California OLA rules settlement agreement are not precedential

NAPSLO officials say they support a decision by the State of California Office of Administrative Law that a settlement agreement involving the California Department of Insurance and an insurance company cannot be viewed as a precedential decision and thereby used as the basis for penalties in other cases.

“We believe this is a positive decision for the brokerage industry as it does not add another level of regulation,” said NAPSLO President William H. Newton [Mr. Newton is also President of Lemac Associates of Los Angeles]. “Allowing such settlement agreements to be used as a precedent that would result in underground regulation, which circumvents the rulemaking process, and the OLA agreed.”

The decision follows a suit filed by the Independent Brokers and Agents of the West, which NAPSLO supported with written objections, to the Department’s contention that a settlement in a 2006 case with American Reliable Insurance Company could be used as the basis for fines in other cases.

The settlement agreement included language concluding that a broker was a producer for a company and it included a fine for the company. The department apparently intended to fine other companies over the conduct of a broker, based on this settlement agreement with American Reliable.

In the review, the Office of Administrative Law agreed that a settlement agreement could not become a precedential decision because the decision had not been adjudicated and the state's Administrative Procedure Act (APA) had not been followed. State Agencies are prohibited from issuing rules unless the rules comply with the APA.