Metropolitan News-Enterprise


Thursday, March 16, 2006


Page 1


Private Party May Not Sue Insurer Over Setting of Rates Under Proposition 103, C.A. Rules


By DAVID WATSON, Staff Writer


Provisions of 1988’s Proposition 103 limiting the factors insurers can consider in setting rates did not create a private right of action against an insurer for violating those limits, this district’s Court of Appeal ruled yesterday.

Writing for Div. Three, Justice H. Walter Croskey said Los Angeles Superior Court Judge Anthony J. Mohr erred in ruling that Douglas Ryan and the Proposition 103 Enforcement Project could proceed with separate lawsuits against Farmer’s Insurance Exchange and Safeco Insurance Company of America alleging violation of Insurance Code Sec. 1861.02, the rate-setting provision enacted by the passage of Proposition 103.

Mohr ruled that Sec. 1861.10(a), also enacted as part of Proposition 103, creates a private right to sue insurers to enforce Sec. 1861.02. The state’s Department of Insurance backed that position in an amicus brief filed with the Court of Appeal.

Sec. 1861.10(a) provides that “[a]ny person may initiate or intervene in any proceeding permitted or established pursuant to this chapter, challenge any action of the commissioner under this article, and enforce any provision of this article.”

Croskey noted that cases decided by the Court of Appeal in the wake of the state Supreme Court’s 1988 ruling in Moradi-Shalal v. Fireman’s Fund Ins. Companies, 46 Cal.3d 287, have “held that a statute creates a private right of action only if the statutory language or legislative history affirmatively indicates such an intent.”

Citing Vikco Ins. Services, Inc. v. Ohio Indemnity Co. (1999) 70 Cal.App.4th 55 and Crusader Ins. Co. v. Scottsdale Ins. Co. (1997) 54 Cal.App.4th 121, the justice commented:

“That intent need not necessarily be expressed explicitly, but if not it must be strongly implied—.Particularly when regulatory statutes provide a comprehensive scheme for enforcement by an administrative agency, the courts ordinarily conclude that the Legislature intended the administrative remedy to be exclusive unless the statutory language or legislative history clearly indicates an intent to create a private right of action.”

Croskey noted that an administrative procedure for enforcing laws regulating insurance rates, under which complaints must be filed with the Insurance Commissioner, who investigates and holds a hearing, “predated Proposition 103 and still exists.”

He pointed out that the first clause of Sec. 1861.10(a) “expressly encompasses” only proceedings “permitted or established” by Chapter 9 of the Insurance Code, which deals with rate setting.

“Chapter 9 establishes only administrative proceedings and judicial proceedings to review those administrative decisions or enforce a monetary penalty. Apart from the possibility that another part of section 1861.10, subdivision (a) itself creates a private right of action based on a violation of section 1861.02, we conclude that chapter 9 does not permit or establish a judicial proceeding against an insurer based on a violation of section 1861.02, and that the first clause of section 1861.10, subdivision (a) does not create a private right of action based on a violation of section 1861.02.”

The court’s interpretation of the statute, Croskey said, was consistent with the general scheme of Proposition 103.

“The provisions for enforcement by the Commissioner would serve little purpose and the benefits of administrative review and enforcement could be thwarted if a plaintiff could circumvent the administrative process in every case by filing directly in court,” he reasoned.

While a court could stay such an action under the primary jurisdiction doctrine to allow review by the commissioner, “it seems unlikely that the voters intended to require that exercise,” Croskey said. “Absent a more explicit indication that the electorate intended to create a private right of action, we would not conclude that the electorate so intended.”

The justice went on to reject the argument advanced by the plaintiffs and the Department of Insurance that the interpretation of Sec. 1861.10(a) adopted by the court was untenable because it rendered the final clause of the statute, which refers to proceedings to “enforce any provision of this article,” mere surplusage. Both Sec. 1861.02 and Sec. 1861.10(a) are part of Art. 10, itself part of the Insurance Code’s Chapter 9.

“We need not decide whether this is true as a general legal proposition or whether the first clause encompasses enforcement of all the provisions of article 10, because we conclude that the third clause clarifies and emphasizes that a party to a proceeding referenced in the first clause can enforce any provision of article 10 in the proceeding,” Croskey wrote. “A statute may clarify and emphasize a point notwithstanding the rule against surplusage—.If a statutory provision viewed in context is not ambiguous, as here, the rule against surplusage is not controlling.”

Nor, Croskey asserted, was there any reason for the court to defer to the position the state agency adopted in supporting the plaintiffs’ position.

“Whether section 1861.10, subdivision (a) creates a private right of action is not a technical question concerning insurance rates within the expertise of the Department of Insurance, but a legal question of the sort that ordinarily is the province of the courts in the first instance,” he declared. “There is no reason to believe that the department can discern the voters’ intent on this question any better than the courts.”

Justice Richard D. Aldrich and Presiding Justice Joan Dempsey Klein concurred.

The case is Farmers Insurance Exchange v. Superior Court (Ryan), B184608.


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