Safeco Ins. Co. v. Garamendi

Decision Date17 December 1992
Docket NumberNo. B063893,B063893
Citation14 Cal.Rptr.2d 621,11 Cal.App.4th 1141
CourtCalifornia Court of Appeals Court of Appeals
PartiesPreviously published at 11 Cal.App.4th 1141, 16 Cal.App.4th 1596, 21 Cal.App.4th 1428, 27 Cal.App.4th 400 11 Cal.App.4th 1141, 16 Cal.App.4th 1596, 21 Cal.App.4th 1428, 27 Cal.App.4th 400 SAFECO INSURANCE COMPANY OF AMERICA et al., Plaintiffs and Appellants, v. John GARAMENDI, as Insurance Commissioner, etc., Defendant and Respondent.

Barger & Wolen, Kent R. Keller, Robert W. Hogeboom, Steven H. Weinstein, John C. Holmes, Los Angeles, Morrison & Foerster, Marc P. Fairman, Michael M. Carlson and Jon S. Tigar, San Francisco, for plaintiffs and appellants.

Strumwasser & Woocher, Fredric D. Woocher, Michael J. Strumwasser, Santa Monica, and Susan L. Durbin, Los Angeles, for defendant and respondent.

BOREN, Associate Justice.

This appeal involves the nature and finality of the former Insurance Commissioner's so-called "amended decision" of June 15, 1990. It presents the question of the extent to which the present commissioner is bound by certain agency determinations which resulted from hearings held by his predecessor to devise a plan for the implementation of Proposition 103. 1 We find that the amended decision did not address specific issues as to specific insurers, but did develop general principles to be applied in future cases and set forth a plan for the implementation of Insurance Code sections 1861.01 and 1861.05 and related portions of Proposition 103. Accordingly, the amended decision was not an adjudicatory decision. Rather, it constituted quasi-legislative rule-making of generic procedures to be followed and thus did not bind the new commissioner, who was free to rescind his predecessor's regulations and establish new and different regulations.

PROCEDURAL AND FACTUAL HISTORY

This case arises out of unfocused early efforts to implement Proposition 103. As enacted, Proposition 103 provided that rates on policies written between November 8, 1988, and November 8, 1989, would be "rolled back" to 20 percent below their 1987 levels. The initiative contemplated that all rates modified after November 7, 1989, would be subject to the "prior approval" of the Insurance Commissioner. The initiative provided for an automatic rollback, giving the Department of Insurance (DOI) a full year before it would have to hold rate hearings. However, the Supreme Court in Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 258 Cal.Rptr. 161, 771 P.2d 1247 (hereinafter, Calfarm ), upholding all but two severable portions of the insurance reform initiative, essentially revised the automatic rollback procedure such that each company would be permitted to file for exemption from the rollback requirement until the Commissioner determined that the rate as applied to each company would not be confiscatory. 2 Following Calfarm, hundreds of insurers filed thousands of applications for exemption from Proposition 103's requirement that each insurer roll back its levels 20 percent below the November 8, 1987, levels.

In response to the deluge of applications for exemptions, in August of 1989, former Insurance Commissioner Roxani Gillespie commenced a series of company-by-company adjudicatory hearings to determine the rollback liability of several insurers under the Calfarm confiscation standard. By October of 1989, it became apparent that there were a number of generic issues common to virtually all insurers' rates and that these issues could be resolved in a similar manner for all insurers. The former Insurance Commissioner then suspended individual The proceedings concluded approximately eight months later, and the former commissioner signed on June 15, 1990, a so-called "amended decision" which reflected the Commissioner's policies on generic issues involved in both rollback and prior-approval applications, subject to the right of each insurer to request variances from those policies. The amended decision, which by its terms was "effective June 15, 1990," addressed inter alia the following issues: (1) the reasonable industry-wide rate of return (11.2%) to be used to determine the insurers' rates for the rollback year, absent a showing by an insurer that its individual circumstances warranted a variance from that rate of return; (2) the determination of the amount of capital to which that rate of return would be applied, again absent an insurer's showing that it was entitled to a variance; (3) the disallowance of certain expenses incurred by insurers during the rollback year; and (4) the provisions for a company-specific adjudicatory hearing to determine whether insurers are entitled to any requested variances.

hearings and gave notice of the bifurcation of proceedings and the consolidation of proceedings and hearings regarding common, generic insurance rate issues.

The amended decision was in the format of a lengthy narrative to which a detailed outline of definitions and procedures entitled "Exhibit A" was appended. The narrative portion described the various provisions of Proposition 103, the Supreme Court's opinion in Calfarm, and the Commissioner's procedures for setting rollback rates, prior-approval rates and variances. The detailed "Exhibit A," captioned "California Department of Insurance Plan for the Implementation of Insurance Code Sections 1861.01 and 1861.05 and Related Portions of Proposition 103," was an outline with headings and subheadings which were substantively consistent with the descriptive narrative which preceded it.

Following the amended decision, Commissioner Gillespie scheduled the resumption of company-specific rollback exemption hearings for numerous companies. Several insurers, including Safeco and Allstate, filed actions challenging the amended decision. Safeco sought a writ of mandate "[o]rdering the Commissioner to set aside the findings, determinations, and rulings contained in her Amended Decision." Allstate sought a writ of mandate "requiring the Commissioner to vacate and annul the Amended Decision." None of the insurers specifically challenged the portions of the amended decision regarding the right to seek variances from the generic determinations. Nor did any of the insurers seek to prohibit the Commissioner or the DOI from rendering any decisions or promulgating any future rules or regulations regarding insurance rates. However, each petition and complaint filed by the insurers sought to invalidate various portions of the June 15, 1990, amended decision, and each contained at least one broadside attack against the amended decision in its entirety or against the portion of it addressing rollbacks.

On July 31, 1990, the superior court ruled on related cases brought by several insurers, including Safeco and Allstate. The court denied the motions to enjoin the Commissioner from holding company-specific hearings under the guidelines in the June 15, 1990, amended decision and dismissed the insurers' petitions for a writ of mandamus or mandate or for injunctive relief. The court ruled that the June 15, 1990, amended decision was not a final order and that the insurers had not exhausted their administrative remedies. The court observed that not one application seeking exemption from the rollback requirement had been decided and no orders had yet been issued that any particular insurer was required to roll back its rates and make a refund. The court reasoned that since the rate adjustment process entailed company-specific hearings following the consolidated generic hearings, as contemplated by Calfarm and as then ordered by the commissioner who had established bifurcated hearings, until a company-specific hearing is concluded "[T]here is no final rate rollback adjudication as to any insurer." The court emphasized, "It is possible that a particular rollback applicant may establish at the company's specific Following the superior court's decision, a company-specific hearing applying the amended decision commenced as to Safeco and California State Automobile Association (CSAA). The claims of these two insurers were reviewed at a joint hearing before an administrative law judge (ALJ) who issued a proposed decision for review by the Commissioner. Before Commissioner Gillespie rendered a decision on the Safeco and CSAA company-specific hearing, she was replaced by the newly elected (see Ins.Code, § 12900) Commissioner John Garamendi. The new commissioner rejected the ALJ's proposed decision after the company-specific joint hearing and remanded the matter for a further hearing. Commissioner Garamendi indicated that new regulations were forthcoming and that Safeco and CSAA should have their rollback liability ultimately determined under the new regulations which would also govern the liability of other insurers who came thereafter. No final decision has yet issued in any company-specific hearing held under the June 15, 1990, amended decision.

hearing that its application for variance should be granted. If the application is not granted, judicial review will be [11 Cal.App.4th 407] available of both the Commissioner's methodology and its application to the insurer." 3

As Commissioner Garamendi's regulatory program took shape, insurers became increasingly attached to the former commissioner's previously reviled amended decision. Although the insurers continued to press the present appeal from their unsuccessful challenge to the amended decision, the insurers also defended the amended decision. On March 19, 1991, the insurers filed a complaint for declaratory and injunctive relief and a petition for a writ of mandate challenging the right of the Commissioner to ignore and redecide various rate-making determinations in the amended decision. On April 8, 1991, the superior court denied the insurers' request to enjoin the Commissioner from proceeding with new rate component...

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