National Indemnity Co. v. Garamendi

• Decision Date: 14 August 1991
• Docket Number: No. B045915,B045915
• Citation: 233 Cal.App.3d 392,284 Cal.Rptr. 278
• Court: California Court of Appeals Court of Appeals
• Parties: NATIONAL INDEMNITY COMPANY, Plaintiff and Respondent, v. JOHN GARAMENDI as Insurance Commissioner, etc., Defendant and Appellant.

Page 278

284 Cal.Rptr. 278

233 Cal.App.3d 392

NATIONAL INDEMNITY COMPANY, Plaintiff and Respondent, v. JOHN GARAMENDI as Insurance Commissioner, etc., Defendant and Appellant.

No. B045915.

Court of Appeal, Second District, Division 1, California.

Aug. 14, 1991.

Daniel E. Lungren, Atty. Gen., Edmond B. Mamer and Jack T. Kerry, Deputy Attys. Gen., for defendant and appellant.

Munger, Tolles & Olson, Allen M. Katz and Mark B. Helm, Los Angeles, for plaintiff and respondent.

ORTEGA, Associate Justice.

Appellant Commissioner of Insurance of the State of California (Commissioner) appeals from a judgment granting respondent National Indemnity Company (National) a peremptory writ of mandamus. The issue is whether Insurance Code section 1861.03, subdivision (c)(1), ¹ which restricts an insurer's right to cancel and to refuse to renew "automobile insurance," applies to commercial motor vehicle policies issued by National under its "Commercial Automobile Liability and Commercial Automobile Physical Damage" lines of coverage. We conclude section 1861.03, subdivision (c)(1) does not apply to National's commercial motor vehicle policies and affirm the judgment.

FACTS

In October 1988, National notified Roxani M. Gillespie, former Insurance Commissioner, that in November 1988 it would cease offering "insurance falling within the Commercial Automobile Liability and Commercial Automobile Physical Damage lines of insurance[.]" National decided to cease offering this coverage because it believed Proposition 103 would be approved by the voters. In National's view, Proposition 103's mandatory rollback of rates on certain policies in effect on or after November 8, 1988, would reduce National's premiums on its commercial motor vehicle policies to an inadequate level.

National stopped writing new commercial motor vehicle policies, and also began issuing notices of nonrenewal in October 1988 to its insureds whose commercial motor vehicle policies were due to expire. (Section 678.1, subd. (c).) National stopped renewing its outstanding commercial motor vehicle policies for the same reason that it had stopped writing new commercial motor vehicle policies. National never examined the individual policies to determine whether there were any other reasons for nonrenewal.

As National predicted, the voters passed Proposition 103 on November 8, 1988. Among its provisions is section 1861.03, subdivision (c)(1), which is the subject of this appeal. That subdivision provides: "Notwithstanding any other provision of law, a notice of cancellation or nonrenewal of a policy for automobile insurance shall be effective only if it is based on one or more of the following reasons: (A) nonpayment of premium; (B) fraud or material misrepresentation affecting the policy or insured; (C) a substantial increase in the hazard insured against."

On February 9, 1989, the Commissioner mailed a notice of noncompliance alleging that National's failure to renew its commercial motor vehicle policies constituted a violation of section 1861.03, subdivision (c)(1).

PROCEDURAL BACKGROUND

A. Administrative Hearing

Upon receiving the notice of noncompliance, National requested a public hearing. At the administrative hearing, the parties stipulated that National never examined the nonrenewed policies to determine whether any of the reasons set forth in section 1861.03, subdivision (c)(1) existed.

National contended that section 1861.03, subdivision (c)(1) does not retroactively apply to policies issued prior to the passage of the initiative. The retroactivity issue was later settled, however, when the California Supreme Court ruled that section 1861.03, subdivision (c)(1) retroactively applies to policies in effect when the initiative was enacted. (Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 826-831, 258 Cal.Rptr. 161, 771 P.2d 1247 (hereafter Calfarm ).)

In addition to the retroactivity issue, National asserted the drafters of Proposition 103 interchangeably used the terms "automobile insurance" (§ 1861.03, subd. (c)(1)) and "automobile insurance policy, as described in subdivision (a) of Section 660" (§ 1861.02, subd. (a)). According to section 660, subdivision (a), an automobile insurance policy is one which insures "a single individual or individuals residing in the same household, as named insured," and applies only to private passenger vehicles and certain four-wheel motor vehicles. Commercial vehicle insurance, on the other hand, is treated separately under the Insurance Code as a form of "commercial insurance" (§ 675.5, subd. (b)), which by definition excludes private passenger "[a]utomobile insurance covered by Section 660...." (Section 675.5, subd. (d)(4).)

National contended section 1861.03, subdivision (c)(1), which is limited to "automobile insurance," does not apply to commercial insurance. And since commercial motor vehicle insurance is a form of commercial insurance (§ 675.5, subd. (b)), section 1861.03, subdivision (c)(1) is inapplicable to National's nonrenewed policies.

In further support of its position, National pointed out that in section 1 of the initiative, the drafters stated that " 'automobile insurance rates shall be determined primarily by a driver's safety record and mileage driven' (emphasis added). This refers to the provisions of section 1861.02[, subdivision] (a), which prescribe the factors that may be used to determine rates for 'automobile insurance, as described in subdivision (a) of Section 660.' " Accordingly, National contended, the drafters used the term "automobile insurance" in section 1861.03, subdivision (c)(1) in the same manner as in section 1 of the initiative, and intended to limit section 1861.03, subdivision (c)(1) to private passenger automobile insurance as described in section 660, subdivision (a).

It is undisputed that the commercial motor vehicles insured by National are not private passenger automobiles covered by section 660, subdivision (a). According to the hearing testimony of Leslie J. Baller, National's assistant vice president of underwriting and regional underwriting manager, the kinds of commercial vehicles insured by National included "many commercial types of automobiles, noteably long-haul truckers, long-haul charter buses, local and intermediate commercial operations such as logging, sand and gravel operations ... limousines ... ambulances, invalid carriers, handicap buses, vans, many types of transportation."

National also presented undisputed evidence that commercial motor vehicle insurance is more readily available than private passenger automobile insurance. According to Baller's declaration, commercial insureds whose policies are cancelled or are not renewed have an easier time finding replacement insurance because the prior insurers may have acted for reasons that have nothing to do with the insureds' risk.

In addition, the declarations of both Baller and Gleason Payne, a former insurance commissioner with 45 years of experience in the industry, stated that commercial insureds can undertake loss control measures (such as training or disciplining unsafe drivers and adopting safety inspection programs) to reduce their risk problems. Individual policyholders, on the other hand, cannot readily undertake similar loss control measures.

The declarations further indicated that the application of section 1861.03, subdivision (c)(1)'s mandatory renewal provisions to commercial motor vehicle coverage would impair the insurers' leverage to induce commercial insureds to undertake loss control reforms. Moreover, application of section 1861.03, subdivision (c)(1) to commercial motor vehicle coverage would eliminate the 60-day "look-see" or inspection period provided to insurers of commercial motor vehicles under section 676.2, subdivision (b). The net result of applying section 1861.03, subdivision (c)(1) to commercial motor vehicle insurance would be to reduce the availability of such insurance.

National also submitted the declaration of Forrest Krutter, National's attorney, who reviewed the laws of 47 states in which National is a licensed insurer writing commercial motor vehicle insurance. According to Krutter, if section 1861.03, subdivision (c)(1) is applied to commercial motor vehicle policies, California would be the first state to impose such a requirement on commercial motor vehicle policies.

In addition to these undisputed declarations, National submitted two exhibits. The first is the petition filed with the Commissioner by 16 organizations, including Voter Revolt to Cut Insurance Rates which drafted Proposition 103. The petition requested that the Commissioner "conduct immediate emergency rulemaking proceedings ... to implement Insurance Code Section 1861.03[, subdivision] (c)." The petition stated in relevant part: "Part of the initiative (section 1861.03) included mandatory renewal of private passenger automobile insurance policies, except under specified circumstances." (Italics added.) National asserted that this language demonstrates that the drafters intended to limit section 1861.03, subdivision (c)(1) to private passenger automobile insurance only.

The second exhibit is a model act prepared by the National Association of Insurance Commissioners. In the Model Automobile Insurance Declination, Termination and Disclosure Act, the term "Automobile insurance policy" is defined as a policy that insures "a natural person ... or one or more related individuals resident of the same household," and applies to private passenger motor vehicles and certain four-wheel motor vehicles used for non-business purposes only. National asserted that this definition demonstrates that the term "automobile insurance" is commonly understood in the industry to be limited to private passenger automobile insurance only.

At the hearing, the Department of Insurance (Department) submitted "no evidence regarding the statutory history of or intent behind" section 1861.03, subdivision (c)(...