Full text of Official Insurance Commissioner’s Determination 22-009, issued by the California Department of Insurance January 21, 2022.
Official Insurance Commissioner's Determination 22-009
Made in response to an Insurance Commissioner’s Inquiry received by mail in Insurance Tower October 31, 2021 pursuant to California Department of Insurance Administrative Procedures.
To the Mayor and Council of the City of Red Bluff, inquiring as to the status of the contract made by their City and Western States Electric and Gas in 1923, and as to the potential invalidation of that contract through operation of California state law, and as to the validity of the Benefit required to be insured for on behalf of Pacific Gas and Electric by the City of Red Bluff pursuant to the 1923 contract.
Thank you for your thoughtful inquiry and plea regarding the ongoing insurance requirement manifested by Pacific Gas and Electric in the circumstances of their repair of lines leading to your city. It is unusual to receive requests from municipalities related to specific insurance coverage details and responsibilities. For that reason, I elected to review and research your request personally, with the assistance of my most senior staff. After our review of your inquiry, we are able to present the following results:
Pursuant to the California Insurance Code, insurance contracts entered into pursuant to the laws existing at the time the contract was entered into are valid now unless voided by a specific statute or found to be unconstitutional by a court of competent jurisdiction.
This is critically important information. The contract in question, entered into in 1923 -- prior to the existence of the Insurance Code as a separate section of California Law -- was made legally by the Council of the City of Red Bluff and Western States Electric and Gas. There is no evidence that any aspect of the contract was outside the bounds of the law of the state of California at the time. The Public Utilities Code allowed at the time for municipalities not only to purchase and directly maintain infrastructure outside their borders for the purpose of electrification, but also to contract that type of activity. In fact, the Cities of San Francisco, Oakland, Eureka, Arcata, and San Diego, among others, made these same types of agreements. Many have since modified the exact parameters of the insurance aspects of their contracts, though it appears they were all aware of this aspect of the contract in advance of catastrophe. Several of these contracts have been challenged in court (some are older and some are more recent than yours) and all have been upheld.
Pursuant to the California Insurance Code, a Charter City is solely responsible for any insurance contracts it enters into, and while such contracts may be voided or superseded by state law, insurance contracts are not a Matter of Statewide Concern, and so a Charter City’s contract may not be specifically and individually voided by any act of state legislation except disincorporation.
It is clear based on your request that you have sought the best possible advice regarding this difficult question, and tried to determine the most effective measures in order to liberate yourselves from this onerous contract. It is unlikely that you would be able to do that via changes to state law. Further, a reversion to General Law status is no longer possible (reforms to these portions of state law were accomplished most recently in 1967, and a Charter City may not become a General Law city without first being disincorporated) so that option is not on the table.
Pursuant to the California Insurance Code, the valuation by Pacific Gas and Electric of the required policy at this time is not “excessive” under the law because it meets the requirement of Minimal Coverage of Full Fire Zones established by the California Department of Fire and Forestry in April 2020, and does not exceed the maximums of the required ranges.
Though a requirement to insure some 800 feet of line for an amount of $10 Billion does appear on it face to be excessive, especially because the lines in question are located in an isolated rural area far from major communities, this valuation is within the allowed range ($500 Million to $12 Billion) for lines in Fire Area 23, which could sweep between Chico and Redding and potentially into those cities, causing tremendous losses if fire was widespread enough and containment was failed enough. CalFire’s Widespread Incident Strategy involves concentrating resources to defend major urban areas, leaving more isolated communities to fend more for themselves. My office has evaluated their valuation range for each type of incident and each Fire Area, and has determined that this valuation is not inappropriate. Therefore the premium PG&E has requested is consistent with the California Insurance Code.
While these are obviously difficult conclusions, they are supported by the force of law, and I have no ability to impose my own desires or even my regulatory powers, extensive as they may be. I sympathize with your conundrums and the difficulties of operating your city without electric power for the past several months, and I am hopeful that you are able to determine a course of action to move forward. I would be happy to put you in touch with any figure of the state government in order to forward your case.
Please do let me know if you would like a re-evaluation of any of the aspects of this, Official Insurance Commissioner’s Determination 22-009. I can assure you that any official requests from your City will be my first priority when they come in.
Wishing you the very best,
Ricardo Lara
Insurance Commissioner
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