the penalty imposed by Section 790.035 and to cease and desist from engaging in those methods, acts, or practices found to be unfair or deceptive. 62 The hearing shall be conducted in accordance with the Administrative Procedure Act, Chapter 5 (commencing at Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code, except that the hearings may be conducted by an administrative law judge in the administrative law bureau whenthe proceedings involve a commonquestion oflaw or fact with another proceeding arising under other Insurance Code sectionsthat may be conducted by administrative law bureau administrative law judges. The commissioner and the appointed administrative law judge shall haveall the powers granted under the Administrative Procedure Act. The person shall be entitled to have the proceedings and the order reviewed by means of any remedy provided by Section 12940 ofthis code or by the Administrative Procedure Act. Insurance Code Section 790.06 (a) Whenever the commissionershall have reason to believe that any person engagedin the business of insurance is engaging in this state in any method of competition or in any act or practice in the conduct of the businessthatis not defined in Section 790.03, and that the method is unfair or that the act or practice is unfair or deceptive and that a proceeding by him orherin respect thereto would bein the interest of the public, he or she may issue and serve upon that person an order to show cause containing a statement of the methods,acts or practices alleged to be unfair or deceptive and a notice of hearing thereon to be held at a time and place fixed therein, which shall not be less than 30 daysafter the service thereof, for the purpose of determining whetherthe alleged methods,acts or practices or any of them should be declared to be unfair or deceptive within the meaningofthis article. The order shall specify the reason why the method of competition is alleged to be unfair or the act or practice is alleged to be unfair or deceptive. The hearings provided by this section shall be conducted in accordance with the Administrative Procedure Act (Chapter 5 (commencing with Section 11500) of Part 1 of Division 3 of Title 2 of the Government Code), except that the hearings may be conducted by an administrative law judge in the administrative law bureau when the proceedings involve a common question of law or fact with another proceeding arising under other Insurance Codesections that may be conducted by administrative law bureau administrative law judges. The commissioner and the appointed administrative law judge shall have all the powers granted underthe Administrative Procedure Act. If the alleged methods, acts, or practices or any of them are found to be unfair or deceptive within the meaningofthis 63 article the commissionershall issue and service upon that personhis or her written report so declaring. (b) If the report chargesa violation ofthis article and if the method of competition, act or practice has not been discontinued, the commissioner may, through the Attorney General ofthis state, at any time after 30 days after the service of the report cause a petition to befiled in the superior court of this state within the county wherein the person residesor has his or her principal place of business, to enjoin and restrain the person from engaging in the method,act or practice. The court shall have jurisdiction of the proceeding and shall have power to make and enter appropriate orders in connection therewith and to issue any writs as are ancillary to its jurisdiction or are necessary in its judgmentto prevent injury to the public pendentelite. (c) A transcript of the proceedings before the commissioner, includingall evidence taken and the report and findingsshall be filed with the petition. If either party shall apply to the court for leave to adduce additional evidence and shall show,to the satisfaction of the court, that the additional evidence is material and there were reasonable groundsfor the failure to adducethe evidencein the proceeding before the commissioner, the court mayorderthe additional evidence to be taken before the commissioner and to be adduced uponthe hearing in the manner and uponthe terms and conditions as to the court may seem proper, The commissioner may modify his or herfindings of fact or make new findings by reason ofthe additional evidence so taken, and shall file modified or new findings with the return of the additional evidence. (d) If the court finds that the method of competition complained of is unfair or that the act or practice complained ofis unfair or deceptive, that the proceeding by the commissioner with respectthereto is to the interest of the public and that the findings of the commissioner are supported by the weight Insurance Code Section 790.10 The commissioner shall, from time to time as conditions warrant, after notice and public hearing, promulgate reasonable rules and regulations, and amendments and additions thereto, as are necessary to administerthis article. 64 California Code of Regulations section 2695.183 No licensee shall communicate an estimate of replacement cost to an applicant or insured in connection with an application for or renewalof a homeowners' insurance policy that provides coverage on a replacement cost basis, unless the requirements and standardsset forth in subdivisions(a) through (e) below are met: (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 ofpermits and architect's plans; and (5) Consideration of components and features of the insured structure, includingat 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; (F) The square footage ofthe living space; (G) Geographic location of property; (H) Numberofstories and any nonstandard wall heights; (1) Materials used in, and generic types of, 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 ofthe structure or the year it wasbuilt; and 65 (K) Size and type ofattached garage. (b) Theestimate of replacementcost shall be based on anestimate ofthe cost to rebuild or replace the structure taking into account the cost to reconstruct the single property being evaluated, as compared tothe cost to build multiple, or tract, dwellings. (c) The estimate of replacement cost shall not be based upontheresale value of the land, or upon the amountor outstanding balance of any loan. (d) The estimate of replacementcost shall not include a deduction for physical depreciation. (e) The licensee shall no less frequently than annually take reasonable steps to verify that the sources and methodsusedto generate the estimate of replacementcost are kept current to reflect changesin the costs of reconstruction and rebuilding, including changesin labor, building materials, and supplies, based upon the geographic location ofthe insured. structure. The estimate of replacementcost shall be created using such reasonably current sources and methods. (f) Except as provided in subdivision (k) of this Section 2695.183, the provisionsofthis article are binding upon licensees, notwithstanding the fact that information, data or statistical methods usedor relied upon by a licensee to estimate replacement cost may be obtained througha third party source. Any andall information received by the Department pursuant to this article shall be accorded the degree of confidential treatment required by section 735.5 of the Insurance Code or Chapter 2 ofPart 1 of Division 3 of Title 2 of the Government Code, commencingat section 11180. (g)(1) If a licensee communicates an estimate of replacement cost to an applicant or insured in connection with an application for or renewal of a homeowners’ insurancepolicy that provides coverage on a replacementcost basis, the licensee must provide a copy of the estimate of replacementcost to the applicant or insured at the time the estimate is communicated. However, in the event the estimate of replacementcost is communicated by a licensee to an applicant to whom the licensee determines an insurance policy shall not be issued, then the licensee is not required pursuant to the preceding sentenceto provide a copy ofthe estimate of replacementcost. In the event the estimate of replacement cost is communicated by telephone to an insured, the copy ofthe estimate shall be mailed to the insured no later than three business daysafter the time of the telephone conversation. In the event the estimate of replacement cost is communicated by telephone 66 to an applicant, the copy ofthe estimate shall be mailed to the applicant no later than three business days after the applicant agrees to purchase the coverage. (2) An estimate of replacement cost provided in connection with an application for or renewal of a homeowners' insurance policy that provides coverage on a replacementcost basis must itemize the projected cost for each elementspecified in paragraphs (a)(1) through (a)(4), and shall identify the assumptions made for each of the components and features listed in paragraph (a)(5), of this Section 2695.183. (h) If an estimate of replacementcost is updated or revised by, or on behalf of, the licensee and the revised estimate of replacementcostis communicated to the applicantor insured in connection with an application for or renewal of a homeowners'insurance policy that provides coverage on a replacementcostbasis, the licensee shall provide a copy of the revised or updated estimate of replacementcost to the applicant as provided in paragraph (g)(1) of this Section 2695.183, or to the insured simultaneously with the renewaloffer, as the case may be. This subdivision (h) shall not apply whenthe update or revision to the estimate of replacementcost or the policy limit results solely from the application of an inflationary provision in a policy or an inflation factor. This subdivision (h) shall not obligate a licensee to recalculate an estimate of replacement cost on an annualbasis. (i) Licensees shall maintain (1) a record of the information supplied by the applicant or insured that is used by the licensee to generate the estimate of replacementcost, and (2) a copy of any estimate of replacementcost supplied to the applicantor insured pursuant to paragraph (g)(1), or subdivision (h), of this Section 2695.183. Ifa policy is issued, these records and copies shall be maintained for the entire term of the insurance policy or the duration of coverage, whichever terminateslater in time, and for five years thereafter. However, if the estimate of replacementcostis provided to an applicant to whom an insurancepolicy is never issued,the records and copiesreferred to in the first sentence of this subdivision (i) shall be maintained for the period of time the licensee ordinarily maintains applicantfiles in the normal course of business, provided that such period of time shall be at least sufficient to ensure that the licenseeis able to comply with the provisions of this subdivision in the event the policy is issued to the applicant. (j) To communicate an estimate of replacement value not comporting with subdivisions(a) through (e) of this Section 2695.183 to an applicant or insured in connection with an application for or renewal of a homeowners' 67 insurance policy that provides coverage on a replacementcost basis constitutes making a statement with respect to the business of insurance which is misleading and which by the exercise of reasonable care should be known to be misleading, pursuant to Insurance Code section 790.03. (k) Whenan insurer identifies one or more specific sourcesor tools that a broker-agent must use to create an estimate of replacementcost, (1) the insurer shall prescribe complete written procedures to be followed by broker-agents when they use the sourcesor tools, (2) the insurer shall provide the broker-agent with the training and written training materials necessary to properly utilize the sources or tools accordingto the insurer's prescribed procedures, and (3) the insurer, and not the broker-agent, shall be responsible for any noncompliance with this Section 2695.183 that results from the failure of the estimate to satisfy the requirements of subdivisions (a) through(e), unless that noncomplianceresults from failure by the broker-agent to follow the insurer's prescribed written procedures when using the source or tool. (1) This Section 2695.183 applies to all communications by alicensee, verbal or written, with the sole exception of internal communications within an insurer, or confidential communications between an insurer and its contractor, that concern the insurer's underwriting decisions and that never cometo the attention of an applicant or insured. (m) No provision ofthis article shall be construed as requiring a licensee to estimate replacementcost or to set or recommenda policy limit to an applicant or insured. No provision ofthis article shall be construed as requiring a licensee to advise the applicant or insured as to the sufficiency of an estimate of replacementcost. . (n) No provision of this article shall limit or preclude a licensee from providing and explaining the California Residential Property Insurance Disclosure, as cited in Insurance Code section 10102, explaining the various forms of replacement cost coverage available to an applicantor insured, or explaining how replacementcost basis policies operate to pay claims. (0) No provision ofthis article shall limit or preclude an applicant or insured from obtaining his or her own estimate of replacement cost from an 68 entity permitted to make such an estimate by Insurance Code section 1749.85. (p) For purposesofthis subdivision (p), “minimum amountof insurance” shall mean the lowest amountof insurancethat an insurer requires to be purchasedin order for the insurer to underwrite the coverage on a particular property, based upon an insurer's eligibility guidelines, underwriting practices and/or actuarial analysis. An insurer may communicate to an applicantor insured that an applicant or insured must purchase a minimum amount of insurance that does not comport with subdivisions (a) through (e) of this Section 2695.183; however, if the minimum amountof insurance that is communicated is based in whole or in part on an estimate of replacementvalue, the estimate of replacementvalue shall also be provided to the applicant or insured and shall comply with all applicable provisions ofthis article. Nothing in this article shall limit or preclude an insurer from agreeing to provide coveragefor a policy limit that is greater than or less than an estimate ofreplacement cost provided pursuantto this article. (q) Thisarticle shall apply only to estimates of replacement valuethat are prepared, communicatedor used by a licensee on or after June 27, 2011. * oe OK 69 CERTIFICATE OF SERVICE I, Carol J. Aranda, declare as follows: I am employed in the County of San Francisco, State of California;I am over the age of eighteen years and am nota party to this action; my business address is 555 Mission Street, Suite 3000, San Francisco, California 94105, in said County and State. On January 11, 2016, I served the within: ANSWERBRIEF ON THE MERITS to each of the persons named below at the address(es) shown, in the manner described. SEE ATTACHED SERVICE LIST Vv] BY MAIL:I placed a true copy in a sealed envelope addressed as indicated on the attachedservicelist for collection and mailing at my business location, on the date mentioned above, following our ordinary business practices. I am readily familiar with this business’s practice for collecting and processing correspondence for mailing with the United States Postal Service. On the same day that correspondenceis placed for collection and mailing,it is deposited in the ordinary course of business with the U.S. Postal Service in a sealed envelope with postage fully prepaid. I am aware that on motion ofthe party served, service is presumedinvalid if the postal cancellation date or postage meter date on the envelope is more than one dayafter the date of deposit for mailing contained in the proofof service. 70 I certify under penalty of perjury that the foregoing is true and correct, that the foregoing document(s), and all copies made from same, were printed on recycled paper, and that this certificate was executed on January 11, 2016 at San Francisco, California. sysiges a ~Car 71 Service List Kamala D.Harris Edward C. DuMont Paul D. Gifford Janill L. Richards Linda Berg Gandara Diane S. Shaw Stephen Lew Lisa W. Chao 300 S. Spring Street, Suite 1702 Los Angeles, CA 90013 Clerk of the Court ofAppeal Second Appellate District, Division One 300 South Spring Street, 2nd Floor Los Angeles, CA 90013 Clerk of the Los Angeles County Superior Court Hon. Gregory W. Alarcon Department36 Stanley Mosk Courthouse 111 North Hill Street Los Angeles, CA 90012 72 Attorneysfor Defendant/Appellant Dave Jones, in his capacity as the Insurance Commissioner ofthe State ofCalifornia