Kelso Issues Cease & Desist Order to Winters Group

A Cease & Desist Order, issued by acting California Insurance Commissioner J. Clark Kelso, was served Aug. 30 on the Winters, Calif.-based Puget’s Sound Agricultural Society Ltd. (aka: Jesus Christ Administrators) by investigators for the California Department of Insurance (CDI).

The order alleges that Puget’s Sound, through the Internet, had been “transacting said business of insurance in and from the State of California without having been issued a certificate of authority, in violation of California Insurance Code Section 700.”

On Puget’s Sound website, a description of a “Vehicle Financial Responsibility Program” states that the program “can provide a low cost alternative to other plans, such as commercially available insurance.” It further states that through the self-described “Christian membership society” one can “become one of a large group of members who work together to form a society that provides benefits for its members.”

There is also a disclaimer on the site, which states that Puget’s Sound “is not an insurance company. It is not an agent; it is not a broker; it is not a business; it does not sell insurance, or any goods or services. It makes no profits and has no assets in and of itself (an entity) to back any accident reports. Puget’s Sound simply administers the Vehicle Financial Responsibility Program for the membership.”

However, the CDI’s C&D maintains that the group is “engaged in the underwriting of prospective members, claims adjustment and the setting of rates,” activities which “constitute transacting the business of insurance.”

James Kalfsbeek, general manager of Puget’s Sound, declined to make any other response with regard to the CDI’s action other than to fax over a prepared statement, which reads in part: “Members of Puget’s Sound Agricultural Society are not creations of the States i.e; fictitious persons bound to statutory law. Members of Puget’s Sound Agricultural Society are Christian men and women responsible for their own actions (automobile liability) accidentally damaging others in accordance with the scriptures (we are to be responsible for our own actions) and do collectively have automobile financial responsibility.”

Jerry Whitfield, assistant chief counsel for the CDI, said that the department’s investigation bureau had initiated an investigation about a year ago. “There wasn’t enough information in it really to move at the time, so we closed the file and sent it back for further investigation,” Whitfield said. “In the intervening period, we also got some legislation that we needed that would allow us to move summarily against organizations such as this. By that, I’m referring to unlicensed insurance companies.”

With the passage of summary legislation, which is the basis of the C&D, the department was able to move on the case. Specifically, that legislation, part of AB 845, is Insurance Code Section 12921.8, which was added in 1999 and became effective Jan. 1, 2000.

“Actually, I’ve used it three times—this is the third time,” Whitfield said. “It basically says that the Commissioner has the authority to issue a C&D order prior to hearing where someone is holding themselves out as either an insurance agent or an insurer or is transacting the business of insurance without the appropriate license.”

Whitfield also maintained that while the CDI’s C&D order came pretty close on the heels of one issued by Connecticut’s Department of Insurance on Aug. 9, California’s action was not just a direct response to Connecticut’s.

“We weren’t caught short on it,” Whitfield said. “We knew what was going on. We knew what we were going to do.”

The Connecticut C&D noted a complaint from that state’s Department of Motor Vehicles, which advised the department that a consumer had presented a “Connecticut Evidence of Financial Responsibility” card, which bore the name of Puget’s Sound Agricultural Society Ltd.

The consumer allegedly believed that card was evidence of compliance with the state’s minimum liability insurance requirement for vehicle owners.

“The Connecticut Insurance Department is concerned that consumers may be misled by companies purporting to sell insurance, but which are not licensed,” said Connecticut Insurance Commissioner Susan F. Cogswell.

Other states that have reportedly either issued C&D orders or investigated Puget’s Sound are Minnesota, North Dakota and Indiana.

According to Section 12921.9, the Commissioner may impose monetary penalties of up to $5,000 for each day the C&D order is violated. Furthermore, “[a] person to whom a cease and desist order is issued, may within seven days after service of the order, request a hearing by filing a request for the hearing with the Commissioner.”

Whitfield explained that, in general, if an entity receives a C&D order and ultimately refuses to comply, a Superior Court action could be the next step taken for violation of the order.

Topics California Legislation Agribusiness Connecticut