Consumers Can Sue Insurers Over Rates, Appeals Court Says

The landmark Proposition 103 insurance initiative gives consumers a right to go to court to challenge allegedly illegal rates charged by insurers, a state appeals court ruled Thursday.

The decision in a case filed against a subsidiary of Mercury General Corp. overturned a lower court ruling that gave regulators at the state Department of Insurance exclusive jurisdiction in ratings grievances filed by motorists.

The ruling by the 2nd District Court of Appeal in Los Angeles, which is likely to be appealed to the state Supreme Court, could “impact thousands of California consumers who may be paying excessive auto insurance premiums based on the fact they’ve had a gap in coverage in the past three years,” plaintiff’s attorney Drew Pomerance said in a statement released by his office.

The plaintiff, Sam Donabedian, alleged that Mercury discriminated against him by not providing a so-called persistency discount given to motorists with an unbroken, recent history of having insurance. He claimed that the denial violated a provision in Proposition 103 that prohibited insurers from using an applicant’s lack of prior insurance as a factor in determining rates and premiums.

Proposition 103, an automobile insurance reform approved by voters in 1988, gave an elected state insurance commissioner sweeping powers to regulate auto and most other lines of insurance in California.

Mercury argued that its persistency discount had been approved by the Department of Insurance.

Moreover, the company contended that the insurance commissioner had final say in approving rates and discounts on auto coverages -- and settling complaints such as Donabedian’s.

“Our view is that the insurance commissioner knew what we were doing and approved what we were doing,” said Mercury’s attorney, Douglas Hallett.

The appeals court, however, didn’t consider the question of whether Donabedian should have received the discount. Rather, it sent the case back to the trial court, simply stating that plaintiffs have a right to take rating cases to civil court, regardless of whether they had been subject to previous rulings by the insurance commissioner.

The decision upholds an important part of Proposition 103 that gives consumers the right to take complaints to court and not “have to go before the commissioner to make their case,” said Pam Pressley, head of litigation for the Foundation for Taxpayer and Consumer Rights, the Santa Monica group that wrote Proposition 103.