Wednesday, September 28, 2005
Appeals Court Invalidates Law Permitting Discounts For Drivers With Existing Auto Insurance Coverage
By a MetNews Staff Writer
Legislation enacted in 2003 to allow insurers to give “persistency” discounts to drivers who have maintained insurance with any carrier for a number of years is invalid because it does not further the purposes of a 1988 insurance reform measure passed by the voters, this district’s Court of Appeal ruled yesterday.
The ruling upholds a decision by Los Angeles Superior Court Judge Dzintra Janavs. Janavs said that SB 841, enacted as an urgency measure in 2003, ran afoul of 1988’s Proposition 103.
The proposition banned using the “absence of prior automobile insurance coverage, in and of itself,” as a “criterion for determining eligibility for a Good Driver Discount policy, or generally for automobile rates, premiums, or insurability.”
In 2002, the state Department of Insurance adopted regulations barring insurers from giving “persistency” discounts to customers based on the fact they had maintained automobile insurance continuously over an extended period of time unless that insurance was with the insurer giving the discount or an affiliate. SB 841 was intended to overturn that regulation and permit persistency discounts based on maintaining continuous coverage with any insurer.
In adopting the measure, the Legislature declared that it would further “the purpose of Proposition 103 to encourage competition among carriers so that coverage overall will be priced competitively.”
Writing for Div. Eight, Justice Madeleine Flier said Janavs correctly ruled that SB 841 was “unlawful under Proposition 103 because it necessarily uses the absence of prior insurance, ‘in and of itself,’ as a criterion in setting rates and premiums.” The measure also improperly “arrogates to the Legislature the Insurance Commissioner’s exclusive authority to adopt optional rating factors, contrary to Proposition 103,” Flier said.
The challenge to the measure was mounted by the Foundation for Taxpayer and Consumer Rights, Consumer Union, the Southern Christian Leadership Conference of Greater Los Angeles and the National Council of La Raza.
“By allowing insurers to grant a discount on the basis of whether an applicant was previously insured by any insurer, Sen. Bill 841 in effect excludes only the previously uninsured from the benefit of the discount. Based on the showing below, Sen. Bill 841 would permit insurers to surcharge previously uninsured drivers to fund discounts for drivers with prior or persistent insurance. Whereas the voters had prohibited insurers from using the absence of prior insurance coverage as a premium criterion to promote fairness for previously uninsured drivers now required to purchase insurance under
California law, Sen. Bill 841 authorizes insurers to use that criterion to determine whether a policyholder’s premium will be discounted or surcharged.”
“The Legislature cannot simply in the guise of amending Proposition 103 undercut and undermine a fundamental purpose of Proposition 103, even while professing that the amendment ‘furthers’ Proposition 103. The power of the Legislature may be ‘practically absolute,’ but that power must yield when the limitation of the Legislature’s authority clearly inhibits its action—.Since Sen. Bill 841 flies in the face of the initiative’s purposes, it exceeds the Legislature’s authority.”
In a separate opinion, Flier said Janavs properly found a motion by Mercury Insurance Group to strike the challenge as a Strategic Lawsuit Against Public Participation to be frivolous and awarded attorney fees and costs to the plaintiffs.
Mercury was not named as a defendant in the lawsuit, but the complaint portrayed the insurer as the force behind the legislation and Mercury sought to intervene for the express purpose of filing the motion to strike.
Mercury’s bid to intervene was first rejected by Judge David Yaffe, who heard the matter because Janavs was unavailable, but after the Court of Appeal issued a notice of intention to grant a peremptory writ of mandate and the parties filed a stipulation, Janavs permitted the intervention.
Janavs also granted Mercury’s motion to strike the references to the company from the complaint, but found the SLAPP motion frivolous, a ruling Flier said was correct. The company was not named in the suit, she noted, and the suit did not challenge its efforts on behalf of the law.
Mercury “could not reasonably believe” that Code of Civil Procedure Sec. 425.17, exempting actions brought in the “public interest” from the anti-SLAPP statute, did not apply to the challenge to SB 841, Flier said, even though that section had been signed into law less than two months before Mercury filed its motion and had not yet gone into effect.
Attorneys on appeal included Harvey J. Rosenfield and Pamela M. Pressley of Santa Monica for the FTCR, Deputy Attorney General Stephen Lew, Los Angeles attorney Douglas L. Hallett and Brea lawyer Victor Poltrock for Mercury, Santa Monica attorney Michael J. Strumwasser for Insurance Commissioner John Garamendi, Los Angeles lawyer Kent R. Keller and Larry M. Golub for the Association of California Insurance Companies.
The cases are The Foundation for Taxpayer and Consumer Rights v. Garamendi, B173987 and B176461.
Copyright 2005, Metropolitan News Company