Cal. Code Regs. Tit. 10, § 1499 - Reasonable Cause: Right to Approve or Disapprove of the Issuer Selected to Underwrite Insurance

(a) Any person engaged in the business of financing the purchase of real or personal property or of lending money on the security of real or personal property and the trustee, director, officer, agent or other employee or affiliate of any such person shall have the right to approve or disapprove, for reasonable cause, the insurer selected to underwrite any insurance required by the contract of sale or deed or trust or other loan agreement. This regulation includes insurance covering damage to or destruction of real or personal property and it includes title insurance.

(b) Reasonable cause is defined as the failure of the insurer to:

(1) Be licensed by the State of California to transact the line of insurance afforded;

(2) Provide the insurance in conformity with all requirements of the California Insurance Code and the Regulations issued thereunder;

(3) Obtain and attach to the evidence of insurance afforded to the lender appropriate evidence of the reinsurance referred to in Section 3080 of the California Insurance Code when the amount of insurance is in excess of the one-tenth of the value of the insurer's assets in excess of the sum of its liabilities for losses reported, expenses, taxes, all other indebtedness and reinsurance of outstanding risks as provided by law as referred to in said section. Such reinsurance may be required by the lender to be in a company meeting all of the criteria of this regulation;

(4) Afford the customary coverage required by the lender for the class of property involved including the loss payable endorsement required by the lender;

(5) Provide, at the option of the lender, coverage equal to the lesser of the market value or the replacement value of the property or the agreed value when the property insured is real property, or the actual cash value of the property when the property is personal property;

(6) Provide coverage with a deductible not exceeding $100 or 1% of the amount of insurance, whichever is greater. If the custom of the insurance business is to afford a higher deductible in conjunction with the coverage provided (including the deductibles used in conjunction with earthquake insurance), the insurer may provide such higher deductible; or

(7) Deliver evidence of insurance to the lender which includes those provisions of the contract which have a bearing on the coverage afforded the property securing the loan.

(c) If a finance company desires to reject the policies of any particular insurer on reasonable grounds, other than the above, they shall submit the rejection, in writing, to the Commissioner with a copy to the borrower. The insurer or borrower may contest the grounds, in writing, either on the basis of fact or on the basis of reasonableness, within ten days of the receipt of rejection. If the Commissioner has not received contest of the grounds, in writing, for rejection within ten days, then the rejection of the insurer's policies shall stand as though the Commissioner has decided in favor of the lender. If the insurer or borrower contests the rejection, the Commissioner shall notify the lender, the insurer and the borrower of his finding that the rejection is either upheld or denied within twenty days of the receipt of the rejection. In determining the issue as submitted by the parties at interest, the Commissioner shall consult with the Insurance Commissioner.

(d) Notwithstanding any other provisions of these regulations, the California FAIR Plan Association shall not be rejected as an insurer.

Notes

Cal. Code Regs. Tit. 10, § 1499

Note: Authority cited: Section 22150, Financial Code. Reference: Section 22150, Financial Code; and Section 771, Insurance Code.

1. New section filed 12-14-72; effective thirtieth day thereafter (Register 72, No. 51).
2. Amendment filed 12-29-83; effective thirtieth day thereafter (Register 83, No. 53).
3. Amendment of NOTE filed 3-29-85; effective thirtieth day thereafter (Register 85, No. 13).
4. Editorial correction of section heading (Register 91, No. 14).
5. Change without regulatory effect amending subsection (c) and Note filed 6-14-95 pursuant to section 100, title 1, California Code of Regulations (Register 95, No. 24).