California Appeals Court Upholds Right to Challenge Insurance Rates

Insurance companies must pay the legal costs of consumer challenges to insurance rate increases, even if they withdraw or settle challenges to rate applications before a formal hearing on their application is called, a California Court of Appeal has ruled.

In its decision, http://www.consumerwatchdog.org/resources/CtApp_ACIC_v_Poizner.pdf, the California Court of Appeal evaluated a portion of voter initiative Proposition 103, which discusses reimbursement provisions in rate challenges. Prop 103 requires insurance companies to open their books and justify rate increases or decreases to the Insurance Commissioner, who must approve them before they take effect. The measure authorizes consumers to review and challenge such applications and mandates that insurance companies pay the legal and expert fees and expenses incurred by consumer representatives when they make a “substantial contribution” to the Insurance Commissioner’s decision on the application, Consumer Watchdog explained.

The Court agreed with the nonprofit Consumer Watchdog and the Department of Insurance in upholding changes to state insurance regulations to make clear that insurance companies must pay the costs of consumer challenges to excessive insurance rates.

“This important victory ensures that California motorists, homeowners and businesses will pay the lowest insurance premiums possible,” said Consumer Watchdog’s litigation director Pam Pressley, who wrote the briefs and argued the case for the organization. The group said it frequently challenges rate increases requests that are excessive, as well as applications in which the insurance company proposes to reduce rates but not by enough. In some instances, companies have withdrawn or dramatically reduced their rate proposals only after a challenge and after substantial work has been done by consumer experts but before the Department of Insurance has begun the process of conducting a formal hearing.

The Association of California Insurance Companies, The Personal Insurance Federation of California, The American Insurance Association and The Pacific Association of Domestic Insurance Companies, on the other hand, argued that they were not required to pay the legal costs if they withdrew or settled challenges to rate applications before a formal hearing on their application was called.

The Insurance Commissioner had issued new rules confirming that the companies must pay if consumer representatives made a substantial contribution to his decisions, whether or not there was a formal hearing. And the insurance industry sued to invalidate the new regulations, saying the amended regulations conflicted with the Insurance Code, permitting an award of compensation without a formal rate hearing.

However, the Court of Appeal said the “regulations are consistent with the governing statutes and [are] reasonably necessary to effectuate the purposes of those statutes.”

To read the trial court ruling, visit http://www.consumerwatchdog.org/resources/ACICvPoizner030708.pdf. To read Consumer Watchdog’s brief in the appeal, visit http://www.consumerwatchdog.org/resources/CWDBrief-ACICvPoizner.pdf. To read the Insurance Commissioner’s brief in the appeal, visit http://www.consumerwatchdog.org/resources/ICBrief-ACICvPoizner.pdf.

Topics California Carriers Legislation