The problem of arbitrary, lawless, politicized power did not come into the world with the prospect of a Donald Trump presidency. President Obama has been found repeatedly by the courts to have acted outside the law. And if you make your living in the insurance business, Dave Jones, California’s insurance commissioner, is the very model of how the administrative state, with its accrual of arbitrary, uncheckable power, can give rise to political agendas masquerading as routine administrative acts.
Mr. Jones, after jetting off to the Paris climate conference in December, has been issuing a remarkable series of demands to insurance companies that do business in California. He wants an annual accounting of their investment holdings in companies that derive 30% or more of revenue from fossil fuels. Mr. Jones also specifically “requests” that they dump their coal holdings or explain why they won’t.
“Divestiture is voluntary,” his missive adds, but “companies that decline to divest will be publicly identified” and subjected to “examinations” due to the “risk that coal assets will become ‘Stranded Assets.’ ”
Smacking of the rubber hose, insurers are also required to sign a “Pledge to Refrain from Future Investments in Thermal Coal,” indicating “Yes/No.”
Insurers gripe loudly, off the record. On the record, a published note by Lisa Gilbreath of the Dentons law firm in April calls the moves “unprecedented,” and adds, “insurance companies will have to weigh the . . . potential public relations fallout that comes with appearing on the Commissioner’s ‘pro-coal’ list.”
Mr. Jones primly insists that he is acting “entirely within my authority as insurance commissioner.” He proceeds from an apparent assumption that markets somehow overlook the climate-change debate and don’t require stock and bondholders to be properly compensated for the regulatory risk.
His talk of “stranded assets” is directly lifted from a statement by the Bank of England’s Mark Carney, who ingenuously warned last year that fossil-fuel reserves in the ground could become worthless under future regulatory action. Which hardly needed saying: All investments are subject to the uncertainties of government action. But markets must take account of other pertinent facts, such as the world’s still-growing appetite for fossil fuels, the fact that coal still accounts for 35% of U.S. electricity generation, the fact that politicians have received no mandate from voters to ban fossil fuels and seem unlikely to receive one.
A lawyer practicing in the field says Mr. Jones has been “very coy” about linking his demands to his office’s legitimate interest in insurer solvency, but hasn’t shrunk from implying in press statements that he’s leading the fight against climate change itself.
Still, the lawyer expects his clients to knuckle under because California is the nation’s biggest insurance market and because Mr. Jones “has power over a lot of things that are important to them.”
The state’s insurance commissioner, in case you haven’t guessed, is an elective office. Mr. Jones already has announced plans to run for California attorney general in 2018. He will be aiming to fill the seat that Kamala Harris hopes to vacate for a U.S. Senate seat this fall, after her own yeoman work flogging an anti-Exxon crusade.
Mr. Jones is obviously exploiting his authority as insurance commissioner to flaunt some leg for Tom Steyer and other California green billionaires generous with a campaign check. For insurers, complying with Mr. Jones’s information demands is costly enough; hardly concealed is the regulatory threat behind his “voluntary” divestment demand. In the grip of Stockholm syndrome, the Association of California Insurance Companies bleated weakly that members “must retain the freedom to manage their investments,” but added, “We appreciate that the commissioner’s approach avoids overly restrictive mandates.”
Worrisome for anybody who cares about the rule of law is Mr. Jones’s apparent insouciance as he goes about misusing his office. In a better America, insurance executives wouldn’t be racing effectively to sacrifice their investment returns as a contribution to his future political campaigns; they’d be consulting their lawyers and studying the California Administrative Procedure Act, which requires new regulations to be “clear, necessary and legally valid.” Legally valid means not spontaneously generated out of a regulator’s hip pocket to serve his personal ambitions.
Insurers that do business in California do business elsewhere, by the way, so Mr. Jones has made himself regulator of assets that back up the claims of policyholders far beyond California. One would hope other states’ insurance commissioners would be alarmed at his political showboating, though maybe they will mostly be alarmed that they didn’t think of it first.