Spanish Speaking Citizens v. Low

• Decision Date: 29 December 2000
• Citation: 85 Cal.App.4th 1179,103 Cal.Rptr.2d 75
• Court: California Court of Appeals Court of Appeals
• Parties: (Cal.App. 1 Dist. 2000) SPANISH SPEAKING CITIZENS' FOUNDATION, INC., et al., Plaintiffs and Respondents, v. HARRY LOW, as Insurance Commissioner, etc., Defendant and Appellant; STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY et al., Interveners and Appellants. PROPOSITION 103 ENFORCEMENT PROJECT, Plaintiff and Respondent, v. HARRY LOW, as Insurance Commissioner, etc., Defendant and Appellant; A084024, A085376, A085713 Filed

103 Cal.Rptr.2d 75 (Cal.App. 1 Dist. 2000)

SPANISH SPEAKING CITIZENS' FOUNDATION, INC., et al., Plaintiffs and Respondents, v. HARRY LOW, as Insurance Commissioner, etc., Defendant and Appellant;

STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY et al Interveners and Appellants.

PROPOSITION 103 ENFORCEMENT PROJECT, Plaintiff and Respondent, v. HARRY LOW, as Insurance Commissioner, etc., Defendant and Appellant;

A084024, A085376, A085713

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA, FIRST APPELLATE DISTRICT, DIVISION FOUR

Filed 12/29/00

(Alameda County Super. Ct. No. 796071-6)

(Alameda County Super. Ct. No. 796082-2)

Trial Judge: Honorable Henry E. Needham, Jr.

Attorneys for Appellants: Harry Low, as Commissioner, etc., Bill Lockyer,

Attorney General, Paul Gifford, Randall P. Borcherding, Supervising Deputy Attorneys General, Marguerite C. Stricklin, Joyce E. Hee, Deputy Attorneys General, State Farm Mutual Automobile, etc., Paul Alexander, Vanessa Wells,

Victoria Collman Brown, James R. Knox, Heller Ehrman White & McAuliffe,

Farmers Insurance Exchange, Steven H. Weinstein, Mid-Century Insurance Company, Richard G. DeLaMora, Truck Insurance Exchange, Marina M. Maniatis, Ethan A. Miller, Barger & Wolen

Attorneys for Amici Curiae in Support of Appellants: American Insurance Association, Gary L. Fontana, Hilary N. Rowen, Thelen Reid & Priest,

Craig A. Berrington, David F. Snyder, American Insurance Association

County of Fresno, Bruce B. Johnson, J. Westley Merritt, Office of County Counsel

County of Madera, Jeffrey L. Kuhn, Office of County Counsel County of Mariposa, Jeffrey Gordon Green, Office of County Counsel City of Hughson, John W. Stovall,

City Attorney

Attorneys for Respondents: Spanish Speaking Citizens', etc., Mark Savage, Consumers Union, etc., Maria E. Andrade, Southern Christian Leadership, etc., Public Advocates, Inc., Earl Lui, Consumers Union of U.S., Inc. City of Los Angeles, James K. Hahn, City Attorney, Don Kass, Supervising Deputy City Attorney, City of Oakland, Jayne Williams, City Attorney, Joyce M. Hicks,

Assistant City Attorney, Daniel Rossi, Deputy City Attorney, City and County of San Francisco, Louise H. Renne, City Attorney, Owen J. Clements, Chief of Special Litigation, Andrew Y.S. Cheng, Deputy City Attorney, Proposition 103 Enforcement, etc., Edward Howard, Gina Calabrese, Lillian Salinger

Attorneys for Amicus Curiae in Support of Respondents: Los Angeles County Board of Supervisors, David B. Casselman, Mark S. Gottlieb, Wasserman, Comden & Casselman

CERTIFIED FOR PUBLICATION

HANLON, P. J.

Appendices not available electronically

The ballot pamphlet arguments for Proposition 103 passed by the voters in 1988 promised among other things that the initiative would "force[] insurance companies to base your [automobile insurance] rates on your driving record first, rather than on where you live. This means good drivers throughout the state will pay less than they do now, while bad drivers will pay more." (Ballot Pamp., Gen. Elec. (Nov. 8, 1988) rebuttal to argument against Prop. 103, p. 101.) To those ends the following provisions were added to the Insurance Code:

"Rates and premiums for an automobile insurance policy . . . shall be determined by application of the following factors in decreasing order of importance:

"(1) The insured's driving safety record.

"(2) The number of miles he or she drives annually.

"(3) The number of years of driving experience the insured has had.

"(4) Such other factors as the commissioner may adopt by regulation that have a substantial relationship to the risk of loss. The regulations shall set forth the respective weight to be given each factor in determining automobile rates and premiums. Notwithstanding any other provision of law, the use of any criterion without such approval shall constitute unfair discrimination." (Ins. Code, 1861.02, subd. (a).)

While these provisions may appear straightforward enough, devising regulations to implement them has been very difficult. Three Insurance Commissioners struggled with the problem before the present regulations were promulgated by former Commissioner Quackenbush in 1996. Interpretation of these regulations was contested in an administrative proceeding which concluded in 1998. Then this case was filed alleging that the regulations as so interpreted contravene the statute. The trial court set aside one of the regulations, and interpreted the statute in a manner that may require yet another round of rulemaking. " 'Proposition 103 [has] proved to be a problem child from its inception' " (20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216, 247), and that is perhaps nowhere more apparent than in this area of automobile insurance rating factors.

This case potentially may affect everyone's auto insurance premiums but it will not affect the overall cost of auto insurance in the state; what is at stake is only the distribution of premium payments among policyholders. It is anticipated that drivers in urban areas will see their auto insurance premiums decrease and that drivers in nonurban areas will see their premiums increase if the judgment below is affirmed. Thus, the cities of Los Angeles, San Francisco, and Oakland are among the parties on one side of the dispute, and the counties of Fresno, Madera and Mariposa are among the amicus curiae on the other.

However, it does not appear that any interpretation of the statute will uniformly benefit "urban" drivers at the expense of "rural" drivers or vice-versa. For example, evidence has been presented that under the trial court's ruling premiums paid by drivers in seven counties (Los Angeles, San Francisco, Sacramento, Orange, San Bernardino, Riverside and Ventura) will decrease, while premiums in the other 51 counties will increase. That evidence is challenged, but even if it correctly predicts the result of an affirmance the benefit or detriment would not be parceled out along strictly urban/nonurban lines. The 51 "rural" counties where premiums would increase include four of the state's ten largest urban centers, and at least two of the seven "urban" counties where premiums would decrease have considerable rural areas. Thus, while there is talk in the record and briefs about drivers in certain areas being made to unfairly " 'subsidize' " the premiums of those in others under different constructions of the statute, it is not always clear who would be subsidizing whom. It is also impossible to predict how different methods of calculating rating factor weights will affect the premiums of individual policyholders.

The ambiguities in this case begin with the language of Insurance Code section 1861.02, subdivision (a). Part of the problem is that this statute has been and may remain the only one in the country that refers to the "importance" and "weight" of auto insurance rating factors. Further difficulty is created by the need to harmonize the statute's weight ordering mandate with its requirement that rating factors be substantially related to the risk of loss, and with Proposition 103's overall aim of eliminating arbitrary insurance rates. The ballot pamphlet promises that rates would be based on driving record "first" rather than a driver's residence, and that factor weight ordering would reduce good drivers' premiums, must also be taken into account. (Ballot Pamp., supra, rebuttal to argument against Prop. 103, p. 101.)

In view of Proposition 103's unprecedented and potentially conflicting demands with respect to auto insurance rating factors, it is perhaps not surprising that different Insurance Commissioners have advanced different interpretations of the factor weight ordering mandate, or that the parties challenging the current regulations have themselves taken inconsistent positions on what the law entails. There may be no one single correct interpretation in this instance. We nevertheless conclude that the current regulations, which were adopted after years of study and debate, lawfully implement Insurance Code section 1861.02, subdivision (a). We therefore reverse the judgment below.

I. BACKGROUND

A. Calculation of Auto Insurance Premiums (1) Base Rate

Auto insurance premiums are determined in two stages. The company first calculates a base rate for a particular type of coverage which is the same for each policyholder and reflects the total annual premium the company must charge all policyholders to cover its projected losses and expenses and obtain a reasonable rate of return. This first stage in the process is not at issue in the case. The base rate is then modified by applying a series of "rating factors" for each policyholder which determine how much the policyholder is charged and how the total premium the company receives is divided among the policyholders. This case concerns this second stage in the process.

(2) Rating Factors

Proposition 103 requires that driving safety record, annual miles driven, and years of driving experience be applied as rating factors (mandatory factors), and permits the application of other factors adopted by regulation which have a substantial relationship to the risk of loss (optional factors). (Ballot Pamp., supra, text of Prop. 103, 3, p. 99; Ins. Code, 1861.02, subd. (a); Cal. Code Regs., tit. 10, 2632.5.)¹ The regulations permit the use of the following optional factors: (1) type of vehicle ; (2) vehicle performance capabilities; (3) type of use of vehicle (pleasure only, commute, etc.); (4) percentage use of the vehicle by the rated driver; (5) multi-vehicle households; (6) academic standing of the rated driver; (7) completion of driver training or defensive driving course by the rated driver; (8) vehicle characteristics (engine size, repairability, etc.); (9) gender of the rated driver; (10) marital status of the rated driver; (11) persistency (years insured by the company); (12) nonsmoker; (13) secondary driver characteristics; (14) multi-policies with the same or an...