Amid statewide insurance crisis, top regulator sidelines judge who challenged its practices

Jeff McDonald, The San Diego Union-TribuneSan Diego Union-Tribune

The highest-ranking independent judge at the California Department of Insurance has been placed on leave after ruling that the agency wrongly avoided public hearings when insurers were seeking to raise premiums.

Chief Administrative Law Judge Kristin Rosi was removed from her post earlier this year, although department officials would not say why.

She was the senior judge at the agency’s Administrative Hearing Bureau, which operates as an independent venue where insurers and consumers present evidence and judges decide how to resolve disputes over proposed rate increases, regulatory appeals and other issues.

Rosi’s departure, which leaves the independent bureau with just one judge on staff, came months after she publicly accused state Insurance Commissioner Ricardo Lara of violating state law in the way applications for rate increases are processed.

It also comes as California faces an unprecedented challenge in the insurance market, which was reeling from a spate of policy cancelations even before 15,000-plus homes and businesses were destroyed in the Los Angeles County wildfires in January.

The Department of Insurance, a sprawling agency that regulates some $300 billion worth of insurance policies issued in California every year, confirmed that Rosi was placed on leave.

It declined to explain why or to comment on her allegations that Lara was not complying with state Insurance Code and adopted regulations. Spokesperson Michael Soller said only that the Administrative Hearing Bureau work is pressing forward.

“The judge is on leave and all AHB matters are being handled,” he said by email. “The department does not provide private or personal information on employees.”

Soller did not respond to follow-up questions, including about who placed Rosi on leave, whether she would return, whether she were being paid and how common it is for a judge to be placed on leave.

The department’s website lists a total of three judges assigned to the Administrative Hearing Bureau, but two of those include Rosi and another judge who now works as an attorney for the State Bar of California.

Rosi, an Oakland-based lawyer for nearly 30 years, did not respond to a request for comment.

The removal of the senior AHB judge has been brewing since October, when Rosi authored a decision in a case seeking compensation for an advocacy group that challenged a 28.1% rate increase sought by State Farm.

The chief judge upheld the $175,000 payment to Consumer Watchdog for its contribution to lowering the rate increase sought in the initial State Farm application.

But the decision found that the department, the insurer and the advocacy group had improperly negotiated a settlement in private, and the rate-hike request should have been the subject of a public hearing.

“The parties are not adhering to the statutory and regulatory mandates to conduct public hearings, nor are the parties submitting proposed stipulations and settlements for review to the Administrative Law Judge,” Rosi wrote in a 50-page decision.

“Instead, the parties are engaging in a long-standing extra-regulatory process that permits rates to be implemented without a public hearing and without a determination that the settlements are ‘fundamentally fair, adequate, reasonable and in the interests of justice,’” she wrote, quoting a section of the state Insurance Code.

State law says the commissioner “must hold a hearing upon a timely request” any time an insurer seeks a rate increase of 7% or higher.

Lara did not appear to welcome Rosi’s reading of the Insurance Code.

In a letter to Rosi several weeks later, the commissioner said that he was working to stabilize and modernize the California insurance market and that significant reforms were necessary to make sure insurance companies would continue to write policies in fire-prone neighborhoods.

He said his “sustainable insurance strategy” called for reviewing the rules over how requests for rate increases are processed, including when the Administrative Hearing Bureau is permitted to schedule public hearings.

“All of this, plus other reforms, is designed to enable insurers to more accurately predict their rate needs and, therefore, feel more confident about increasing their exposure in the California marketplace,” Lara wrote.

The commissioner also said he was reviewing the intervenor process that allows groups like Consumer Watchdog to participate in negotiations over proposed rate hikes.

Most importantly, Lara told Rosi that the Administrative Hearing Bureau could no longer conduct hearings on any proposed rate increases unless and until he specifically refers an application to her office.

“Except as expressly delegated …. the Administrative Hearing Bureau shall not have any jurisdiction over any such prior rate application,” the commissioner wrote. The bureau “is expressly not authorized to apply the provisions of Regulations 2656.1 through 2656.3.”

Consumer Watchdog president Jamie Court sees Lara’s response as an attempt to consolidate his authority and silence an independent voice.

“This is a power struggle between the chief judge and the insurance commissioner,” said Court, who has been a sharp Lara critic for years. “The commissioner is trying to short-circuit the usual rate-setting process, under which there needs to be a hearing any time insurers ask for an increase of more than 7%.”

Proposition 103, the landmark 1988 ballot measure written by Consumer Watchdog founder Harvey Rosenfield, rewrote how insurance is regulated in California.

Among other reforms, the measure created the position of an elected insurance commissioner and an intervenor-compensation program designed to motivate third-party groups to challenge insurance companies seeking to raise premiums.

The law awards fees and expenses to intervenors like Consumer Watchdog when they can prove their outside analysis contributed to an outcome that led to lower premiums than those initially sought by insurers.

Under Proposition 103, the Insurance Code also calls on the commissioner to refer cases to the Administrative Hearing Bureau any time insurers apply for rate increases of 7% or more.

Lara and prior commissioners have not always made such referrals, choosing instead to negotiate directly with the insurer privately — sometimes with intervenors like Consumer Watchdog also at the table.

Court said Consumer Watchdog previously complained that Lara and prior commissioners have not always referred proposed rate increases to public hearings, even though the group has been at the table in private negotiations. “We agree with Judge Rosi. It should be a more public process with checks and balances.”

Since he was elected state insurance commissioner in 2018, Lara has repeatedly been accused of catering to the interests of insurance companies and withholding records that show private meetings with insurers and donors.

In 2019, for example, The San Diego Union-Tribune reported that Lara had begun accepting tens of thousands of dollars in political contributions from people he regulated within months of being sworn into office.

Hours after that story was published, he said he did not know those donors were connected to insurance companies and agreed to return the contributions.

The Union-Tribune subsequently reported that Lara kept accepting campaign donations from people with business pending before the Department of Insurance and intervened in proceedings in ways that benefited donors.

Other news organizations reported that Lara regularly met privately with insurers, billed taxpayers for the cost of his Sacramento apartment and attended a New Year’s Eve party in London with an insurance lobbyist.

The Department of Insurance also was sued for withholding records about the commissioner’s meetings with insurance executives, although most of those claims were rejected by a judge.

State officials are confronting near-unprecedented pressure from insurance companies and consumers in the wake of the Los Angeles area wildfires earlier this year.

The total amount of damages are still being calculated, but some estimates go as high as $250 billion or more. The California FAIR plan, the insurer of last resort for thousands of homeowners, reported a risk exposure of more than $450 billion even before the January wildfires.