Amwest Surety Ins. Co. v. Wilson, B058329
| Decision Date | 08 December 1993 |
| Docket Number | No. B058329,B058329 |
| Citation | 20 Cal.App.4th 1275,25 Cal.Rptr.2d 611 |
| Court | California Court of Appeals Court of Appeals |
| Parties | Previously published at 20 Cal.App.4th 1275, 26 Cal.App.4th 361, 31 Cal.App.4th 822, 35 Cal.App.4th 1355, 40 Cal.App.4th 225 20 Cal.App.4th 1275, 26 Cal.App.4th 361, 31 Cal.App.4th 822, 35 Cal.App.4th 1355, 40 Cal.App.4th 225 AMWEST SURETY INSURANCE COMPANY, Plaintiff and Respondent, v. Pete WILSON, as Governor, etc., et al., Defendants and Respondents; John Garamendi, as Commissioner, etc., Defendant and Appellant; Voter Revolt, Intervener and Appellant. |
[20 Cal.App.4th 228] Michael J. Strumwasser, Fredric D. Woocher, Susan L. Durbin and Strumwasser & Woocher, Santa Monica, for defendant and appellant.
John R. Phillips, Ann E. Carlson, Carl H. Moor, Edward P. Howard and Leon Dayan, Hall & Phillips, Los Angeles, for intervenor and appellant.
Larry A. Rothstein, Woodland Hills, Hufstedler, Kaus & Ettinger and Otto M. Kaus, Los Angeles, for plaintiff and respondent.
Daniel E. Lungren, Atty. Gen., and Jack T. Kerry, Deputy Atty. Gen., for defendants and respondents.
Kent Keller, Robert W. Hogeboom, Steven H. Weinstein, John C. Holmes, Barger & Wolen, Los Angeles, Paul R. Geissler, Northridge, Munger, Tolles & Olson, Allen M. Katz and Mark B. Helm, Los Angeles, for amici curiae on behalf of plaintiff and respondent.
This appeal challenges the validity of Assembly Bill 3798 (AB 3798) which exempts surety from the rate-regulating provisions of the Insurance [20 Cal.App.4th 229] Code 1 adopted by Proposition 103 in 1988. This challenge raises the issue of the role of the judicial system in reviewing legislative acts which amend statutes which have been adopted by the electorate. We find that, in order to provide minimum constitutional protection to the power of the electorate through initiatives, the courts cannot simply defer to legislative findings which attempt to justify amendments to initiatives but must examine the propriety of the exercise of the Legislature's limited authority, as granted by the initiative.
In this case, it cannot be said that the Legislature properly acted within its limited authority to adopt amendments which serve the purposes of the initiative by exempting surety from the requirements of Proposition 103.
We therefore reverse the trial court's judgment and remand the matter, directing the superior court to vacate the judgment and proceed as appropriate.
The California voters approved Proposition 103 on November 8, 1988. The initiative was based on the premise that insurance reform was necessary and was prompted by the failure of the Legislature to act in this area critical to California citizens. It begins with a statement of findings, declaring "[e]normous increases in the cost of insurance have made it both unaffordable and unavailable to millions of Californians." Its stated purposes were "to protect consumers from arbitrary insurance rates and practices, to encourage a competitive insurance marketplace, to provide for an accountable insurance Commissioner, and to ensure that insurance is
fair, available, and affordable for all Californians."The findings and declaration also stated, "...
Salient features of the statute thereby enacted by the electorate are the rolling back of rates to what they were a year earlier and an additional [20 Cal.App.4th 230] reduction of at least 20 percent (§ 1861.01, subd. (a)), and the requirement that all rate increases be approved by the Insurance Commissioner, who may not approve rates which are "excessive, inadequate, unfairly discriminatory or otherwise in violation of [the initiative]." (§ 1861.05.)
The statute requires automobile insurance rates be determined by a driver's safety record and mileage. It provides for the election of the state Insurance Commissioner rather than appointment by the governor. The statute specifies procedures for hearing applications for rate approvals. (§§ 1861.04-1861.10.)
Prior to November 8, 1989, rates were to be increased only if the commissioner found "that an insurer is substantially threatened with insolvency." (§ 1861.01, subd. (b).) This provision was later held to be unconstitutional on its face. (Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 258 Cal.Rptr. 161, 771 P.2d 1247, hereinafter Calfarm.)
The law applies to "all insurance on risks or on operations in this state, except those listed in Section 1851." (§ 1861.13.) "Surety" has been subject to the Insurance Code provisions since 1935 (Stats.1935, ch. 145, p. 501; § 105) and is currently defined by the code to include guarantee and performance bonds, forgery insurance, and insurance included in guarantee or indemnification contracts. 2
Section 1851, referred to in section 1861.13, exempts certain types of insurance from the application of the Insurance Code provisions regulating insurance rates. This provision was part of the McBride-Grunsky Insurance Regulatory Act, originally adopted in 1947 (Stats.1947, ch. 805, p. 1896). This Act was a comprehensive revision of the Insurance Code designed to regulate insurance rates on a free market basis, "to the end that they shall not be excessive, inadequate or unfairly discriminatory." (§ 1850.) 3
[20 Cal.App.4th 231] At the time of the enactment of Proposition 103, section 1851 exempted reinsurance, life insurance, certain types of marine insurance, title insurance, workers' compensation insurance, mortgage insurance and insurance transacted by county mutual fire insurers or county mutual fire reinsurers. (Calfarm, supra, at p. 812, fn. 1, 258 Cal.Rptr. 161, 771 P.2d 1247.)
"... (National Indemnity Co. v. Garamendi (1991) 233 Cal.App.3d 392, 405, 284 Cal.Rptr. 278 [].) Because section 1851 did not exempt surety, the provisions of Proposition 103, in their literal terms and express reference to section 1851, apply to the category of insurance known as surety.
On November 9, 1988, the day after the electorate adopted Proposition 103, Amwest sought a writ of mandate or injunction in the superior court to stay its enforcement, contending the initiative was facially and factually unconstitutional and if implemented and enforced would cause immediate and catastrophic injury to Amwest and the California insurance industry.
Before a final decision was rendered, the issue of the validity of the initiative was addressed by the California Supreme Court in response to petitions for writs of mandate filed by various insurers immediately following the enactment of Proposition 103. In May 1989, the Court issued its opinion in Calfarm. Although upholding most of the rate regulating provisions, the court held the insolvency standard of section 1861.01, subdivision[20 Cal.App.4th 232] (b) on its face violated the due process clauses of both state and federal Constitutions. However, this provision was found to be severable and thereby did not invalidate the other rate regulating provisions.
After the Calfarm decision was announced, Amwest amended its complaint and petition, now contending that "the authors of Proposition 103 had no knowledge of the surety business, did not intend to include surety under the Proposition and that the application of 103 to surety is unconstitutional." Although Amwest acknowledged and alleged, "[a]ll lines of property-casualty insurance, including surety, are subject to Proposition 103," it contended that the "finding, declaration and purpose" of Proposition 103 were not applicable to surety, and application of its provisions to surety was unconstitutional.
In a verified second amended complaint and petition, Amwest alleged the following: Amwest rates were "readily affordable by any California consumer," and that Amwest had not significantly increased any rates for five years. The 20 percent rate reduction would cause Amwest to suffer substantial losses. Its application for an exemption from the rollback showed a return on equity of 9.3 percent, "substantially less than the Insurance Commissioner's benchmark of 11.2%." There was "no need to subject Amwest or other surety companies to the expensive and time-consuming rate approval and rate filing requirements of Proposition 103." 4
A demurrer by the defendants was overruled and these state defendants filed an answer. On March 12, 1990, the trial court held that the proposition was not unconstitutional on its face as to Amwest and denied Amwest's petition without prejudice to a petition for writ of mandate once the commissioner had acted on Amwest's rate application.
Before action on Amwest's rates had been completed, the Legislature enacted AB 3798, which provided for the exemption of surety from the rate regulations of Proposition 103 (sections 1861.01 and 1861.05) and the application of a file-and-use rate system in their stead. The amendment was chaptered on August 24, 1990, to become effective January 1, 1991. (Stats.1990, ch. 526.)
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