Calif. SC sides with appeals court in car insurance issue

Jessica M. Karmasek Jan. 13, 2011, 12:02pm


SACRAMENTO, Calif. (Legal Newsline) - The California Supreme Court has upheld the decision of an appeals court that wouldn't allow state consumers to sue their car insurance companies as a means to challenge their rates.

The city of San Francisco, various consumer groups and state Insurance Commissioner Dave Jones were among those who requested that the state Supreme Court erase the October appellate decision.

The Court denied their request on Wednesday.

On April 4, 2001, the plaintiffs filed a class-action lawsuit charging 21st Century Insurance with "unfair business practices" under California's Business and Professions Code.

The plaintiffs claimed that some policyholders paid higher premiums for their automobile insurance policies than they should have paid when 21st Century surcharged them because they did not have prior insurance.

Through the lawsuit, the plaintiffs challenged 21st Century's use of prior insurance as the basis to impose these surcharges.

The insurance company denied that it acted improperly, contending that the California Department of Insurance approved the manner in which 21st Century verified driving records and determined persistency when it approved 21st Century's class plans.

The insurance company contended, among other things, that it was required to charge the rates approved by the state insurance department and would have violated state law by charging policyholders a premium other than those approved.

On Oct. 6, subsequent to 21st Century's and the plaintiffs' agreement to settle the action, the California Court of Appeal, Second Appellate District, issued its decision concluding that 21st Century was not civilly liable to plaintiffs and the class for charging rates and using rating factors that were approved by the state insurance department.

The appeals court wrote, "The Insurance Code provides specific administrative remedies which may be pursued in order to challenge a rate as illegal, even after the rate has been approved. Judicial review of the administrative proceedings is available by means of a petition for writ of mandate.

"In this case, the insureds attempted to pursue their administrative remedy, but after the (Department of Insurance) declined to hold a hearing, the insureds filed a civil action against the insurer, rather than seeking judicial review of the DOI's administrative decision to decline jurisdiction.

"The question presented by this appeal is whether, after a rate has been approved, an insured may pursue a civil action to challenge what it believes to be an illegal rate. We conclude that the statutory provisions for an administrative process (and judicial review thereof) are the exclusive means of challenging an approved rate."

The appeals court ordered that judgment be entered in 21st Century's favor. The insurance company said at the time it would honor the settlement terms reached with the plaintiffs prior to the appeals court's decision.

The settlement, which is still waiting on a final court approval, would provide almost 300,000 customers, who were insured by the company between October 1997 and October 2005, with reimbursements of up to $115 each, according to court documents.

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