Money & Politics | Daily Report

Gage Skidmore/FlickrInsurance Commissioner Steve Poizner

California's battle over insurance companies with investments linked to Iran's nuclear, energy and military industries has landed in court.

Insurance Commissioner Steve Poizner, who has been cajoling insurance companies to halt their Iranian-linked investments, yesterday sued the state's own rule-making agency, which had called his efforts "underground regulations."

The dispute pits Poizner against the Office of Administration Law, a little-known but powerful state agency that writes many of the regulations under California law. With the backing of insurance companies, the rule-making board has attempted to strike down Poizner's effort to halt insurance investments linked to Iran.

Poizner, who is leaving office in January, has identified 50 foreign companies that do business with Iran's military, energy and nuclear sectors, and he has asked for any California-licensed insurance company to divest in those businesses.

"Iran's pursuit of nuclear weapons, its support of international terrorism," Poizner's lawsuit contends, "and its despotic rule not only render it unstably politically and economically, but put at risk any company that does business with Iranian nuclear, defense, and energy sectors."

Insurance trade groups have called Poizner's maneuvering illegal.

Commissioner Poizner has exceeded his legal authority by his well-intentioned but misguided attempts to bar insurance company investments that are not prohibited by state or federal law. California's insurance commissioner has broad powers to regulate insurance companies in this state. The conduct of foreign policy is not one of them.

Sam Sorich, president of the Association of California Insurance Companies, told National Underwriter that less than 1 percent of California insurance company investments are in dispute. Nevertheless, the trade group believes Poizner cannot act arbitrarily in barring these investments on a "blanket basis."

About 300 insurance companies that do business in California - including big insurers such as MetLife, Safeco and Hartford – have balked at Poizner's demand to voluntarily forgo any future investments in Iranian-linked companies. The complete list of companies can be found here [PDF].

More than 1,000 insurance companies already have agreed to forgo future investments in the 50 companies that Poizner has identified as doing business with Iran's nuclear, energy or defense sectors. Poizner's office estimated that during 2009 alone, the insurance industry invested nearly $1 billion in these areas. The total value now is closer to $337 million dollars, his office said.

As an example of potential financial harm from Iranian investments, Poizner cited the Russian company Ulan-Ude Aviation Plant JSC. In his lawsuit filed this week, Poizner noted that "if Iran fires a weapon at another country and parts of the weapon are found that bear the label 'Ulan-Ude,' the financial condition of Ulan-Ude could collapse."

He said companies like Royal Dutch Shell could "face reputational harm and financial risk for continued support of the Iranian energy sector."

Poizner told any insurance company doing business with Iranian-linked firms that they could not credit their investments on their financial balance sheets. This has impact because California law requires insurance companies to carry a minimum level of capital in order to operate here.

The state is already taking steps to bar business with some Iranian companies. Gov. Arnold Schwarzenegger two months ago signed legislation that prohibits any company with more than $20 million in business in Iran's energy industry from bidding on any public contracts in California worth more than $1 million. The law goes into effect next year.

Poizner's efforts have critics beyond insurance industry trade groups. Steve Greenhut with the conservative Pacific Research Institute wrote in March that Poizner was engaging in a "transparently political attempt to rally the conservative base for his Republican gubernatorial run." Greenhut continued:

If Poizner succeeds in punishing law-abiding insurance companies that have some small portion of stock in companies that have some small operation in Iran, then whom will the next commissioner decide to punish? ... Will businesses that do business with the Catholic Church or the LDS church take a hit for cooperating with 'discriminators'? Could Israel, itself already the target of divestment campaigns in Europe, become the new South Africa in the minds of San Francisco liberals?

Poizner ended up losing the primary election to Meg Whitman. He said yesterday: "Insurance premium dollars that Californians pay should not end up supporting a regime that has shown time and again its disregard for the global community."