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P&CCaliforniahard

The Commissioner issues a CDI 'Notice' instructing all auto insurers to apply a specific new factor when rating commercial fleet policies, without going through APA notice-and-comment. Under California law, what is the most likely legal defect?

AThe notice is valid because the Commissioner holds unfettered, self-executing rulemaking authority exempt from any APA review or OAL approval
It is an 'underground regulation' not adopted under the APA, and is unenforceable until properly promulgated and approved by OAL
CIt is preempted under the federal McCarran-Ferguson Act because the rating of commercial fleet policies is a matter reserved exclusively to federal insurance regulators and the NAIC
DIt is void because every CDI rulemaking action first requires ratification by concurrent resolution of both houses of the Legislature

Why this is the answer

California's Administrative Procedure Act, Gov. Code §§ 11340 et seq., requires that any 'regulation' — defined as a rule of general application that implements, interprets, or makes specific the law enforced by an agency (§ 11342.600) — be adopted through notice-and-comment, reviewed and approved by the Office of Administrative Law (OAL), and filed with the Secretary of State. Gov. Code § 11340.5 forbids agencies from enforcing rules of general application that were not adopted as regulations. CDI Notices and Bulletins are valid only as restatements of existing law; if they create new binding standards, they are unenforceable 'underground regulations.' See Gov. Code § 11340.5.

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