Opinion ID: 2634942
Heading Depth: 1
Heading Rank: 8

Heading: Reserve fund

Text: The insurance division has also maintained a practice of collecting assessments in excess of its operating costs in order to develop a reserve fund. The State argues that the reserve fund was created in order to protect against unforeseen emergency situations, such as the unplanned rehabilitation and liquidation of insurers or natural disasters, as well as to cushion the division's operating budget from yearly fluctuations in revenue. HIC argues that assessments for the purpose of creating the reserve do not bear a reasonable relationship to the costs of regulating the insurance industry, are not authorized by statute, and must therefore be declared illegal taxes. In our view, the State's position that a reserve fund is essential to the insurance division's regulatory function is reasonable in light of the unpredictability of potential contingencies and fluctuations in the amount of funds available to the insurance division through assessments and other means. We are wary of second-guessing a regulatory agency's reasonable strategy for securing its continued ability to serve its public function. See Collier v. City & County of San Francisco, 151 Cal.App.4th 1326, 60 Cal.Rptr.3d 698, 708 (2007) ([W]ere we to adopt a too narrow definition of `regulatory activities' ..., we would risk depriving municipalities of a reasonable degree of flexibility to determine whether regulatory fee revenues collected by their agencies are being spent in furtherance of the purpose for which those fees were assessed.); California Ass'n of Prof. Scientists v. Dep't of Fish & Game, 79 Cal.App.4th 935, 94 Cal.Rptr.2d 535, 545-46 (2000) (The legislative body charged with enacting laws pursuant to the police power retains the discretion to apportion the costs of regulatory programs in a variety of reasonable financing schemes.); Brydon v. E. Bay Mun. Util. Dist., 29 Cal.App.4th 178, 29 Cal.Rptr.2d 128, 136 (1994) ([C]ost allocations for services provided are to be judged by a standard of reasonableness with some flexibility permitted to account for system-wide complexity.). Accordingly, the portion of the assessments that went toward buttressing the insurance division's reserve fund were used for the regulation or benefit of the parties upon whom the assessment is imposed, see Bidart Bros., 73 F.3d at 931, and, having satisfied the third prong of the San Juan Cellular test, constitute legitimate regulatory fees.