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Colorado Division of Insurance v. Statewide Bonding, Inc.

2022 COA 67. No. 21CA0466.  Colorado Division of Insurance—Immigration Delivery Bonds—Sixth Amendment—Federal Supremacy—Preemption.

June 23, 2022

The Colorado Division of Insurance (Division) received a complaint from a Colorado state probation officer that an undocumented immigrant under the officer’s supervision was possibly being extorted by a company involved in posting the immigrant’s bond. The Division sent inquiry letters to Statewide Bonding, Inc. and its president Cole (collectively, respondents), who were both licensed by the Division as nonresident insurance producers, seeking additional information about their business practices in Colorado and the immigrant’s bond. Respondents only provided some information. After receiving their responses, the Division sent a second inquiry letter to respondents, but rather than provide the requested information, they surrendered their Colorado licenses to act as nonresident insurance producers.

The Division thereafter filed a formal notice of charges with the Office of Administrative Courts, alleging that respondents had failed to provide a complete and accurate response to the Division’s second written inquiry. The Division sought to impose a civil penalty against each respondent plus a 15% surcharge. Respondents served the Division with requests for it to produce its entire investigative file in preparation for the hearing. The Division moved for a protection order to shield from discovery any portion of its file created after issuance of the second inquiry letter, and after an in camera review, the administrative law judge (ALJ) granted the motion.

Following a hearing, the ALJ found that respondents had not provided a complete and accurate response to the Division’s second inquiry letter and imposed a civil penalty of $500 against each respondent plus the statutory surcharge. The ALJ also ordered the Division to pay respondents’ attorney fees of $1,567.50 as a sanction for its misrepresentation that it had produced its entire file up to the date of the second inquiry letter, because 15 pages of documents had been withheld and not disclosed on its privilege log or otherwise. The parties filed exceptions, and the Commissioner of Insurance (Commissioner) issued a final agency order upholding the monetary sanctions against respondents and reversing the ALJ’s attorney fees award against the Division.

On appeal, respondents asserted that the Division’s jurisdiction was preempted by federal law because Congress intended to exclusively occupy the field of immigration bonding. Federal law controls the requirements for the posting and enforcement of federal immigration bonds. But Congress has not manifested an intent to displace Colorado’s regulation of its licensed insurance producers and insurers, irrespective of whether those insurance providers participate in the issuance of immigration bonds, and federal law does not conflict with the enforcement of Colorado statutes and regulations that prohibit Colorado-licensed insurance producers from engaging in fraudulent, dishonest, coercive, or illegal business practices. Here, the Division was exercising its authority to investigate and regulate persons or companies that choose to provide insurance in Colorado. Accordingly, there is no federal preemption, and the Commissioner correctly concluded that the Division had jurisdiction to investigate respondents.

Respondents also contended that the Commissioner committed reversible error by affirming the ALJ’s conclusion that the Division’s second inquiry letter was a reasonable exercise of regulatory authority under Colorado law. The Division has the authority to investigate possible violations of Colorado insurance law and the power to promulgate rules to do so. Here, the Commissioner found a reasonable basis for each item in the second inquiry letter based on the scope of the legitimate investigation, and there was record support for the ALJ’s findings and conclusions of law that respondents failed to establish that the second inquiry letter was unduly burdensome, oppressive, or an abuse of the Division’s discretion. Therefore, the Commissioner properly concluded that the second inquiry letter was a reasonable exercise of the Division’s investigative authority.

Respondents further argued that the Commissioner’s reversal of the ALJ’s order imposing sanctions against the Division was an abuse of discretion. Here, The ALJ concluded that the Division violated CRCP 11 when it falsely represented that it had produced the entire investigative file up to the issuance of the second inquiry letter. The imposition of sanctions against the Division was within the ALJ’s discretionary authority, and the Commissioner’s contrary conclusion was not grounded in a reasonable basis in law. Therefore, the Commissioner’s decision was an abuse of discretion.

The Commissioner’s order setting aside the ALJ’s attorney fees award was reversed and the case was remanded with instructions to reinstate the ALJ’s ruling. The order was otherwise affirmed.

Official Colorado Court of Appeals proceedings can be found at the Colorado Court of Appeals website.

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