Walker v. Allstate Indemnity Company

• Decision Date: 19 January 2000
• Docket Number: No. A083865.,A083865.
• Citation: 77 Cal.App.4th 750,92 Cal.Rptr.2d 132
• Court: California Court of Appeals Court of Appeals
• Parties: Ponovota WALKER et al., Plaintiffs and Appellants, v. ALLSTATE INDEMNITY COMPANY et al., Defendants and Respondents.

92 Cal.Rptr.2d 132

77 Cal.App.4th 750

Ponovota WALKER et al., Plaintiffs and Appellants, v. ALLSTATE INDEMNITY COMPANY et al., Defendants and Respondents.

No. A083865.

Court of Appeal, First District, Division 2.

January 19, 2000.

Review Denied April 12, 2000.

Kevin J. Mclnerney, Reno, NV, J. William Dawson, San Jose, CA, Brian D. Monaghan, San Diego, CA, Attorneys for Appellants.

Paul Alexander, Vanessa Wells, Todd E. Adler, Heller, Ehrman, White & McAuliffe, Palo Alto, CA, Attorneys for Respondents Allstate Indemnity Company et al.

Kent Keller, Steven H. Weinstein, Eric M. Crowe, Barger & Wolen, LLP, Los Angeles, CA, Attorneys for Respondents Farmers Insurance Exchange.

HAERLE, J.

I. INTRODUCTION

Appellants filed suit on behalf of a putative class of automobile insurance customers against over 70 insurers, including respondents Allstate and Farmers, and Chuck Quackenbush in his capacity as the Insurance Commissioner of the State of California. Appellants' complaint alleged four causes of action against the insurers, each seeking damages or disgorgement of allegedly excessive premiums that the insurers have been authorized to collect since September 29, 1994. The trial court granted the insurers' demurrers without leave to amend. We will affirm the resulting judgment.

II. FACTUAL AND PROCEDURAL

BACKGROUND

In order to understand the complaint filed herein, some background regarding Proposition 103 and insurance regulation in California is required. We borrow a succinct description written by now Chief Justice (and then Acting Presiding Justice) George:

"The passage of Proposition 103 made `numerous fundamental changes in the regulation of automobile and other types of insurance.' [Citation.] Prior to passage of the initiative, California was `a so-called "open rate" state, that is, rates [were] set by insurers without prior or subsequent approval by the Insurance Commissioner.' [Citation.] The Commissioner was empowered to prohibit an insurance rate only if `"`a reasonable degree of competition [did] not exist in the area'"' and the rate was found to be `"`excessive, inadequate or unfairly discriminatory.'"' [Citation.]

"Subsequent to passage of Proposition 103, `[e]very insurer which desires to change any rate shall file a complete rate application with the commissioner.' [Citation.] `The commissioner shall notify the public of any [such] application.' A hearing may be held if the commissioner, either on his or her own motion or pursuant to the request of a consumer determines to do so and must be held, upon timely request, if the proposed rate increase exceeds [certain percentages].' [Citation.] The initiative includes several provisions governing the conduct of such rate hearings. The commissioner shall not approve a rate `which is excessive, inadequate, unfairly discriminatory or otherwise in violation of this chapter.' [Citation.]" (California Auto. Assigned Risk Plan v. Garamendi (1991) 232 Cal. App.3d 904, 909-910, 283 Cal.Rptr. 562, fns. omitted.)

The statutes and regulations provide for consumer participation in the administrative rate setting process. (Ins.Code, §§ 1861.10, 1861.05-1861.08; Cal.Code Regs., tit. 10, §§ 2648.2, 2652.9.¹) Judicial review of the commissioner's decision is available by timely petition for writ of administrative mandamus. (§§ 1858.6, 1861.09.) Once the commissioner's decision is final, an insurer must charge only the approved rate. (§ 1861.01, subd. (c).) A consumer, however, may petition the commissioner to review the continued use of any rate. (§§ 1861.10, 1861.05, subd. (a).)

Appellants filed their first amended complaint on February 19, 1998. It stated four causes of action against the insurer defendants: violation of section 1861 et seq., violation of Business and Professions Code section 17200 et seq., unjust enrichment, and fraud. The causes of action were each bottomed on the insurers' charging approved rates alleged nevertheless to be "excessive" within the meaning of section 1861.05, subdivision (a).² The complaint supported its claim of "excessive" premiums with numerous factual allegations regarding industry trends and rates of return earned by individual insurers. The complaint further alleged the existence of regulations that, on their face are applicable to the ratesetting process, but which cannot be (and have not been) used, because of the failure of the commissioner to adopt certain "generic factors" necessary for the use of the formula set forth in the regulations. (For a detailed discussion of these regulations see 20th Century Ins. Co. v. Garamendi (1994) 8 Cal.4th 216, 248-256, 32 Cal.Rptr.2d 807, 878 P.2d 566 [primarily addressing the regulations in the context of the rollback, but also discussing prior approval].) Each cause of action against the insurers sought the redetermination of the premium rates in effect since September 1994 in accordance with certain statutory and regulatory criteria and a refund of the premiums collected in excess of the redetermined amounts.

The complaint also contained a section entitled "Administrative Remedies Have Been Exhausted." The only specific allegations, however, related to a June 1996 petition filed by Consumers Union that requested an investigation to determine whether auto insurance rates were excessive and reduction of these rates in compliance with existing regulations. The complaint alleged that the commissioner denied the petition in August 1996. Consumer's Union did not appeal that decision.³

The insurer defendants, including respondents, demurred to the complaint and a hearing was held on May 19, 1998. The trial court granted the demurrers without leave to amend, reasoning that the case was essentially a rate case over which the commissioner had exclusive original jurisdiction and, therefore, that challenges to rate applications must be timely raised during the administrative process and not by a class action long after the time for challenging individual rate applications has passed. As the trial court stated, having failed to so object, "it's antithetical, I think, to suggest that when you've gone through that kind of [administrative] process, that rates can be considered illegal under any circumstances."

Subsequently, appellants dismissed the commissioner from the suit. The appellants filed a timely notice of appeal from the judgment entered after the demurrers, but (of the over 70 insurer defendants) naming only Allstate and Farmers as respondents.

III. DISCUSSION

The standard of review on appeal from a judgment dismissing an action after sustaining a demurrer is well settled. "The reviewing court gives the complaint a reasonable interpretation, and treats the demurrer as admitting all material facts properly pleaded. [Citations.] The court does not, however, assume the truth of contentions, deductions or conclusions of law. [Citation.] The judgment must be affirmed `if any one of the several grounds of demurrer is well taken. [Citation.]' [Citation.] However, it is error for a trial court to sustain a demurrer when the plaintiff has stated a cause of action under any legal theory. [Citation.]" (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 966-967, 9 Cal.Rptr.2d 92, 831 P.2d 317.) As always, questions of law are independently reviewed. (E.g., R & P Capital Resources, Inc. v. California State Lottery (1995) 31 Cal.App.4th 1033, 1036, 37 Cal.Rptr.2d 436 [interpretation of statutes]; International Engine Parts, Inc. v. Feoldersen & Co. (1995) 9 Cal.4th 606, 611, 38 Cal.Rptr.2d 150, 888 P.2d 1279 [application of statute to undisputed facts].)

Appellants' primary argument is that the trial court erred in dismissing their claims, because it has jurisdiction over them pursuant to sections 1861.03, subdivision (a), and 1861.10, subdivision (a). Respondents counter that sections 1860.1 and 1860.2 bar the suit. We agree with respondents.

Sections 1850 through 1861.16 comprise Chapter 9 of Part 2 of Division 1 of the Insurance Code and set forth a comprehensive scheme for the regulation of rates and rating practices. Prior to the passage of Proposition 103, this chapter was referred to as the McBride/Grunsky Insurance Regulatory Act or, simply, the McBride Act. Sections 1860.1 and 1860.2 were part of the McBride Act and were not amended or repealed by the passage of Proposition 103. Section 1860.1 provides: "No act done, action taken or agreement made pursuant to the authority conferred by [Chapter 9] shall constitute a violation of or grounds for prosecution or civil proceedings under any other law of this State heretofore or hereafter enacted which does not specifically refer to insurance." Section 1860.2 further provides: "The administration and enforcement of this chapter [9] shall be governed solely by the provisions of this chapter. Except as provided in this chapter, no other law relating to insurance and no other provisions in this code heretofore or hereafter enacted shall apply to or be construed as supplementing or modifying the provisions of this chapter unless such other law or other provision expressly so provides and specifically refers to the sections of this chapter which it intends to supplement or modify."

Historically, these sections have been interpreted to provide exclusive original jurisdiction over issues related to ratemaking to the commissioner. (See Chicago Title Ins. Co. v. Great Western Financial Corp. (1968) 69 Cal.2d 305, 323, 70 Cal.Rptr. 849, 444 P.2d 481 ["a court is not the appropriate initial arbiter of factors involved in insurance costs"]; Karlin v. Zalta (1984) 154 Cal.App.3d 953, 974, 983-986, 201 Cal.Rptr. 379 [dismissing claim to recoup excess premiums for failure to exhaust McBride Act administrative procedures and remedies], disapproved on other grounds in Manufacturers Life Ins. Co. v. Superior Court (1995) 10 Cal.4th 257, 267, 270, 272, 288, 41 Cal.Rptr.2d 220, 895 P.2d 56.)

Tellingly, appellants simply ignore these sections...