Filed 9/20/18




                              CERTIFIED FOR PUBLICATION

                IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

                              FOURTH APPELLATE DISTRICT

                                      DIVISION THREE


PACIFICARE LIFE AND HEALTH
INSURANCE COMPANY,
                                                     G053914
    Plaintiff and Respondent,
                                                     (Super. Ct. No. 30-2014-00733375)
        v.
                                                     OPINION
DAVE JONES, AS INSURANCE
COMMISSIONER, etc.,

    Defendant and Appellant.



                  Appeal from an order of the Superior Court of Orange County, Kim Garlin
Dunning, Judge. Reversed. Appellant’s request for judicial notice and supplemental
request for judicial notice are granted. Respondent’s request for judicial notice is granted
in part and denied in part.
                  Xavier Becerra, Attorney General, Edward C. DuMont, State Solicitor
General, Diane S. Shaw, Assistant Attorney General, Janill L. Richards and Christina
Bull Arndt, Deputy State Solicitors General, Lisa W. Chao and Laura E. Robbins, Deputy
Attorneys General, for Defendant and Appellant.
              Gibson, Dunn & Crutcher, Daniel M. Kolkey, Kahn A. Scolnick; Dentons
US, Steven A. Velkei and Felix Woo for Plaintiff and Respondent.
              Greenberg Traurig, Gene Livingston and William Gausewitz for the
American Council of Life Insurers, the Association of California Life and Health
Insurance Companies, the Independent Insurance Agents & Brokers of California, the
Personal Insurance Federation of California, and the Property Casualty Insurers
Association of America as Amici Curiae on behalf of Plaintiff and Respondent.
                                   *          *          *
                                    INTRODUCTION
              Dave Jones, in his capacity as Insurance Commissioner of the State of
California (the Commissioner), appeals from an order enjoining him from enforcing three
regulations, adopted in 1992, to implement the unfair claims settlement practices
                                                                                     1
provision of the Unfair Insurance Practices Act (UIPA) (Ins. Code, § 790, et seq.) The
injunction was issued at the conclusion of the first phase of a trial in which PacifiCare
Life and Health Insurance Company is challenging the Commissioner’s finding that it
had committed over 900,000 acts and practices in violation of the Insurance Code.
              The first of the three enjoined regulations states that, for purposes of the
statute defining unfair claims settlement practices (§ 790.03, subd. (h) (790.03(h)), a
violation occurs when the prohibited settlement practice is either “knowingly committed
on a single occasion,” or “performed with such frequency as to indicate a general
                                                             2
business practice.” (Cal. Code Regs., tit. 10, § 2695.1(a).) The second regulation defines
       1
              All further statutory references are to the Insurance Code unless otherwise
indicated.
       2
             All further regulatory references are to Title 10 of the California Code of
Regulations and are identified as “Reg.”

                                              2
the word ‘“[k]nowingly”’ to include implied and constructive knowledge (Reg.
2695.2(l)). The third regulation defines the word ‘“[w]illful”’ without requiring any
specific intent to cause harm or violate the law. (Reg. 2695.2(y).)
              We reverse the order imposing the injunction in its entirety. The trial court
determined the first regulation was inconsistent with the language of section 790.03(h),
which it concluded had been interpreted by our Supreme Court in Moradi-Shalal v.
Fireman’s Fund Ins. Companies (1988) 46 Cal.3d 287, 303 (Moradi-Shalal), and in
Zhang v. Superior Court (2013) 57 Cal.4th 364, 379-380, fn. 8 (Zhang), to apply only to
insurers engaged in a pattern of misconduct. We disagree. As we will discuss further
below, our Supreme Court’s only binding interpretation of that statutory language is
found in Royal Globe Ins. Co. v. Superior Court (1979) 23 Cal.3d. 880, 891 (Royal
Globe), which held that section 790.03(h) can be violated by an insurer’s single knowing
act. Consequently, we must apply that precedent.
              After considering the Supreme Court’s comments on the “single act
liability” issue in Moradi-Shalal and Zhang in their proper contexts, we conclude that to
the extent they suggest disagreement with the court’s holding in Royal Globe on that
specific issue, those comments are dicta. We also believe PacifiCare’s contrary
interpretation would be inconsistent with the unambiguous direction provided on this
issue by the Legislature over the past 80 years.
              The trial court also erred in declaring the Commissioner’s regulations
defining ‘“[k]nowingly committed”’ and “‘[w]illfull’ or ‘[w]illfully’” to be invalid. The
Commissioner has been given broad authority to promulgate regulations relating to the
UIPA, including regulations defining the terms used therein. We must accord substantial
deference to those regulations and conclude neither of these is inconsistent with the
                                 3
statutes to which they relate.
       3
            Both parties have requested we take judicial notice of various documents.
Both the Commissioner’s request, and his supplemental request, seeking judicial notice

                                             3
                                          FACTS
              In 2008, following a lengthy investigation, the California Department of
Insurance filed an administrative enforcement action against PacifiCare, alleging it
engaged in multiple unfair claims settlement practices described in section 790.03(h), as
well as other violations of the Insurance Code. Following an evidentiary hearing, the
Commissioner issued a lengthy decision and order, finding PacifiCare engaged in over
900,000 acts and practices in violation of the Insurance Code. As a result, the
Commissioner imposed penalties in excess of $173 million.
              In July 2014, PacifiCare filed a petition for writ of mandate and complaint
for declaratory and injunctive relief in the trial court, challenging the Commissioner’s
decision and order. Among other things, PacifiCare challenged the validity of three
regulations previously promulgated by the Commissioner, and relied upon by him in the
prosecution of this action. Those regulations related to a number of specifically defined
unfair claims settlement practices. (Reg. 2695.1(a).)
              The first challenged regulation is Reg. 2695.1(a), which is part of the
preamble to the regulatory article entitled “Fair Claims Settlement Practices
Regulations.” (Regs. 2695.1—2695.14.) PacifiCare objected to the clause in that
regulation describing section 790.03(h) as “enumerat[ing] sixteen claims settlement
practices that, when either knowingly committed on a single occasion, or performed with
such frequency as to indicate a general business practice, are considered to be unfair
claims settlement practices. . . .” PacifiCare claims the regulation’s language is
inconsistent with section 790.03(h), which it contends does not include the single


of (1) documents comprising legislative history of various statutes and (2) documents
evidencing the rulemaking process underlying the Fair Claims Settlement Practices
Regulations, are granted. PacifiCare’s request for judicial notice is granted with respect
to documents comprising legislative history of various statutes, but denied with respect to
the former Commissioner’s amicus curiae brief filed in connection with Royal Globe.


                                             4
knowing commission of an enumerated act in its definition of an unfair claims settlement
practice. As a result, PacifiCare argues that this regulation is invalid.
              The second challenged regulation is Reg. 2695.2(l), which defines
‘“[k]nowingly committed”’ for purposes of the fair claims settlement practices
regulations as “performed with actual, implied or constructive knowledge, including but
not limited to, that which is implied by operation of law.” PacifiCare argues this
definition is inconsistent with section 790.03(h) because “knowingly,” in ordinary
parlance, must mean deliberately—a meaning PacifiCare claims is inconsistent with
implied or constructive knowledge.
              The third challenged regulation is Reg. 2695.2(y), which defines
“‘[w]illful’ or ‘[w]illfully’ when applied to the intent with which an act is done or
omitted [as] simply a purpose or willingness to commit the act, or make the
omission . . . . It does not require any intent to violate law, or to injure another, or to
acquire any advantage.” PacifiCare objected to this definition as inconsistent with
section 790.035, the statute that sets forth the penalties applicable to violations of section
790.03—including enhanced penalties for “willful” violations. PacifiCare argues this
regulation impermissibly blurs the distinction between willful and nonwillful violations,
and is inconsistent with the statutory definitions of willful found in the Insurance Code.
              In April 2015, PacifiCare moved for judgment on the pleadings on its claim
for declaratory relief, seeking a determination that each of the challenged regulations was
inconsistent with the relevant underlying statutory language and, therefore, facially
invalid. The trial court granted PacifiCare’s motion with respect to all three regulations,
declaring that all three regulations “impermissibly conflict and are inconsistent
with . . . . sections 790.03, subdivision (h) and 790.035.”
              PacifiCare subsequently moved for a preliminary injunction preventing the
Commissioner from continuing to enforce the three regulations ruled invalid. The court
issued the requested injunction, stating the Commissioner was enjoined from:

                                               5
(1) “enforcing those portions of Regulation 2695.1(a) that base claims settlement
violations ‘on a single occasion’ of conduct;” (2) “enforcing the definition of ‘knowingly
committed’ in Regulation 2695.1(l);” and (3) “enforcing Regulation 2695.2(y), for the
purpose of interpreting ‘Willful’ or ‘Willfully’ under Insurance Code section 790.035.”
              In November 2016, in response to the Commissioner’s petition for a writ of
supersedeas, this court issued an order suspending the injunction pending the resolution
of this appeal, without ruling on the merits of the appeal.
                                          DISCUSSION
1.     Standards of Review
              “‘Government Code section 11342.2 provides the general standard of
review for determining the validity of administrative regulations. That section states that
“[w]henever by the express or implied terms of any statute a state agency has authority to
adopt regulations to implement, interpret, make specific or otherwise carry out the
provisions of the statute, no regulation adopted is valid or effective unless [1] consistent
and not in conflict with the statute and [2] reasonably necessary to effectuate the purpose
of the statute.”’” (Association of California Ins. Cos. v. Poizner (2009) 180 Cal.App.4th
1029, 1044 (Poizner).)
              Applying that standard to this case, we note that section 790.10 expressly
authorizes the Commissioner to adopt regulations related to implementation of the UIPA,
stating he “shall, from time to time as conditions warrant . . . promulgate reasonable rules
and regulations, and amendments and additions thereto, as are necessary to administer
[the UIPA].” As our Supreme Court recently noted in Association of California Ins.
Companies v. Jones (2017) 2 Cal.5th 376 (ACIC), that regulatory authority “appears to be
quite broad” (id. at p. 390) because “[i]mplied in the phrase ‘from time to time as
conditions warrant’ is a measure of flexibility for the Commissioner to discern when
regulation is proper.” (Id. at p. 391.)



                                              6
              Moreover, the Supreme Court explained in ACIC that section 790.10’s use
of the phrase ‘“as . . . necessary to administer”’ does not imply any particular restriction
on the scope of the Commissioner’s authority. (ACIC, supra, 2 Cal.5th at p. 390.) The
Court instead looked to “the scope of the word as used in the statutory definition of
‘regulation,’ which provides that an agency’s authority to enforce or administer a statute
includes the power to adopt a regulation ‘to implement, interpret, or make specific the
                                                                                        4
law enforced or administered by it.’” (Id. at p. 392, citing Gov. Code, § 11342.600.)



       4
                We reject PacifiCare’s contention that ACIC is inapposite here. Although
ACIC does draw a distinction between the Commissioner’s rule making authority under
section 790.03, subdivision (b)—which prohibits the public dissemination of untrue,
deceptive or misleading information by an insurer—and his authority under 790.03(h),
we believe the distinction is irrelevant for our purposes. The question in ACIC was
whether the Commissioner had exceeded his authority by declaring an insurer’s
incomplete replacement cost estimate to be a prohibited misrepresentation under
section 790.03, subdivision (b), when the subdivision itself made no reference to such
incomplete estimates. The appellant argued that because the Legislature specifically
identified the acts constituting unfair claims settlement practices under section 790.03(h),
its failure to similarly “designate incomplete replacement cost estimates as misleading
statements” under subdivision (b) of section 790.03 must be viewed as a “conscious
choice” to exclude such estimates from the scope of that subdivision. (ACIC, supra,
2 Cal.5th at p. 398.)
                However, the Supreme Court explained that the Legislature was free to
reserve for itself the definition of what acts would qualify as misconduct under one
statutory provision, while authorizing the Commissioner to define what acts would
qualify under another: “[w]hen the Legislature is confident that it has identified a given
problem and the best solution, it may enact its specific remedy into statutory law—as it
did with unfair claims settlement practices in section 790.03, subdivision (h). But the
Legislature may also choose to grant an administrative agency broad authority to apply
its expertise in determining whether and how to address a problem without identifying
specific examples of the problem or articulating possible solutions.” (ACIC, supra,
2 Cal.5th at p. 399.) Thus, because section 790.03, subdivision (b), identified only the
general problem of misrepresentations by insurers, without identifying any specific
examples, the rulemaking power granted to the Commissioner under the UIPA gave him
broader authority to decide what acts would qualify as a violation of that subdivision than
he had in connection with section 790.03(h). That distinction, while significant in ACIC,
is irrelevant here because the regulations before us do not purport to identify the acts that

                                              7
               In deciding whether a regulation is consistent with the statutes to which it
relates, we must start with the presumption the regulation is valid. (ACIC, supra,
2 Cal.5th at p. 389.) And because the issue of consistency “implicate[s] the interpretation
of the relevant statutes, [it presents] a question of law on which this court exercises
independent judgment.” (Id. at pp. 389-390; Western States Petroleum Assn. v. Board of
Equalization (2013) 57 Cal.4th 401, 415 [“when an implementing regulation is
challenged on the ground that it is ‘in conflict with the statute’ . . . the issue of statutory
construction is a question of law on which a court exercises independent judgment”].)
               However, “[i]n exercising our ultimate responsibility to construe the
statutory scheme, . . . we ‘“‘accord[] great weight and respect”’’ to the administrative
agency’s construction. [Citations.] [¶] How much weight to accord the agency’s
construction depends on the context, a term encompassing both the nature of the statutory
issue and characteristics of the agency. [Citation.] Among the factors bearing on the
value of the administrative interpretation, two broad categories emerge: factors relating to
the agency’s technical knowledge and expertise, which tend to suggest the agency has a
comparative interpretive advantage over a court; and factors relating to the care with
which the interpretation was promulgated, which tend to suggest the agency’s
interpretation is likely to be correct.” (ACIC, supra, 2 Cal.5th at p. 390.)
               We also consider the extent to which the regulation is “quasi-legislative” as
opposed to “interpretive.” (Yamaha Corp. of America v. State Bd. of Equalization (1998)
19 Cal.4th 1, 6, fn. 3 (Yamaha).) As described in ACIC, “Quasi-legislative rules
represent ‘an authentic form of substantive lawmaking’ in which the Legislature has
delegated to the agency a portion of its lawmaking power. [Citations.] Because such
rules ‘have the dignity of statutes,’ a court’s review of their validity is narrow: ‘If


would qualify as unfair claims settlement practices under section 790.03(h). Rather, they
construe the statutory language.


                                                8
satisfied that the rule in question lay within the lawmaking authority delegated by the
Legislature, and that it is reasonably necessary to implement the purpose of the statute,
judicial review is at an end.’” (ACIC, supra, 2 Cal.5th at pp. 396-397.)
              By contrast, “an interpretive rule that is devoid of any quasi-legislative
authority . . . represents the agency’s understanding of the statute’s meaning and effect—
consequential, but not an exercise of delegated lawmaking power. [Citation.] A court
reviewing the validity of an interpretive rule therefore must consider more than simply
whether the rule is within the scope of the authority conferred, and whether the rule is
reasonably necessary to effectuate the statute’s purpose. Rather, a court must also
consider whether the administrative interpretation is a proper construction of the statute.”
(ACIC, supra, 2 Cal.5th at p. 397.)
              In this case, PacifiCare contends that all three of the regulations it
challenges are purely interpretive—and thus entitled to little deference—“because they
define particular words in sections 790.03(h) and 790.035 and interpret the introductory
phrase in section 790.03(h).”
              However, as stated in Yamaha—the case PacifiCare relies upon to support
its assertion that all regulations are either “quasi-legislative” or “interpretive”—the
distinction is often unclear. In fact, “the terms designate opposite ends of an
administrative continuum, depending on the breadth of the authority delegated by the
Legislature.” (Yamaha, supra, 19 Cal.4th at p. 6, fn. 3.) Consequently, “in certain
circumstances, a regulation may have both quasi-legislative and interpretive
characteristics—‘as when an administrative agency exercises a legislatively delegated
power to interpret key statutory terms.’” (ACIC, supra, 2 Cal.5th at p. 397.)
              The fact the Legislature may at times legitimately delegate to
administrative agencies the power “to interpret key statutory terms” proves fatal to
PacifiCare’s claim that all regulations which “define particular words” in a statute are
necessarily “interpretive,” and thus not entitled to deference. As the Supreme Court

                                              9
explained in ACIC, section 790.1’s broad delegation of regulatory authority to the
Commissioner is consistent with an authorization to interpret statutory language:
“[w]here, as here, the Legislature uses open-ended language that implicates policy
choices of the sort the agency is empowered to make, a court may find the Legislature
delegated the task of interpreting or elaborating on the statutory text to the administrative
agency.” (ACIC, supra, 2 Cal.5th at p. 393.) We consequently reject PacifiCare’s
assertion that these regulations are entitled to little deference simply because they
interpret terms used in the statute.
              We agree, on the other hand, with the Commissioner’s assertion that
because PacifiCare has made a facial challenge to the validity of each regulation, it can
prevail only if the text of the regulation, on its face, is inconsistent with the relevant
statute[s]. “A facial challenge is ‘“the most difficult challenge to mount successfully,
since the challenger must establish that no set of circumstances exists under which the
[law] would be valid.”’” (T.H. v. San Diego Unified School Dist. (2004) 122
Cal.App.4th 1267, 1281.)
              “To resolve a facial challenge, we consider ‘only the text of the measure
itself, not its application to the particular circumstances’ of this case.” (Today’s Fresh
Start, Inc. v. Los Angeles County Office of Education (2013) 57 Cal.4th 197, 218




                                               10
                          5
(Today’s Fresh Start).)       We consequently reject PacifiCare’s analysis relating to the
                                                                  6
propriety of the Commissioner’s creation of these regulations.
              With these standards in mind, we consider the UIPA and the validity of the
challenged regulations.
2.     The UIPA and Section 790.03(h)

              The UIPA “was adopted in 1959, and was patterned after the National
Association of Insurance Commissioners’ model legislation.” (Royal Globe, supra,
23 Cal.3d. at p. 885.) Its purpose “is ‘to regulate trade practices in the business of
insurance . . . by defining . . . such practices in this State which constitute unfair methods
of competition or unfair or deceptive acts or practices and by prohibiting the trade
practices so defined or determined.’” (Id. at pp. 884-885.) The UIPA authorizes the
Commissioner to investigate those engaged in the insurance business to determine
“whether insurance companies are or have been engaged ‘in any . . . deceptive act or
practice prohibited by Section 790.03.’” (ACIC, supra, 2 Cal.5th at p. 387).
              The UIPA’s operative provision is section 790.02, which states: “No
person shall engage in this State in any trade practice which is defined in this article as, or

       5
               PacifiCare argues against the application of this “exacting” standard
(Today’s Fresh Start, supra, 57 Cal.4th at p. 218) in the context of a regulatory challenge.
It argues that the cases relied upon by the Commissioner are “not relevant because they
involve challenges to statutes or ordinances, not regulations as inconsistent with statute.”
PacifiCare does not, however, explain why the standard is inappropriate or unworkable in
this context, nor does it identify any alternative standard applicable to facial challenges to
regulations.
       6
              We cannot consider PacifiCare’s factual claims relating to the underlying
proceedings and the effect of the challenged regulations on those proceedings.
PacifiCare brought a facial challenge to the validity of these regulations and obtained the
order declaring the regulations invalid as a result of its motion for judgment on the
pleadings, before any fact finding by the trial court had occurred. It, therefore, cannot
rely on disputed contentions about the merits of the underlying proceedings to support
that order.


                                                11
determined pursuant to this article to be, an unfair method of competition or an unfair or
deceptive act or practice in the business of insurance.” Section 790.03 specifies and
describes the prohibited “unfair methods of competition and unfair and deceptive acts or
practices in the business of insurance.” (Italics added.)
              In 1971, the Legislature enacted section 790.10, requiring the
Commissioner, “from time to time as conditions warrant, after notice and public hearing,
[to] promulgate reasonable rules and regulations, and amendments and additions thereto,
as are necessary to administer this article.”
              Section 790.03(h), the specific subdivision at issue in this case, was enacted
a year later. It was based on an amendment to the model legislation. However,
California modified the amendment’s language. (Royal Globe, supra, 23 Cal.3d. at
p. 885, 890, fn. 9 [“The model act does not contain the word ‘Knowingly’”].)
Section 790.03(h) prohibits sixteen specific “unfair claims settlement practices” which
are prohibited when “[k]nowingly commit[ed] or perform[ed] with such frequency as to
                                                        7
indicate a general business practice.” (§ 790.03(h).)

       7
                The 16 prohibited activities are: “(1) Misrepresenting to claimants pertinent
facts or insurance policy provisions relating to any coverages at issue. [¶] (2) Failing to
acknowledge and act reasonably promptly upon communications with respect to claims
arising under insurance policies. [¶] (3) Failing to adopt and implement reasonable
standards for the prompt investigation and processing of claims arising under insurance
policies. [¶] (4) Failing to affirm or deny coverage of claims within a reasonable time
after proof of loss requirements have been completed and submitted by the insured. [¶]
(5) Not attempting in good faith to effectuate prompt, fair, and equitable settlements of
claims in which liability has become reasonably clear. [¶] (6) Compelling insureds to
institute litigation to recover amounts due under an insurance policy by offering
substantially less than the amounts ultimately recovered in actions brought by the
insureds, when the insureds have made claims for amounts reasonably similar to the
amounts ultimately recovered. [¶] (7) Attempting to settle a claim by an insured for less
than the amount to which a reasonable person would have believed he or she was entitled
by reference to written or printed advertising material accompanying or made part of an
application. [¶] (8) Attempting to settle claims on the basis of an application that was
altered without notice to, or knowledge or consent of, the insured, his or her
representative, agent, or broker. [¶] (9) Failing, after payment of a claim, to inform

                                                12
              Definitional statutes are intended to provide clarity and consistency in
statutory language, and the California Legislature is generally adept at drafting them.
Unfortunately, section 790.03(h) is conceptually clear—painting a vivid picture of the
types of insurance company misconduct it seeks to curtail—but syntactically challenged.
              The key question has long been whether section 790.03(h) defines one or
two discrete categories of punishable conduct. Had the Legislature elected to employ
commas in either of two ways in the subdivision’s main clause, that debate might more
                                                    8
easily be resolved in favor of one side or the other. But it did neither. We consequently
can draw no inferences based on the placement of commas.


insureds or beneficiaries, upon request by them, of the coverage under which payment
has been made. [¶] (10) Making known to insureds or claimants a practice of the insurer
of appealing from arbitration awards in favor of insureds or claimants for the purpose of
compelling them to accept settlements or compromises less than the amount awarded in
arbitration. [¶] (11) Delaying the investigation or payment of claims by requiring an
insured, claimant, or the physician of either, to submit a preliminary claim report, and
then requiring the subsequent submission of formal proof of loss forms, both of which
submissions contain substantially the same information. [¶] (12) Failing to settle claims
promptly, where liability has become apparent, under one portion of the insurance policy
coverage in order to influence settlements under other portions of the insurance policy
coverage. [¶] (13) Failing to provide promptly a reasonable explanation of the basis
relied on in the insurance policy, in relation to the facts or applicable law, for the denial
of a claim or for the offer of a compromise settlement. [¶] (14) Directly advising a
claimant not to obtain the services of an attorney. [¶] (15) Misleading a claimant as to
the applicable statute of limitations. [¶] [and] (16) Delaying the payment or provision of
hospital, medical, or surgical benefits for services provided with respect to acquired
immune deficiency syndrome or AIDS-related complex for more than 60 days after the
insurer has received a claim for those benefits, where the delay in claim payment is for
the purpose of investigating whether the condition preexisted the coverage.”
       8
              Had the Legislature inserted commas so that the main clause read
“[k]nowingly committing, or performing with such frequency as to indicate a general
business practice, any of the following unfair claims settlement practices,” anyone among
us could easily determine that the statute referred to two alternate categories of
punishable conduct. Likewise, had the Legislature placed the first of those two commas,
so that the main clause read “[k]nowingly committing or performing, with such
frequency as to indicate a general business practice, any of the following unfair claims

                                             13
              Adding fuel to the fire is the fact that a main clause of section 790.03
employs the word “practice” twice in reference to what are apparently two different
activities—an insurer’s “general business practice” and an “unfair claims settlement
practice[].” Although PacifiCare argues the second reference, to an “unfair claims
settlement practice” must also refer to an insurer’s “general business practice,” we are not
persuaded. In the context of both the UIPA generally, which regulates prohibited “trade
practice[s]” (§ 790.02), and section 790.03 specifically, which defines “unfair methods of
competition and unfair and deceptive acts or practices in the business of insurance”
(§ 790.03), we believe the phrase “unfair claims settlement practices” refers to practices
that exist in the insurance industry generally. (See People v. Zambia (2011) 51 Cal.4th
965, 972 [““‘the words [of a statute] must be construed in context’””].) Thus, an
individual insurer would engage in a listed “practice” by just once committing the
described misconduct.
              Finally, we cannot ignore the fact that the 16 unfair claims settlement
practices listed in section 790.03(h) are described in dissimilar ways. Several of the
16 practices refer to multiple “claimants” and “claims,” which suggests the wrongful
practice would involve multiple incidents of wrongdoing. Others reference a “claimant”
or “claim,” suggesting the practice can be committed on a single occasion. Still others
are described in some combination of plural and singular language (e.g., 790.03(h)(8)).
There is even one practice which appears to qualify as both a single act of wrongdoing
and a general business practice (§ 790.03(h)(3).) Such draftsmanship raises what has
become a recurring question: Did the Legislature intend to authorize the Commissioner
to investigate and regulate only established patterns of unfair claims settlement practices,
or did it intend to authorize enforcement activities based on single acts of misconduct by


settlement practices,” anyone would understand that the statute referred to a single
category of conduct.


                                             14
an insurer? As we will discuss further below, we conclude the Legislature intended to
empower the Commissioner to take appropriate enforcement action in response to an
insurer’s single, knowing commission of a prohibited practice, and also in cases where
the insurer engages in repetitive acts of misconduct as a general business practice.
              We consider many factors in reaching this conclusion, but we are initially
struck by the fact that the Legislature, in the language it chose to introduce section
                                                                9
790.03, included both “unfair and deceptive acts or practices” in its litany of prohibited
conduct. So the Legislature’s overarching intent on this topic seems clear to us from the
outset. The Supreme Court also recently concluded that the Commissioner, pursuant to
the powers vested in his office by the UIPA, has enforcement authority whenever an
insurer has engaged in any ‘“deceptive act or practice prohibited by Section
790.03 . . . .”’ (ACIC, supra, 2 Cal.5th at p. 387.)
3.     Royal Globe, Moradi-Shalal and Subsequent Legislation
              In the years following its enactment, section 790.03(h) generated no small
amount of debate as to its meaning. Finally, in 1979, the Supreme Court decided Royal
Globe, in which it resolved several disputes about how the statutory scheme embodied in
the UIPA was intended to operate. First, the court held that section 790.03(h) was not
solely a basis for imposing administrative penalties. Instead, a third party claimant could
bring a direct civil action against an insurer to impose liability based on its commission
of the unfair practices described in the provision. (Royal Globe, supra, 23 Cal.3d. at
pp. 885-888.) The court also held that “a single violation knowingly committed is a
sufficient basis for such an action,” and thus it was not necessary to prove the insurer
engaged in an alleged violation as a general business practice. (Id. at p. 891). Finally,
the court held that the third party plaintiff could not sue both the insured and the insurer

       9
              “The following are hereby defined as unfair methods of competition and
unfair and deceptive acts or practices in the business of insurance.” (§ 790.03.)


                                             15
in the same action, but must instead wait to sue the insurer until the liability of the
insured “is first determined.” (Id. at p. 892; see Moradi-Shalal, supra, 46 Cal.3d.
at p. 294 [identifying what the Court characterizes as the three separate holdings of Royal
Globe].)
               Nine years later, in Moradi-Shalal, the Supreme Court reversed Royal
Globe’s holding that section 790.03(h) gave rise to a private right of action because
“[n]either section 790.03 nor section 790.09 was intended to create a private civil cause
of action against an insurer that commits one of the various acts listed in section 790.03,
subdivision (h).” (Moradi-Shalal, supra, 46 Cal.3d. at p. 304.) At the same time the
Court cautioned “that our decision is not an invitation to the insurance industry to commit
the unfair practices proscribed by the Insurance Code. We urge the Insurance
Commissioner and the courts to continue to enforce the laws forbidding such practices to
the full extent consistent with our opinion.” (Ibid.)
               In the wake of Moradi-Shalal, the Legislature enacted section 790.035,
which authorized additional financial penalties for violations of section 790.03, such
penalties to be imposed “for each act.” (§ 790.035, subd. (a).) The Legislature also gave
the Commissioner “discretion to establish what constitutes an act” for purposes of
assessing the new penalties, except that “when the issuance, amendment or servicing of a
policy or endorsement is inadvertent, all of those acts shall be a single act . . . .” (Ibid.)
               In 1990, the Legislature enacted section 12921.1, which directed the
Commissioner to “establish a program on or before July 1, 1991, to investigate
complaints and respond to inquiries . . . , and, when warranted, to bring enforcement
actions against insurers.” The program requires the Commissioner to focus on individual
complaints from consumers about insurers, obligating him to provide the public with a
“toll-free telephone number . . . dedicated to the handling of complaints and inquiries”
(§ 12921.1, subd. (a)(1)), as well as a “simple, standardized complaint form designed to
assure that complaints will be properly registered and tracked.” (§ 12921.1, subd. (a)(3).)

                                               16
The program also requires the Commissioner to establish “average processing times for
each step of complaint mediation, investigation, and enforcement” which shall be
consistent with [the UIPA].) (§ 12921.1, subd. (6).)
              In December 1992, the Commissioner filed the Fair Claims Settlement
Practices Regulations (Regs. 2695.1 et. seq.), which include the regulations challenged in
this case. Those regulations took effect in January 1993.
4.     PacifiCare’s Challenge to Reg. 2695.1
              The first of the three regulations challenged by PacifiCare is Reg. 2695.1,
which is identified as the “[p]reamble” to the Fair Claims Settlement Practice
Regulations. PacifiCare objects specifically to the italicized language in subdivision (a)
of the regulation, which describes section 790.03(h) as “enumerat[ing] sixteen claims
settlement practices that, when either knowingly committed on a single occasion, or
performed with such frequency as to indicate a general business practice, are considered
to be unfair claims settlement practices . . . prohibited by this section of the California
Insurance Code.” (Italics added.)
              PacifiCare contends the italicized language of the regulation is inconsistent
with section 790.03(h) because the statute governs only an insurer’s pattern of knowing
violations, not its commission of any single violation. We disagree. Even if we accorded
no deference to the Commissioner’s interpretation of the statutory language, we would
conclude his interpretation is correct.
              A.     Royal Globe Is Binding on the Point
              When squarely presented with the question of whether section 790.03(h)
applies to “a single violation knowingly committed,” the Supreme Court held in Royal
Globe that it did. (Royal Globe, supra, 23 Cal.3d at p. 890.) And although the Supreme
Court overruled Royal Globe in Moradi-Shalal, it did so only with respect to Royal
Globe’s holding that section 790.03(h) established a private right of action in favor of a



                                              17
               10
third party.        (Moradi-Shalal, supra, 46 Cal.3d. at p. 303-304 [“the interpretive
difficulties and complex public policy choices arising under Royal Globe result solely
from its conclusion that the Legislature intended to confer a private right of action for
violation of section 790.03”].)
                    Indeed, at the outset of its opinion in Moradi-Shalal, the Supreme Court
narrowly framed the issue before it to be whether or not “a private litigant could bring an
action to impose civil liability on an insurer for engaging in unfair claims settlement
practices.” (Moradi-Shalal, supra, 46 Cal.3d at p. 294.) The court thereafter discussed
other issues that had been resolved in Royal Globe, including the “single act” liability
theory. We acknowledge that the court appeared to struggle with the propriety of its
Royal Globe holding that “an action under section 790.03 could be based upon a single
wrongful act” (Moradi-Shalal, at p. 303), but we conclude, after analyzing the relevant
language in its proper context, that the court did not overrule Royal Globe on this issue.
Rather, it observed that the significant disagreement expressed by the courts of other
states with certain principles set forth in Royal Globe “strongly suggests we erred in our
contrary holding.” (Moradi-Shalal, at p. 303.) The court then concluded “[i]t seems
evident that resolution of these issues regarding the application of Royal Globe involves a
difficult weighing of competing policies,” and suggested “[s]uch a determination is more
properly made by the Legislature.” (Moradi-Shalal, at pp. 303-304.)
                    Twenty-five years later, in Zhang, the Supreme Court clarified its view as
to the scope of its ruling in Moradi-Shalal: “. . . we held that when the Legislature


       10
               Because Moradi-Shalal was given prospective effect only (Moradi-Shalal,
supra, 46 Cal.3d. at p. 305), the Court also clarified Royal Globe’s holding that a third
party claim could not be brought against the insurer “‘until the action between the injured
party and the insured is concluded.’” The Court held that only a judgment against the
insured, not a settlement, was a sufficient “conclusion” triggering the right to bring the
third party action. (Moradi-Shalal, supra, 46 Cal.3d. at pp. 305-306.)


                                                 18
enacted the UIPA, it did not intend to create a private cause of action for commission of
the various unfair practices listed in Insurance Code section 790.03 subdivision (h).”
(Zhang, supra, 57 Cal.4th. at p. 368.) In her concurring opinion in the same case, Justice
Werdeger mirrored this view when she wrote “. . . Moradi-Shalal confined itself to
succinctly repudiating Royal Globe’s discernment of a private right of action in the four
corners of the (UIPA) itself.” (See Id. at p. 385 (conc. opn. of Werdeger, J.).)
              Because we find Moradi-Shalal did not overrule Royal Globe on the issue
of whether a single violation, knowingly committed, would qualify as an unfair claim
settlement practice under section 790.03(h), its negative commentary on the point is not
binding precedent as we consider the issue. “‘[A] decision is not authority for what is
said in the opinion but only for the points actually involved and actually decided’” (Trope
v. Katz (1995) 11 Cal.4th 274, 284 (Trope), quoting Childers v. Childers (1946) 74
Cal.App.2d 56, 61; see Western Landscape Construction v. Bank of America (1997)
58 Cal.App.4th 57, 61 [“To determine the precedential value of a statement in an opinion,
the language of that statement must be compared with the facts of the case and the issues
raised. Only statements necessary to the decision are binding precedents; explanatory
observations are not binding precedent”].) As the Supreme Court has emphasized,
“[a] precedent cannot be overruled in dictum.” (Trope, supra, 11 Cal.4th at p. 287.)
Complex issues, such as those presented here, can be fairly resolved only when they are
thoroughly analyzed, briefed and argued. This case provides an excellent working
example as to why the dicta rule exists.
              We cannot read the Supreme Court’s mind. We can only apply its
precedents—no matter how old or how often criticized a precedent may be. So Royal
Globe remains binding on the issue of whether 790.03(h) applies to “a single violation
knowingly committed” (Royal Globe, supra, 23 Cal.3d at p. 891), and fully supports the
Commissioner’s interpretation of the challenged language in Reg. 2695.1(a).



                                             19
              B.     Royal Globe’s Interpretation of the Statutory Language Is Correct
              Even if Royal Globe were not binding on the point, we would agree with its
conclusion that section 790.03(h) applies to an insurer’s single knowing commission of
the prohibited conduct. Because the language of section 790.03(h) appears ambiguous,
we apply well-settled principles of statutory interpretation in ascertaining its meaning:
“[A] court must look first to the words of the statute themselves, giving to the language
its usual, ordinary import and according significance, if possible, to every word, phrase
and sentence in pursuance of the legislative purpose. A construction making some words
surplusage is to be avoided. The words of the statute must be construed in context,
keeping in mind the statutory purpose, and statutes or statutory sections relating to the
same subject must be harmonized, both internally and with each other, to the extent
possible. [Citations.] Where uncertainty exists consideration should be given to the
consequences that will flow from a particular interpretation. [Citation.] . . . Both the
legislative history of the statute and the wider historical circumstances of its enactment
may be considered in ascertaining the legislative intent.” (Dyna-Med, Inc. v. Fair
Employment and Housing Com. (1987) 43 Cal.3d. 1379, 1386-1387.)
              Focusing first on the provision itself, we begin by setting aside all
arguments regarding the potential impact of commas. As we have already observed, the
Legislature could have employed commas in one way or another to clarify whether the
phrase “[k]nowingly committing or performing with such frequency as to indicate a
general business practice” refers to two categories of violations in section 790.03(h), or to
only one. But the provision says what it says, and it is our duty to interpret its meaning.
              As noted above, we begin our analysis at the beginning of section 790.03.
Its introductory language speaks to “unfair methods of competition and unfair and
deceptive acts or practices in the business of insurance.” Acts or practices. The words
are used in the disjunctive. This strongly suggests both acts and practices are prohibited
under section 790.03 if they fall within the statutory definitions.

                                             20
              We reject PacifiCare’s contention that an “unfair claims settlement
practice” must refer to an insurer’s pattern of conduct, rather than to any individual act.
In the context of the UIPA, and section 790.03 specifically, a prohibited “practice” is an
activity that occurs within the insurance industry generally. An insurer engages in such a
prohibited “practice” by committing the described act once or more than once. Applying
the UIPA language literally, once is enough to invoke its provisions.
              We are also unpersuaded by PacifiCare’s suggestion—seemingly borrowed
from the dissent in Royal Globe—that drawing a distinction between the knowing
commission of a prohibited practice on a single occasion, and the performance of that
practice on a regular basis, would be inconsistent with the statute’s description of the
prohibited acts: “‘one could not unknowingly either ‘commit’ or ‘perform’ a prohibited
act under [section 790.03(h)], thus strongly suggesting that the term ‘knowingly’ applies
to both ‘committing’ [and] ‘performing’ and that they are to be read together.’” (Quoting
Royal Globe, supra, 23 Cal.3d. at p. 894 (conc. & dis. opn. of Richardson, J.).)
              That assertion is unpersuasive because six of the unfair claims practices
listed in section 790.03(h) involve a failure to perform a specific act—e.g., “[f]ailing to
acknowledge and act reasonably promptly upon communications with respect to claims
arising under insurance policies.” (§ 790.03(h)(2).) Such omissions might easily be, and
perhaps often are, accomplished “unknowingly.” Moreover, an affirmative
“misrepresentation,” which is also included in the list of unfair claims settlement practice,
can be committed unknowingly.
              We agree with the Commissioner’s assertion that PacifiCare’s
interpretation of the provision would create a surplusage—which is to be avoided if
possible. In PacifiCare’s view, section 790.03(h) defines an unfair settlement practice as
something that must be “both knowingly performed and constitute a general business
practice”—thus effectively reading out the word ‘“commit[ed]”’ as an unnecessary
alternative to ‘“perform[ed].’” We are not persuaded by PacifiCare’s assertion that the

                                             21
two words operate as necessary alternatives in its version of the provision because “the
different types of unfair practices enumerated under section 790.03(h) require that its
opening sentence cover two different ways of engaging in them.” While it may be true
that a misrepresentation can be ‘“commit[ed]”’ rather than ‘“perform[ed],”’ nothing
compels that usage or understanding; and there is no logical support for PacifiCare’s
assertion that “the practice of ‘[f]ailing to settle claims promptly’” would always be
‘“perform[ed]”’ rather than ‘“commit[ed].”’
               Turning to the issue of how the language in section 790.03(h) compares
with that in other statutes, PacifiCare contends we must infer the Legislature did not
intend to distinguish between a “[k]nowingly commit[ed]” violation and one that is
“perform[ed] with such frequency as to indicate a general business practice” in section
790.03(h) because the Legislature has regularly employed different language to draw that
                                 11
distinction in other statutes.
               But PacifiCare fatally undermines its own position by also citing Labor
Code section 5814.6—a statute that uses specific language to restrict the imposition of an
administrative penalty to situations where the perpetrator has acted both knowingly and
frequently: “[a]ny employer or insurer that knowingly violates Section 5814 with a
frequency that indicates a general business practice is liable for administrative
penalties . . . .” (Lab. Code, § 5814.6, subd. (a).) Although PacifiCare cites that statue in
support of its assertion “there is nothing unusual about requiring that conduct be
performed both ‘knowingly’ and ‘with a frequency that indicates a general business


       11
               (Comparing § 790.03(h) with §§ 789.3, subd. (e), 10123.31, subd. (c),
10140.5, subd. (c), 10192.165, subd. (b)(4), 10199.7, subd. (d), 10509.9, subd. (d), and
10718.5, subd. (d); see also Health & Saf. Code, §§ 1367.03, subd. (g)(3) and 1368.04,
subd. (b), both applicable to “health care service plan[s].”) (See People v. Trevino (2001)
26 Cal.4th 237, 242 [“When the Legislature uses materially different language in
statutory provisions addressing the same subject or related subjects, the normal inference
is that the Legislature intended a difference in meaning”].)

                                             22
practice,’” the real significance of Labor Code section 5814.6 is that it demonstrates the
Legislature has also employed different language than that found in section 790.03(h)
when it wanted to restrict the imposition of administrative penalties to situations where
the perpetrator has both knowingly and regularly committed the described violation.
              The fact the Legislature has used somewhat different language in both
situations—when it wanted to identify two separate categories of wrongful conduct, and
when it wanted to specify only one—precludes us from drawing any inference from its
failure to have done either in section 790.03(h). We therefore draw no such inference
here.
              On the other hand, PacifiCare’s extensive list of Insurance Code penalty
statutes that each draw a clear distinction between a single “knowing” violation and a
pattern of violations is persuasive, albeit for a different reason. What those statutes
demonstrate is that in every case in which the Legislature has given the Commissioner
authority to impose penalties against an insurer for violating provisions of the Insurance
Code in contexts analogous to section 790.03(h), it has specifically authorized a penalty
                                                                     12
for the insurer’s single knowing commission of the prohibited act.        We cannot find

        12
              Section 789.3 authorizes the Insurance Commissioner to impose
administrative penalties against an insurer who violates the article (governing insurance
transactions that involve persons 65 and over), but imposes significantly higher penalties
against an insurer who either “commits a knowing violation” or “violates [the article]
with a frequency as to indicate a general business practice.” (§ 789.3, subd. (e).)
Section 10123.31 is similar, authorizing the imposition of a small penalty against a
self-insured employee welfare benefit plan for any violation of section 10123.3, but
providing for a substantially larger penalty in the case of either a knowing violation or a
frequent pattern of violations. (§ 10123.31, subds. (a) & (c).) Section 10140.5 imposes a
similar penalty structure against a life or disability insurer who violates section 10140.
(§ 10140.5, subds. (a) & (c).) Section 10192.165 authorizes the Commissioner to
penalize a violation of the chapter (governing Medicare supplement policies), but to
assess more significant penalties for either a knowing violation, or a general practice of
such violations. (§ 10192.165, subd. (b)(4).) Section 10199.7 allows the assessment of a
penalty for any violation of the chapter, but imposes significantly higher penalties against
an insurer who commits either a knowing violation, or engages in a general practice of

                                             23
another statute which suggests that a single, knowing violation of the Insurance Code by
                                                                         13
an insurer would be shielded from any possible administrative penalty.        Nor can we
imagine, given the public policy discussed above, why it should be.
              We concede all of these statutes were enacted after section 790.03(h), and
thus none of these statutes provide direct evidence of how the Legislature viewed this
issue in 1972. However, section 12926, enacted in 1935, suggests that by 1972, the
Legislature not only had a long-established policy of zero-tolerance for insurer violations
of the Insurance Code, but also that it had placed the Commissioner in charge of
enforcement of the Code’s provisions: “[t]he commissioner shall require from every
insurer a full compliance with all the provisions of this code.” (§ 12926, italics added.)
Consistent with that policy, the Legislature gave the Commissioner broad regulatory
authority to administer the UIPA in 1971. (§ 790.10.)




such violations. (§ 10199.7, subd. (d).) Section 10509.9 authorizes penalties for
violations of statutes governing the requirements for replacement of life insurance and
annuity policies, but imposes higher penalties for either “a knowing violation” or
violations “with a frequency as to indicate a general business practice.” (§ 10509.9,
subd. (d).) Section 10718.5, subdivision (d), authorizes the Commissioner to impose
additional penalties against an insurer that “knowingly or as a general business practice”
violates the chapter, including “suspend[ing] the carrier’s certificate of authority to
transact disability insurance.” (§ 10718.5, subd. (d).)
       13
              Labor Code section 5814.6 establishes no exception to this rule for
purposes of the Labor Code. The statute, which is an aspect of the worker’s
compensation law, authorizes large administrative penalties—up to $400,000—against
“[a]ny employer or insurer that knowingly violates Section 5814 with a frequency that
indicates a general business practice . . . .” (Lab. Code, § 5814.6, subd. (a).) However,
the Labor Code section mentioned in the statute is itself a penalty provision, which
imposes significantly smaller penalties in any single case where the “payment of
compensation has been unreasonably delayed or refused.” (Ibid.) Thus, even in this
context, the Legislature has expressly authorized the imposition of an administrative
penalty against an insurer based on a single violation.


                                             24
              We find the intent of the Legislature on this issue to be clear. Construing
section 790.03(h) in the manner suggested by PacifiCare—which would effectively
prohibit the Commissioner from taking any enforcement action whatsoever against an
insurer whose misconduct does not involve such an established history of wrongdoing
that it could be fairly characterized as a general business practice—would be inconsistent
                                         14
with these clear Legislative mandates.
              Moreover, adopting PacifiCare’s interpretation of section 790.03(h) would
require us to find the Legislature intended to limit enforcement of the provision even as it
enacted it—which appears to us inconsistent with the Legislature’s intent as well as
common sense. As already noted, the Legislature did not adopt the model provision as
proposed; it instead added the word “[k]knowingly.” (Royal Globe, supra, 23 Cal.3d. at
p. 890, fn. 9.) What was the Legislature’s purpose in adding that word? The model
provision’s original language would have prohibited “committing or performing [any of
the listed acts] with such frequency as to indicate a general business practice”—language
which seems to describe only a single category of misconduct. There would be no point
in distinguishing between the insurer’s single commission of a proscribed act, and its
frequent performance of that same act, if the punishment for both was the same. But
when construed in the manner urged by the Commissioner, the Legislature’s addition of
the word “[k]nowingly” strengthens section 790.03(h) and the Commissioner’s
enforcement authority by allowing an insurer to be penalized for a single knowing




       14
              PacifiCare’s interpretation of the provision would not only preclude the
imposition of a penalty for an insurer’s “single knowing commission” of a violation, it
would also preclude a penalty in any case in which an insurer engaged in repeated
knowing violations, which did not rise to the level of a “general business practice.”


                                              25
violation, as well as for a pattern of violations that would be punishable under the model
               15
provision.
                    By contrast, under PacifiCare’s interpretation of section 790.03(h), the
Legislature’s inclusion of the word “[k]nowingly” would significantly weaken the model
provision. While the model language would have established a violation in every case in
which an insurer engaged in the prohibited conduct with sufficient frequency—whether
intentional or not—PacifiCare’s interpretation would require us to find the Legislature
intended to restrict enforcement and possible penalties to those cases in which the
Commissioner could prove not only that an insurer had engaged in a general business
practice of misconduct, but also that its pattern of violations was intentional. Hence, an
insurer’s inadvertent but regular commission of unfair claims settlement practices, even if
engaged in so frequently as to constitute a general business practice, would be insulated
from any penalty. In the absence of evidence the Legislature intended such a restrictive
result, we cannot infer it in light of the dictate of section 12926: “The commissioner
shall require from every insurer a full compliance with all the provisions of this code.”
(Ibid.)
                    Because PacifiCare’s interpretation of the provision would exclude
inadvertent violations entirely, we also conclude it is inconsistent with section 790.035,
which explicitly includes an insurer’s “inadvertent” conduct in the “servicing of a
policy” within the “acts” that are subject to enforcement activity and possible penalties

          15
              Amici curiae acknowledge that a subsequent amendment to the model
legislation expressly authorizes the imposition of penalties for an insurer’s single,
intentional commission of an unfair claims settlement practice, as well as its general
business practice of engaging in the conduct. (See Unfair Claims Settlement Practices
Act, § 3, subds. A & B, at <http://www.naic.org/store/free/MDL-900.pdf> (as of
September 20, 2018.) Amici curiae contend this cannot be the rule in California,
however, because our Legislature never separately adopted that amended model
language. That assertion seems to us to beg the question; it assumes what it is trying to
prove.


                                                  26
under section 790.03. Section 810, subdivision (a), (relating to another topic) defines the
“servic[ing]” of a policy as including “[a]djustment and payment of losses.” Applying
that definition here leads us to the conclusion that section 790.035 authorizes penalties
for even inadvertent wrongs committed in the context of settling claims.
                 PacifiCare contends that because section 790.035 was enacted in 1989, it
cannot be relied upon to clarify the meaning of section 790.03(h), as enacted in 1972.
We disagree. Where apparent conflicts exist within a statutory scheme, later enacted
provisions will prevail. “Statutes must be construed with reference to the entire statutory
scheme of which they are a part [citation] so as to harmonize their effect in conformity
with legislative intent [citations]. Insofar as it is possible to do so, seemingly conflicting
or inconsistent statutes will be harmonized so as to give effect to each. [Citation.] When,
however, conflicting statutes cannot be reconciled, the later enactments supersede the
earlier ones.” (Orange Unified School Dist. v. Rancho Santiago Community College
Dist. (1997) 54 Cal.App.4th 750, 757.)
                 In this regard, section 790.035 is significant not only because it expressly
includes an insurer’s inadvertent commission of claims-handling misconduct within the
scope of punishable acts—which is inconsistent with PacifiCare’s interpretation of
section 790.03(h)—but also because it gives the Commissioner discretion to define what
constitutes such an “act” for enforcement purposes. That broad delegation of discretion
suggests that even if the Legislature did not believe Royal Globe remained binding
authority on the question of whether an insurer’s single knowing commission of a
prohibited practice would qualify as a violation of section 790.03(h) when it enacted
section 790.035, its intention was to delegate authority to the Commissioner to decide
that question.
                 Thus, even if it were not clear the Legislature intended to penalize an
insurer’s inadvertent wrongful claims-handling practices when it enacted section
790.03(h) in 1972, or that it intended to penalize an insurer’s single knowing commission

                                               27
of such a practice, its enactment of section 790.035 demonstrates that by 1989, in the
wake of Moradi-Shalal, its intention was to confer broad discretion to the Commissioner
to establish policy and appropriate regulations related to those points.
              Section 790.035, along with other statutes including section 12926
(requiring the Commissioner to fully enforce all provisions of the Insurance Code against
insurers), section 790.10 (delegating broad regulatory authority over the UIPA to the
Commissioner), and section 12921.1 (requiring the Commissioner to establish a program
to process individual complaints against insurers), reflect that our Legislature has
maintained a consistent policy—both before and after its enactment of section
790.03(h)—requiring insurers to comply fully with all provisions of the law. At the same
time, the Legislature has consistently delegated authority to the Commissioner to enforce
such compliance.
              PacifiCare’s interpretation of section 790.03(h) is not only internally
problematic, it also stands in contrast to virtually every other statute the Legislature has
enacted in connection with (1) enforcement of the Insurance Code against insurers
generally; (2) enforcement of the UIPA in particular; and (3) the imposition of
administrative penalties against insurers in other contexts. We consequently reject that
interpretation in favor of what we believe to be the interpretation more consistent with the
overall statutory and regulatory scheme.
              We conclude that section 790.03(h), properly construed, defines an unfair
claims settlement practice to be either an insurer’s single knowing commission of the
described conduct, or its performance of the conduct “with such frequency as to indicate
a general business practice.” Consequently, we hold the trial court erred in determining
Reg. 2695.1(a) is inconsistent with the statute.
5.     Regulatory Definitions of ‘“Knowingly committed”’ and “‘Willful’ or ‘Willfully”’
              The terms “knowingly committed,” “willful,” and “willfully” are not
defined in the UIPA. Thus, the Commissioner’s broad mandate to administer the UIPA

                                              28
(ACIC, supra, 2 Cal.5th at p. 390, 392), provides him with authority to interpret those
undefined terms in the context of the act. (See Moore v. California State Bd. of
Accountancy (1992) 2 Cal.4th 999, 1011 [holding that state board had authority to
interpret terms in a statute prohibiting unlicensed persons from using titles “‘likely to be
confused with’” licensed titles]; Ford Dealers Assn. v. Department of Motor Vehicles
(1982) 32 Cal.3d 347, 362 [administrative agency with rulemaking power is authorized to
‘“fill up the details”’ of a statutory scheme].)
              As the Commissioner points out, he engaged in an extensive, formal
rulemaking process in the course of promulgating these regulations. That careful
consideration, combined with the Commissioner’s expertise in the area, weighs in favor
of according significant deference to the Commissioner’s interpretation of the terms
(ACIC, supra, 2 Cal.5th at p. 390), and we do so.
              A.      ‘“Knowingly committed”’
              Reg. 2695.2(l) states “‘[k]knowingly committed’ means performed with
actual, implied or constructive knowledge, including, but not limited to, that which is
implied by operation of law.”

              Quoting Hammond v. Agran (1999) 76 Cal.App.4th 1181, 1189, PacifiCare
argues that “in the absence of specifically defined meaning, a court looks to the plain
meaning of a word as understood by the ordinary person, which would typically be a
dictionary definition.” It then relies on Black’s Law Dictionary to define “knowing” as
“Having or showing awareness or understanding” or “Deliberate.” (Black’s Law Dict.
(10th ed. 2014) p. 1003.) But we are not attempting here to define a statutory term on a
blank slate. Our task is to ascertain whether the Commissioner’s definition, to which we
give deference, is invalid.
              We agree with PacifiCare that “[k]nowingly comitt[ing]” an act implies the
act was done deliberately. (See Royal Globe, supra, 23 Cal.3d. at p. 891 [a litigant must
“demonstrate that the insurer acted deliberately”].) But we disagree with PacifiCare’s

                                              29
contention that Reg. 2695.2(l)’s inclusion of implied and constructive knowledge would
be inconsistent with the need to establish deliberate conduct by an insurer.
              The regulation defines the knowledge of an institution or entity, rather than
any individual, and it is consistent with traditional principles establishing corporate
knowledge. As a general rule, an institution or entity acts “knowingly”—or
deliberately—based on the knowledge or deliberate conduct of those authorized to act on
its behalf. “‘A corporation, of course, can acquire knowledge only through its officers
and agents. Generally, the knowledge of a corporate officer within the scope of his
employment is the knowledge of the corporation.”’ (Meyer v. Glenmoor Homes, Inc.
(1966) 246 Cal.App.2d 242, 264; Civ. Code, § 2332 [knowledge of agent is imputed to
principal].) Moreover, a corporation can be held responsible for knowing information
dispersed among its employees. (People v. Forest E. Olson, Inc. (1982) 137 Cal.App.3d
137, 139-140.)
              The Commissioner points out that the Labor Commissioner has employed a
similar definition of “knowingly” for the purpose of implementing regulatory penalties
under the worker’s compensation law: “A corporation has knowledge of the facts an
employee receives while acting within the scope of his or her authority. A corporation
has knowledge of information contained in its records and of the actions of its employees
performed in the scope and course of employment.” (Cal. Code Regs., tit. 8, § 10112.1.)
              The Commissioner also argues that the inclusion of imputed and
constructive knowledge in the definition of “knowingly” is necessary to effectuate the
purposes of section 790.03(h) because it creates incentives for insurers to “make all
proper inquiries and to exercise diligence” in the claims settlement process. Restricting
the definition of “knowingly” to one particular individual’s actual knowledge “would
‘fail to take into account that . . . many people handle a claim, and an unfair practice can
be committed by cumulative acts, not simply the intentional act of one person.”’ These
arguments are reasonable and reflect the Commissioner’s particular expertise in the area

                                             30
of regulating insurance claims practices. We consequently accord them significant
weight.
              We are unpersuaded by PacifiCare’s suggestion the inclusion of implied or
constructive knowledge within the meaning of ‘“[k]nowingly committed”’ “effectively
writes out any scienter element from the statute” and allows an insurer to be penalized for
inadvertent acts. PacifiCare bases this argument on what it asserts was the
Commissioner’s unfair application of this rule in the instant case, a disputed factual
contention we cannot consider since this is a facial challenge to the regulation. Although
it may be true that Reg. 2695.2(l) could be misapplied in an individual case—and even
that it may have been misapplied in this one—our sole concern here is the propriety of
the trial court’s injunction declaring the regulation to be invalid because it is inconsistent
with the language and purpose of section 790.03(h). The issuance of that injunction
reflected a legal conclusion, not a factual one, and it cannot be supported by reference to
the facts of any individual case. It cannot be supported by hypothesizing a possible
improper application of the regulation.
              For all of the foregoing reasons, we conclude that Reg. 2695.2(l), which
defines ‘“[k]nowingly committed”’ for purposes of section 790.03(h), is valid. We
therefore reverse the trial court’s injunction prohibiting its enforcement.
              B.        “‘Willful’ or ‘Willfully’”
              Reg. 2695.2(y) states: “‘Willful’ or ‘Willfully’ when applied to the intent
with which an act is done or omitted means simply a purpose or willingness to commit
the act, or make the omission referred to in the California Insurance Code or this
subchapter. It does not require any intent to violate law, or to injure another, or to
acquire any advantage.” This language mirrors that of Penal Code section 7,
                   16
subdivision (1).
       16
              Penal Code section 7, subdivision (1), states: “The word ‘willfully,’ when
applied to the intent with which an act is done or omitted, implies simply a purpose or

                                               31
              PacifiCare persuaded the trial court this regulation was invalid because it
“is inconsistent with the two-tier penalty scheme in Insurance Code section 790.035,
which fixes a lower maximum penalty for non-willful acts than for willful acts.” As the
trial court explained, “[d]efining ‘willful’ as a mere ‘willingness to commit the act, or
make the omission’ referenced in the Insurance Code [citation] renders meaningless and
blurs the distinction between willful and non-willful. [Citation.] Additionally, the scope
of the regulation is impermissibly broad because it purports to encompass any acts or
omissions referenced in the entire California Insurance Code, even where ‘willful’ and
‘willfully’ have already been defined.”
              In support of the first proposition, PacifiCare relies on Kwan v.
Mercedes-Benz of North America, Inc. (1994) 23 Cal.App.4th 174 (Kwan). In Kwan, the
court held that in the circumstances of that case, a jury instruction defining willful as
“‘simply a purpose or willingness to commit the act or to make the omission in
question’” (id. at 181) operated inconsistently with the two-tiered penalty provision of the
Song-Beverly Consumer Warranty Act because it “‘would render meaningless or
inoperative the Act’s distinction between willful and nonwillful violations.’” (Id. at
p. 184.) However, Kwan is distinguishable, both factually and legally.
              The Song-Beverly Consumer Warranty Act, more commonly referred to as
the “automobile ‘lemon law,”’ (Duale v. Mercedes-Benz USA, LLC (2007) 148
Cal.App.4th 718, 721), imposes various obligations on automobile dealers, including an
obligation to replace or refund the cost of any new vehicle if recurring problems cannot
be satisfactorily repaired after multiple attempts. (Civ. Code, §§ 1790, 1793.2,
subd. (d)(2).) The act not only imposes liability for compensatory damages on a dealer




willingness to commit the act, or make the omission referred to. It does not require any
intent to violate law, or to injure another, or to acquire any advantage.”


                                             32
who fails to comply with any obligation of the act, it imposes additional civil penalties if
the dealer’s failure to comply is “willful.” (Civ. Code, § 1794, subds. (a), (c).)
              In Kwan, the jury imposed a penalty on the dealer, despite its manager’s
claim that his failure to offer the plaintiff either a refund or a replacement vehicle was
based on his reasonable belief that the plaintiff had been satisfied by the dealer’s final
repair of the vehicle. The dealer argued that in light of that contention, the jury
instruction on willfulness—modeled after Penal Code section 7(1) and stating that a
“willful” act or omission ‘“implies simply a purpose or willingness to commit the act, or
to make the omission”’—was inadequate because it failed to distinguish between a dealer
who believed in good faith that no refund or replacement was required under the Act, and
one who had no such belief. (Kwan, supra, 23 Cal.App.4th at pp. 180-181.)
              Although the Kwan court agreed with the dealer, it made clear its
agreement was grounded in the specific facts of that case, rather than any blanket
rejection of the definition of willfulness contained in Penal Code section 7(1): “MBNA
was entitled to an instruction informing the jury its failure to refund or replace was not
willful if it reasonably and in good faith believed the facts did not call for refund or
replacement. Such an instruction would have given the jury legal guidance on the
principal issue before it in determining whether a civil penalty could be awarded. The
Penal Code definition of willful, by itself, gave inadequate guidance under the
circumstances of this case.” (Kwan, supra, 23 Cal.App.4th at pp. 186-187.)
              But, as pertinent here, Kwan explains that the analysis of what constitutes
willfulness in a particular case is a nuanced one, and “is not one easily captured in a
single, uniformly applicable formula.” (Kwan, supra, 23 Cal.App.4th at p. 182.) Instead,
“[w]e should interpret willfulness in light of the particular statutory obligation allegedly
violated and should eschew any interpretation that would render meaningless or
inoperative the Act’s distinction between willful and nonwillful violations.” (Kwan,
supra, 23 Cal.App.4th at p. 184.)

                                              33
              Thus, contrary to PacifiCare’s assertion, Kwan does not require us to reject
the language of Penal Code section 7(1)—and thus the language of Reg. 2695.2(y)—in
any situation involving a two-tiered penalty provision. What it requires is that we
evaluate the effect of that language in the context of the statute to which it applies, and
determine whether it “render[s] meaningless or inoperative the [statute’s] distinction
between willful and nonwillful violations.” (Kwan, supra, 23 Cal.App.4th at p. 184.) In
this case, Reg. 2695.2(y) does not.
              The acts and omissions prohibited by section 790.03(h) are each defined by
reference to specific facts and relevant context demonstrating wrongfulness. For
example, section 790.03(h)(1) describes the wrongful act of “[m]isrepresenting to
claimants pertinent facts or insurance policy provisions relating to any coverages at
issue.” That act can be committed inadvertently by one who misrepresents a fact he does
not know to be incorrect. To willfully commit that act, one must have had a purpose or
willingness to misrepresent the pertinent facts or provisions. The distinction between the
inadvertent and willful violation is readily apparent. Likewise, section 790.03(h)(8)
describes the wrongful act of “[a]ttempting to settle claims on the basis of an application
that was altered without notice to, or knowledge or consent of, the insured.” Again, the
act of settling a case based on a secretly altered application would be a violation of
section 790.03(h) even if the settlement was accomplished inadvertently by a claims
representative who was personally unaware of the alteration. To willfully commit that
act, the insurer must have had a purpose or willingness to not only settle a claim, but to
do so on the basis of a secretly altered application. Given the specific description of the
prohibited act, the distinction between a person who commits the act inadvertently, and
one who does so willfully is once again readily apparent.
              The same is true of the other acts and omissions listed in section 790.03(h).
Thus, as applied to section 790.03(h), the definition of “willful” or “willfully” set forth in
Reg. 2695.2(y) does not blur the distinction between willful and nonwillful violations.

                                             34
              A parallel flaw exists in PacifiCare’s assertion that Reg. 2695.2(y) is
irreconcilably inconsistent with the statutory definitions of “willful” contained in the
Insurance Code. When applied in context, those statutory definitions operate consistently
with Reg. 2695.2(y).
              PacifiCare points to section 11750.1, subdivision (d), which defines
“‘[w]illful’ or ‘willfully’” as referring to an act or omission committed “with actual
knowledge or belief that such act or omission constitutes [a] violation and with specific
intent to commit such violation.” PacifiCare argues this language is inconsistent with the
definition in Reg. 2695.2(y), which omits any requirement of an “intent to violate law.”
              But in contrast to Reg. 2695.2(y), the willfulness definition in section
11750.1 does not apply to any factually described act of wrongdoing. Instead, it applies
to whatever act or omission “fails to comply with a final order of the commissioner.”
(§ 11756, subd. (a).) Thus, it is not the willful commission of the generic act or omission
that is punishable under section 11750.1, but the intentional failure to comply with an
“order of the commissioner.” Thus, committing that wrong in a willful manner requires
both knowledge that the specific conduct violated an order, and an intention to
nonetheless engage in it.
              If that same wrong were described in a manner consistent with the unfair
practices described in section 790.03(h)—i.e., with the wrongfulness element included—
the regulation might require that an insurer engage in conduct that fails to comply with
the final order of the commissioner. Applying such a definition of willfulness in
Reg. 2695.2(y) would make an act willful only if the actor had a “purpose or willingness
to [fail to comply with the final order].”
              Thus, when properly applied to the type of punishable conduct described in
section 11756, the definition of willfulness in Reg. 2695.2(y) would also require a belief
that some contemplated act or omission would violate a final order of the Commissioner,
as well as an intent to engage in that violation. Consequently, Reg. 2695.2(y) actually

                                             35
operates consistently with the definition of “willfully” contained in section 11750.1. (See
Kwan, supra, 23 Cal.App.4th at p. 183 [commenting on the “slipperiness of the term
‘willfulness’”].)
              The two other Insurance Code statutes cited by PacifiCare operate in a
                                                      17
similar manner, and thus do not alter our analysis.        We consequently reject PacifiCare’s
contention that the definition of “‘[w]illful’ or ‘[w]illfully’” in Reg. 2695.2(y) is
inconsistent with the way in which those terms are defined in the Insurance Code.
              PacifiCare’s final challenge to Reg. 2695.2(y) is that it “fails to harmonize
section 790.035 with section 790.03” because it so dilutes the meaning of a willful
violation that it transforms the “enhanced” penalty under section 790.035 into the
“customary” penalty. PacifiCare fails to cite any authority for the proposition that the
definition of a willful violation must ensure that it be a relative rarity. We are aware of
none and can fathom nothing in law or logic to support such a requirement.
              Finding no merit in PacifiCare’s contention that Reg. 2695.2(y) is invalid,
we reverse the trial court’s injunction prohibiting its enforcement.



       17
               The definition of ‘“[w]illful”’ in section 12340.9 is the same as in
section 11750.1(d), and is likewise applicable to a person who “fails to comply with a
final order of the commissioner under this chapter” (§ 12414.25, subd (a)), without
describing any particular conduct. Thus the prohibited “act” is again the violation of the
order—an act that could not be willfully committed under Reg. 2695.2 absent knowledge
of the order and of conduct violating it. Hence, the effect of the regulation is consistent
with the statutory definition of willfulness, which expressly requires those elements. And
the definition of ‘“willful”’ in section 1850.5 is applicable to a “person who uses any
rate, rating plan, or rating system in violation of this chapter” (§ 1858.07), justifying the
imposition of enhanced penalties in the case of a willful violation. There again, the
prohibited act of using “any rate . . . in violation of this chapter” is not dependent on any
particular conduct, but is strictly defined in terms of whether a statutory violation has
occurred. Thus, that act could not have been committed willfully under the definition
found in Reg. 2695.2(y) without establishing both knowledge of the chapter’s
requirements and an intent to violate one or more of them. Consequently, the regulation
operates consistently with the statutory definition.

                                              36
                                     DISPOSITION
              The order imposing a preliminary injunction prohibiting enforcement of
Regs. 2695.1(a), 2695.2(l), and 2695.2(y) is reversed. The case is remanded to the trial
court with directions to also reverse its order granting the motion for judgment on the
pleadings on the declaratory relief cause of action. The Commissioner is to recover his
costs on appeal.


                                                 GOETHALS, J.

WE CONCUR:



FYBEL, ACTING P. J.



THOMPSON, J.




                                            37
