By Erik Holm of Dow Jones Newswires

Source:

October 12, 2010

NEW YORK -(Dow Jones)- An effort by California’s insurance commissioner to prevent insurers from investing in companies that do business in Iran was imposed improperly, according to a separate state office that evaluates state regulations.

The state’s Office of Administrative Law ruled Monday that the insurance commissioner, Steve Poizner, created the new regulation without following the appropriate procedures, which require notifications, hearings and other steps before a regulation can take effect.

The determination comes after three trade groups representing the insurance industry requested that the office review the process Poizner used in trying to place the new limits on their investments in February.

Poizner asked insurers to stop investing in 50 foreign companies because of their work in Iran’s energy and defense industries, and said such investments would no longer be counted toward the reserves that insurers are required to set aside for paying claims in the state. The list of companies included international firms such as Siemens AG () and Royal Dutch Shell PLC (, ).

At the time, Poizner said the insurers, by holding shares in such companies, were “helping to prop up the Iranian regime,” which is on the U.S. State Department’s list of state sponsors of terrorism. Poizner was also seeking the Republican party’s nomination for governor; he lost the primary contest to former eBay Inc. () Chief Executive Meg Whitman in June.

The American Insurance Association, one of the trade groups that challenged the rulemaking process, said in a statement it was pleased with Monday’s determination.

A spokesman for Poizner said Tuesday that the insurance department was looking at the decision from the Office of Administrative Law and “examining our options.”

“We certainly believe that, morally, we took the appropriate steps in this matter,” he said.