AEA Ins. Co. v. Garamendi
Filed 3/20/07 AEA Ins. Co. v. Garamendi CA4/1
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.
COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
AEA INSURANCE COMPANY, LTD., et al., Plaintiffs and Appellants, v. JOHN GARAMENDI, as Insurance Commissioner, etc., Defendant and Respondent. | D048405 (Super. Ct. No. GIC849697) |
APPEAL from a judgment of the Superior Court of San Diego County, William R. Nevitt, Jr., Judge. Affirmed.
The appellants in this case are related insurance companies incorporated in the British Virgin Islands. They are in the business of selling automobile insurance policies which provide coverage to residents of Mexico for travel in California. In operating their business, appellants retained the services of an insurance agent in California who issued policies to subagents and received premium payments on their behalf. They also retained the services of a California claims adjuster who adjusted claims for accidents that occurred in California and were covered on policies they issued.
Because appellants do not have certificates of authority permitting them to transact business in California, the California Insurance Commissioner issued appellants a cease and desist order. Appellants challenged the order administratively and an administrative law judge upheld the commissioner's order. Appellants then filed a petition for a writ of mandate, which the trial court denied.
We affirm. The record fully supports the trial court's finding that appellants were transacting insurance business in California and are not otherwise exempt from the requirement that they obtain a certificate of authority from the Insurance Commissioner.
FACTUAL AND PROCEDURAL NACKGROUND
Appellants AEA Insurance Company, Ltd. (AEA Insurance), and AEA Insurance Services, Ltd. (AEA Services), are British Virgin Islands corporations and licensed to transact insurance business there. Neither corporation has a certificate of insurance which would permit it to transact insurance business in California.
AEA Services offers automobile liability policies to residents of Mexico for the purpose of meeting the minimum liability requirements of a number states in the United States, including California. AEA Insurance reinsures all of AEA Services's policies.
In 1997 AEA Insurance, AEA Services and ARSA Insurance Services, a California corporation, entered into an Insurance Services Agreement (ISA). Under the terms of the ISA, ARSA agreed to provide a number of services to AEA Insurance and AEA Services, including supplying policy forms and advertising materials to Mexican insurance agents appointed by ARSA to market AEA Services policies in Mexico. In addition, ARSA was authorized to receive premiums from Mexican insurance agents on AEA Services policies the agents had sold in Mexico and deposit the premiums in trust accounts in California. ARSA was further authorized to retain sufficient funds in those trust accounts to pay claims made on AEA Services's policies.
In addition to its relationship with ARSA, AEA Services hired a California claims adjuster, Vaccaro and Associates (Vaccaro). Vaccaro paid claims made on AEA Services for accidents which occurred in California.
In January 2005 the Insurance Commissioner issued a cease and desist order against AEA Insurance, AEA Services, ARSA and Vaccaro. Initially, the cease and desist order required that the parties cease marketing AEA Services policies and adjusting or paying any claims on behalf of AEA Services. In response to a writ of prohibition issued by the trial court, the Insurance Commissioner modified the cease and desist order so that the parties could, for a limited period of time, adjust and pay claims to innocent third parties. AEA Insurance and AEA Services challenged the amended cease and desist order administratively. Following an administrative hearing, the order was upheld. AEA Insurance and AEA Services then challenged the order by way of a petition for a writ of administrative mandamus. The trial court denied the writ and AEA Insurance and AEA Services filed a timely notice of appeal.
DISCUSSION
I
In their principal argument on appeal, appellants contend they were not transacting insurance in California within the meaning of Insurance Code[1]section 35 and hence were not required to obtain a certificate of authority under the terms of section 700.
Section 35 states: "'Transact' as applied to insurance includes any of the following:
"(a) Solicitation.
"(b) Negotiations preliminary to execution.
"(c) Execution of a contract of insurance.
"(d) Transaction of matters subsequent to execution of the contract and arising out of it." (Italics added.) Section 700, subdivision (a), in turn states in pertinent part: "A person shall not transact any class of insurance business in this state without first being admitted for that class. [A]dmission is secured by procuring a certificate of authority from the commissioner. The certificate shall not be granted until the applicant conforms to the requirements of this code and of the laws of this state prerequisite to its issue."
The reach of the Insurance Commissioner's regulatory powers under section 35 was discussed in Anserv Ins. Services, Inc. v. Kelso (2000) 83 Cal.App.4th 197 (Anserv). In Anserv the appellant, Anserv, was a licensed California insurance broker and operated a "Mexican Auto Program" (MAP) under which it sold policies issued by an insurer, ABC, which was subject to a cease and desist order. "Under MAP . . . Mexican insurance agents known as 'subproducers' sold auto liability coverage for residents of Mexico while they drove automobiles in the United States. Anserv received premiums from customers who had paid them to the Mexican subproducers. Anserv made quotes and adjusted claims from their San Diego office. . . . Anserv had a California trust account at a San Diego bank, and deposited premiums into this account and paid amounts due to ABC and its subsidiary . . . on the MAP program." (Id. at p. 201.)
Because ABC was subject to a cease and desist order at the time Anserv operated the MAP program, the Department of Insurance (DOI) revoked Anserv's license. In challenging the revocation, Anserv argued the DOI had no jurisdiction over the MAP program. In rejecting this argument, the court stated: "Anserv incorrectly relies on Insurance Code section 35, subdivisions (a)-(c) as defining transactions of insurance as including only solicitation, negotiations preliminary to execution, or execution of the contract of insurance. Under Insurance Code section 35, subdivision (d), transaction of insurance also includes 'matters subsequent to execution of the contract and arising out of it.' The collection of premiums and execution of endorsements and excess insurance provisions clearly amount to such 'matters subsequent to execution of the contract' [citation], and there was therefore California activity by the Anserv officials in their capacities as insurance agents, sufficient to enable California jurisdiction to be exercised. Moreover, even though Mexican customers bought the MAP policies from Mexican
subproducer insurance agents, who then forwarded premiums to Anserv for delivery to ABC, the risks to the insured were those arising from driving in the United States. This also constitutes a sufficient nexus between the insurance transactions Anserv facilitated and the protection of the California public." (Anserv, supra, 83 Cal.App.4th at pp. 206-207.)
The scope of DOI's powers were also discussed in Mor-Ben Ins. Markets Corp. v. Department of Insurance (1986) 179 Cal.App.3d 1233, 1238 (Mor-Ben). In Mor-Ben a licensed broker, Mor-Ben, was disciplined for acting as the agent for a non-admitted insurer, Pioneer. In finding that Mor-Ben could be disciplined for participating in Pioneer's transactions, the court stated: "Mor-Ben was Pioneer's sole agent in the United States with authority from Pioneer to issue the classes of insurance Pioneer offered in the United States. Mor-Ben functioned as United States manager for Pioneer and for any type of business Pioneer wanted to do in the United States. Mor-Ben did all accounting, handled all funds, transmitted and requested funds, assigned all claims, hired all adjusters, retained all attorneys and settled claims. Petitioners transacted marine and fire and casualty insurance on Pioneer's behalf by issuing insurance to various insureds, charging and collecting premiums on such insurance, and adjusting, settling and handling all claims against Pioneer arising under such policies. On this record the Department and the superior court reasonably found petitioners aided and abetted Pioneer to transact insurance in California without a certificate of authority under section 700." (Id. at pp. 1238-1239.)
Under these principles, AEA Insurance and AEA Services were transacting business in California within the meaning of section 35. There is no dispute the coverage AEA Insurance and AEA Services was offering was solely for risks which might arise in California. Moreover, by way of the agreement with ARSA and Vaccaro, the two insurers had arranged to receive premiums here as well as adjust and pay in California claims which might arise here. These activities clearly fall within the scope of "'matters subsequent to execution of the contract and arising out of it'" within the meaning of section 35, subdivision (d). (Anserv, supra, 83 Cal.App.4th at pp. 206-207.)[2]
Contrary to appellants' argument, the fact their insurance policies were not sold in California did not insulate them from regulation under section 35, subdivision (d). Indeed, the court in Anserv rejected precisely this argument. (Anserv, supra, 83 Cal.App.4th at pp. 206-207.) Admittedly, there are constitutional and federal statutory limits on the reach of a state's ability to regulate foreign insurance contracts or contracts of reinsurance. (See People v. United National Life Ins. Co. (1967) 66 Cal.2d 577, 588-589.) However, those limitations are not based on where the contract of insurance was made or where the insurance agents are located, but on whether the
insurance transactions "have sufficient contacts with the regulating state so as to give the latter a substantial interest in the transactions." (Id. at p. 589.) Contrary to the appellants' argument, early insurance cases such as Connecticut General Life Insurance Co. v. Johnson (1938) 303 U.S. 77 [58 S.Ct. 436], Mutual Life Insurance Co. of New York v. Johnson (1934) 293 U.S. 335 [55 S.Ct. 154] and Boseman v. Connecticut General Life Insurance Co. (1937) 301 U.S. 196 [57 S.Ct. 686] do not create a bright line limiting a state's regulatory power to contracts made within its borders. (People v. United National Life Ins. Co., supra, 66 Cal.2d at p. 589.) Rather, those cases "actually represent[] situations where there were no contacts sufficient to support the jurisdiction of the regulating state." (Ibid.)
Here, California plainly has a substantial interest in regulating the adjustment and payment in California of insurance claims growing out of accidents which occurred on California's streets and highways. The record is clear that the appellants engaged in such adjustment and payment activity in this state. Hence, California can properly regulate their activities. (People v. United National Life Ins. Co., supra, 66 Cal.2d at p. 589.)
Judgment affirmed. Respondent to recover its costs of appeal.
BENKE, Acting P. J.
WE CONCUR:
HALLER, J.
IRION, J.
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[1] All further statutory references are to the Insurance Code unless otherwise specified.
[2] Appellants' reliance on Trihedron Internat. Assurance, Ltd. v. Superior Court (1990) 218 Cal.App.3d 934, 949 (Trihedron), is misplaced. In Trihedron we held that an out-of-state insurer was subject to regulation under sections 700 and 1616 and that its use of an agent to transact business here did not shield it from that regulation. We also found that the agent, an association of realtors, was not subject to regulation under section 1616 because that section applied on to insurers. (Ibid.) Our holding with respect to the agent's liability under section 1616 has no bearing on the scope of section 35, subdivision (d).
