Judge Denies California Insurers’ Lawsuit to Stop Auto Rate Regs

A Sacramento Superior Court judge has decided to reject the insurance industry’s request for an injunction against auto insurance rate regulation reforms in California, but the legal challenges will not end immediately.

Shortly after the ruling by Judge Loren E. McMaster, Insurance Commissioner John Garamendi issued a statement praising the decision. “This is a great victory for California voters and good drivers wherever they live,” said the Commissioner. “It means that Californians will finally realize the benefits of Proposition 103, which they approved more than 17 years go. … I am extremely pleased with the court’s ruling today. Now the industry must follow the rules and the law, and they must do so immediately.”

Over the past several weeks, the state’s insurance associations have been fighting the decision to implement the new regulations because they believe the new regulations will unfairly raise rates for the majority of drivers. They said giving more weight to a driver’s safety record, number of years driven and annual miles driven than any other rating factors would create rates that are not based on actuarial data, and therefore would be against the law. To that end, the American Insurance Association (AIA) and the Personal Insurance Federation of California (PIFC) had filed a joint lawsuit asking the court to declare the regulations illegal and to grant a preliminary injunction. The California Farm Bureau Federation also filed a similar lawsuit.

However, the Commissioner said, insurers have not been following the intent of voter-enacted Proposition 103 due to the former Commissioner Chuck Quackenbush, and that his new regulations were simply designed to fulfill what voters wanted. “Due to the actions of former Commissioner Chuck Quackenbush, insurers have avoided the law’s provisions calling for rates to be based primarily on three mandatory factors — driving record, driving experience and number of miles driven,” he said. “Instead, the Quackenbush system has allowed them to place greater importance upon other factors, such as marital status, gender, and most frequently, ZIP code. This system permitted insurers to charge widely varying rates to similarly situated drivers who live across the street from one another, based solely on their respective ZIP codes.”

Although the court denied the associations’ request for an injunction, Jerry Davies, director of communications for PIFC, said the court extended the implementation of the regulations for two days, giving them time to take more legal action. The associations plan to file an appeal in the third appellate court in Sacramento. The insurance associations are represented by Steven Weinstein of Barger & Wolen.

“The judge did not base his decision on the merits of the rule, he only ruled on the injunction request,” Davies emphasized. “We had some very good arguments. The judge did not study the regulations. He just took what the Commissioner gave. And the judge did not rule on whether the regulations are legal or not.”

“We disagree with the court’s ruling today because the regulations are bad news for most California drivers — particularly in rural areas,” said Sam Sorich, ACIC president.

“We will continue to fight for fairness for al of our insurance customers, not just those favored by the insurance commissioner,” added Rex Frazier, PIFC president.

As originally written, insurers would have been required to submit new rating plans to the DOI office that comply with the new regulations by August 14. From that point they would have a two-year phase-in period to fully implement their plans. “The regulations give insurers two years to fully comply with the new standards, although they must show significant progress during the first year,” Garamendi said.

Mark Savage, senior attorney for Consumers Union, publisher of Consumer Reports that had petitioned the commissioner to make the regulation changes, said two insurers recent rate filings indicate that other insurers can abide by the new regulations without problems. He pointed out that a recent rate filing by Auto Club of Southern California noted 88 percent of its policyholders would see their premiums decrease by complying with the commissioner’s regulations ahead of the two-year schedule. Similarly, United Services Automobile Association (USAA) has submitted its plan to follow the new regulations, which, when implemented will result in an average 8 percent decrease in premium rates for its policyholders.

“Two of California’s top ten auto insurance companies have shown that the state’s new auto regulations can be implemented fairly for drivers throughout the state,” Savage said.

However, the associations said the rate filings by ACSC and USAA were not surprising, but those companies would be expected to act differently than other insurers because they can refuse to “take all comers.” USAA “can refuse to write insurance for any good driver who is not connected to the military and, therefore, USAA does not have customers broadly spread across the state like other companies subject to Proposition 103,” Frazier said in an earlier press release.

“The same holds true with respect to Automobile Club of Southern California,” Frazier continued. “Like USAA, ACSC is another insurer with a special exemption from the ‘take all comers’ provision and can refuse any good driver unwilling to become a member. It is not surprising that two companies with special exemptions would comply early with the commissioner’s subsidy regulations while the rest of the market remains concerned about preserving fairness for all customers.”

Sources: ACIC, AIA, CDI, Consumers Union, PIFC