Calfarm Ins. Co. v. Deukmejian, No. S007838

CourtUnited States State Supreme Court (California)
Writing for the CourtBROUSSARD; LUCAS
Citation258 Cal.Rptr. 161,48 Cal.3d 805,771 P.2d 1247
Parties, 771 P.2d 1247, 57 USLW 2667, 1990-1 Trade Cases P 68,951 CALFARM INSURANCE COMPANY et al., Petitioners, v. George DEUKMEJIAN, as Governor, etc., et al., Respondents; ACCESS to JUSTICE FOUNDATION, et al., Real Parties in Interest; the American Council of Life Insurance et al., Interveners.
Docket NumberNo. S007838
Decision Date04 May 1989

Page 161

258 Cal.Rptr. 161
48 Cal.3d 805, 771 P.2d 1247, 57 USLW 2667,
1990-1 Trade Cases P 68,951
CALFARM INSURANCE COMPANY et al., Petitioners,
v.
George DEUKMEJIAN, as Governor, etc., et al., Respondents;
ACCESS to JUSTICE FOUNDATION, et al., Real Parties in Interest;
the American Council of Life Insurance et al., Interveners.
No. S007838.
Supreme Court of California,
In Bank.
May 4, 1989.

[48 Cal.3d 811]

Page 162

[771 P.2d 1248] Skadden, Arps, Slate, Meagher & Flom, Frank Rothman, Darrel J. Hieber, Los Angeles, John S. Yun, San Francisco, Gary S. Glickman, Los Angeles, McCutchen, Doyle, Brown & Enersen, David M. Balabanian, Beth H. Parker, John C. Morrissey, Hajime Tada, Leboeuf, Lamb, Leiby & Macrae, James R. Woods, Sanford Kingsley, San Francisco, Horvitz, Levy & Amerian, Ellis J. Horvitz, Encino, Munger, Tolles & Olson, Allen M. Katz, Los Angeles, Crosby, Heafey, Roach & May, Raoul D. Kennedy, Ezra Hendon, Oakland, Cooper, White & Cooper, James S. Greenan and John P. Makin, San Francisco, for petitioners.

Gibson, Dunn & Crutcher, John L. Endicott, Los Angeles, Ronald A. Zumbrun, John H. Findley, Anthony T. Caso, Sharon L. Browne, Sacramento, Barger & Wolen, Richards D. Barger, Royal F. Oakes, Richard G. De La Mora, Los Angeles, Robert E. Feyder, Palo Alto, Roger L. McNitt, San Francisco, Robert K. Schraner, San Diego, S. Stuart Soldate, Randall A. Doctor, Michael L. Rosenfield, Kent Keller, Steven H. Weinstein, Larry M. Golub, Los Angeles, Ball, Hunt, Hart, Brown & Baerwitz, Long Beach, John R. McDonough, Los Angeles, Allan E. Tebbetts, Judith F. Burkey, Long Beach, Latham & Watkins, Gerald J. Lewis, Donald P. Newell, Mark S. Pulliam, Kristine L. Wilkes, San Diego, Gary D. Simms, Sidley & Austin, Richard Schauer,

Page 163

Thomas H. Keeling, Harry M. Snyder, Los Angeles, Gail K. Hillebrand, San Francisco, Nettie Y. Hoge, Oakland, Haight, Brown & Bonesteel, Roy G. Weatherup, Robert L. Kaufman, Zeb Francoeur, Santa Monica, [771 P.2d 1249] Cotkin, Collins & Franscell, Raphael Cotkin, Laurence J. Rubinow, Eric S. Oto, Los Angeles, Ropers, Majeski, Kohn, Bentley, Wagner & Kane, Michael J. Brady, Redwood City, Bronson, Bronson & McKinnon and Julia A. Molander, San Francisco, amici curiae on behalf of petitioners.

John K. Van de Kamp, Atty. Gen., Richard D. Martland, Michael J. Strumwasser, Fredric D. Woocher, Timothy G. Laddish, Joesph M. O'Heron, Jack T. Kerry, Carol H. Rehm, Jr., Deputy Attys. Gen., Vance W. Raye, Tani C. Cantil, Sacramento, and Fermin Ramos, San Francisco, for respondents.

James K. Hahn, City Atty., Los Angeles, Charles I. Goldenberg, Asst. City Atty., Edmund Fimbres, Deputy City Atty., Robert P. Newman, Mary M. Lee, Los Angeles, D. Robert Shuman and John W. Davies, Sacramento, amici curiae on behalf of respondents.

Cotchett & Illston, Joseph W. Cotchett, Susan Illston, Alan W. Haverty, Burlingame, Hedges, Powe & Caldwell, George R. Hedges, Josephine E. Powe, Los Angeles, Robert Fellmeth, San Diego, James R. Wheaton, Oakland, Karl M. Manheim, Culver City, Peter J. Donnici, Daniel J. Lathrop, Robert Post, Louis Schwartz and George Alexander, Los Altos Hills, for real parties in interest.

R. Blair Reynolds and Christopher Chenoweth, San Francisco, amici curiae on behalf of real parties in interest.

[48 Cal.3d 812] Adams, Duque & Hazeltine, James H. Fleming, Jeffrey Anne Tatum, San Francisco, Heron, Burchette, Ruckert & Rothwell, Sacramento, Robert H. Myers, Jr., Mark D. Nozette, Kenneth C. Sundlof, Jr., John A. Norwood and Robert J. Franceschi, Sacramento, for interveners.

Lewis Keller, Bradley E. Wenger and Brent A. Barnhart, Sacramento, amici curiae on behalf of petitioners and interveners.

Stone & Healy, Michael P. Stone, Mary Ann Healy, Los Angeles, Pat Thistle, San Diego, and Enrique Hernandez, Los Angeles, amici curiae.

BROUSSARD, Associate Justice.

In this case we consider various challenges to Proposition 103, an initiative measure enacted November 8, 1988, making numerous fundamental changes in the regulation of automobile and other types of insurance. 1 Petitioners, seven insurers and the Association of California Insurance Companies, have filed an original petition for writ of mandate in this court, contending that Proposition 103 is unconstitutional on its face. 2 They named as respondents Governor George Deukmejian, Attorney General John Van de Kamp, Insurance Commissioner Roxani Gillespie, and the State Board of Equalization. The Access to Justice Foundation and other supporters of Proposition 103 (hereafter proponents) have appeared as real parties in interest to oppose the petition. We have also received numerous amicus curiae briefs.

In view of the obvious importance of the case, and the need for a prompt decision (since certain contested provisions are effective for only one year), we assumed original jurisdiction and issued an alternative writ. (See Brosnahan v. Brown (1982) 32 Cal.3d 236, 186 Cal.Rptr. 30, 651 P.2d 274; Hardie v. Eu (1976) 18 Cal.3d 371, 134 Cal.Rptr. 201, 556 P.2d 301.) Before addressing individually the issues raised by petitioners, we will summarize the initiative's provisions, the contentions

Page 164

raised in regard to those provisions, and our conclusions.

The initiative begins with a statement of findings and purpose, asserting that "[e]normous increases in the cost of insurance have made it both [48 Cal.3d 813] unaffordable and [771 P.2d 1250] unavailable to millions of Californians," and that "the existing laws inadequately protect consumers and allow insurance companies to charge excessive, unjustified and arbitrary rates." The initiative's stated purpose is to ensure that "insurance is fair, available, and affordable for all Californians."

Insurance rates are to be immediately reduced to "at least 20 percent less" than those in effect on November 8, 1987 (approximately the date when the initiative was proposed, and one year prior to its enactment). ( § 1861.01, subd. (a); all statutory references are to the Insurance Code, unless otherwise stated.) 3 All rate increases require the approval of the Insurance Commissioner, who may not approve rates which are "excessive, inadequate, unfairly discriminatory or otherwise in violation of [the initiative]." ( § 1861.05.) Prior to November 8, 1989, however, rates may be increased only if the commissioner finds "that an insurer is substantially threatened with insolvency." ( § 1861.01, subd. (b).) Certain procedures are specified for hearing applications for rate approvals. ( §§ 1861.04-1861.10.)

The initiative prohibits an insurer from declining to renew a policy except for nonpayment of premium, fraud, or significant increase in the hazard insured against. ( § 1861.03, subd. (c).) Insurers are required to mail notices to policy holders informing them they may join a nonprofit corporation to be formed to represent their interests by persons appointed for this purpose by the Insurance Commissioner. ( § 1861.10.) The Board of Equalization is directed to adjust the tax rate on insurance premiums to avoid any loss of tax revenues as a result of decreases in the rates charged by insurers. (Rev. & Tax.Code, § 12202.1.) Finally, the initiative contains a severance provision stating that the invalidity of any portion of the initiative "shall not affect other provisions or applications of the act which can be given effect without the invalid portion...." 4

[48 Cal.3d 814] On November 10, 1988, we granted petitioners' request to stay the initiative in its entirety. On December 7, 1988, after deciding to assume jurisdiction of the case, and after further study of the issues presented, we vacated the stay except as to the provisions requiring a rate reduction to 20 percent below 1987 rates, limiting relief to companies substantially threatened with insolvency, and requiring a mailing notifying insureds of the opportunity to join a nonprofit corporation to advocate their interests.

Petitioners contend that the initiative's rate regulation provisions violate the due process clauses of the United States and California Constitutions in that the initial reduction to 20 percent below 1987 levels is arbitrary, discriminatory and confiscatory, the rate adjustment mechanism during the first year does not permit relief from confiscatory rates, and adequate procedures have not been provided to ensure prompt rate relief. They challenge the provision limiting insurers' power not to renew policies

Page 165

as impermissibly impairing existing contract rights. Petitioners maintain that the provision requiring notification of the formation of a nonprofit corporation violates the prohibition of article II, section 12 of the California Constitution against naming[771 P.2d 1251] or identifying a private corporation in an initiative to perform any function or duty. Finally, they object to the provisions for adjustment of the tax rate on insurance premiums on several grounds: (a) that article XIII, section 28, of the California Constitution bars use of the initiative to change the premium tax rate; (b) that article XIII A, section 3 either bars the use of the initiative to increase taxes, or requires that such measures receive approval of two-thirds of the voters; and (c) that the provision impermissibly delegates legislative authority to the Board of Equalization. In addition, petitioners contend that the invalid portions of the initiative are nonseverable and therefore the entire initiative must be declared invalid.

These contentions challenge the constitutional authority of the people to enact Proposition 103 and certain portions of that initiative. In adjudicating such constitutional issues, our duty is clear: "We do not consider or weigh the economic or social wisdom or general propriety of the initiative. Rather, our sole function is to evaluate [it] legally in the light of established constitutional standards." (Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization (1978) 22...

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275 practice notes
  • State Farm Gen. Ins. Co. v. Lara, D077731
    • United States
    • California Court of Appeals
    • 29 October 2021
    ...in November 1988, and made numerous, fundamental changes to insurance regulation in California. ( Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 812, 258 Cal.Rptr. 161, 771 P.2d 1247 ( Calfarm ).) Its stated purpose was "to protect consumers from arbitrary insurance rates and practice......
  • State Farm Gen. Ins. Co. v. Lara, D075529
    • United States
    • California Court of Appeals
    • 29 October 2021
    ...of insurance," including homeowners' insurance and excluding certain lines not at issue here. ( Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 812, 258 Cal.Rptr. 161, 771 P.2d 1247 ( Calfarm ); id. at p. 812, fn. 1, 258 Cal.Rptr. 161, 771 P.2d 1247.) Previously, insurers set rates in ......
  • Nisei Farmers League v. Cal. Labor & Workforce Dev. Agency, F075102
    • United States
    • California Court of Appeals
    • 4 January 2019
    ...evaluate [it] legally in the light of 242 Cal.Rptr.3d 188established constitutional standards.’ " ( Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 814, 258 Cal.Rptr. 161, 771 P.2d 1247 ( Calfarm ).) " ‘[A]ll presumptions and intendments favor the validity of a statute and mere doubt d......
  • People v. Black, No. S126182.
    • United States
    • United States State Supreme Court (California)
    • 20 June 2005
    ...Retirement v. Board of Supervisors (1994) 8 Cal.4th 765, 780, 35 Cal.Rptr.2d 814, 884 P.2d 645; Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 814, 258 Cal.Rptr. 161, 771 P.2d 1247; Walker v. Superior Court (1988) 47 Cal.3d 112, 143, 253 Cal. Rptr. 1, 763 P.2d The high court's precede......
  • Request a trial to view additional results
277 cases
  • State Farm Gen. Ins. Co. v. Lara, D077731
    • United States
    • California Court of Appeals
    • 29 October 2021
    ...in November 1988, and made numerous, fundamental changes to insurance regulation in California. ( Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 812, 258 Cal.Rptr. 161, 771 P.2d 1247 ( Calfarm ).) Its stated purpose was "to protect consumers from arbitrary insurance rates and practice......
  • State Farm Gen. Ins. Co. v. Lara, D075529
    • United States
    • California Court of Appeals
    • 29 October 2021
    ...of insurance," including homeowners' insurance and excluding certain lines not at issue here. ( Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 812, 258 Cal.Rptr. 161, 771 P.2d 1247 ( Calfarm ); id. at p. 812, fn. 1, 258 Cal.Rptr. 161, 771 P.2d 1247.) Previously, insurers set rates in ......
  • Nisei Farmers League v. Cal. Labor & Workforce Dev. Agency, F075102
    • United States
    • California Court of Appeals
    • 4 January 2019
    ...evaluate [it] legally in the light of 242 Cal.Rptr.3d 188established constitutional standards.’ " ( Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 814, 258 Cal.Rptr. 161, 771 P.2d 1247 ( Calfarm ).) " ‘[A]ll presumptions and intendments favor the validity of a statute and mere doubt d......
  • People v. Black, No. S126182.
    • United States
    • United States State Supreme Court (California)
    • 20 June 2005
    ...Retirement v. Board of Supervisors (1994) 8 Cal.4th 765, 780, 35 Cal.Rptr.2d 814, 884 P.2d 645; Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 814, 258 Cal.Rptr. 161, 771 P.2d 1247; Walker v. Superior Court (1988) 47 Cal.3d 112, 143, 253 Cal. Rptr. 1, 763 P.2d The high court's precede......
  • Request a trial to view additional results
1 provisions
  • Chapter 1248, SB 905 – Insurance: agent's and broker's fees
    • United States
    • California Session Laws
    • 1 January 1993
    ...independent contractors in order to achieve a fair rate of return as provided by the California Supreme Court in CalFarm v. Deukmejian, 48 Cal. 3d 805. The Legislature finds and declares that this statute the purpose of Proposition 103. To effectuate the foregoing findings and declarations,......

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