Suit Charges Bias in Car Insurance ‘Redlining’

Claiming that auto insurance rates are unfairly based on where a motorist lives, rather than on his driving record, the City of Compton, the Southern Christian Leadership Conference and six Los Angeles County residents filed a discrimination suit Thursday against Farmers Insurance Exchange and the state Department of Insurance.

It is the first such legal action since a state law went into effect July 1 to require that motorists carry liability insurance or risk losing their driving privilege. A similar suit challenging the so-called practice of automobile insurance “redlining” was filed by the county in 1978 but later dropped.

The suit states that if two of the individual plaintiffs lived only a few miles to the west in Redondo Beach or Torrance, they would pay about $360 a year to insure a 1978 Oldsmobile Cutlass. Because they live in the Compton area, however, the same coverage costs $900.

“Redlining is an unfair, irrational and discriminatory practice that must be stopped,” Compton City Councilman Floyd James said at a press conference announcing the suit. “The time has come for the insurance industry to change its practice of determining insurance rates based primarily on where a driver’s vehicle is garaged.”

A spokesman for Farmers Insurance, the largest auto underwriter in California and third-largest in the nation, declined to comment, as did a spokesman for Insurance Commissioner Bruce Bunner.

However, insurance companies generally acknowledge that they charge higher premiums in central-city neighborhoods that are deemed to be high-risk, according to industry spokesman George Watts, president of Western Insurance Information Service. The territorial rates are then uniformly applied throughout each region’s postal ZIP code.

Watts said the technique has been ruled valid by several independent studies and upheld by state insurance officials as not being discriminatory.

However, in cities such as Compton, where 94% of the residents are black or Latino and 26% have incomes below the poverty level, the method creates a heavy and unfair economic burden, James contends.

James said the territorial rates charged in Compton also are not justified by the city’s actual traffic accident experience.

In 1984, the city recorded 1,918 accidents, involving about 2.2% of the population. In contrast, Pasadena recorded 4,357 accidents, involving about 3.7% of its residents. Yet Compton residents were charged nearly twice as much for insurance, James said.

Forced to Choose

“Inflated automobile insurance premiums resulting from redlining,” James said, “often force Compton households to choose between the essentials of living, such as rent, food and clothes, or driving without automobile insurance.”

The suit filed in Compton Superior Court challenges the constitutionality of a section of the state Insurance Code and asks that Farmers be declared in violation of the Unruh Civil Rights Act and enjoined from practicing redlining.

Compton officials said they decided to bring the suit because high insurance rates in the city have driven away residents, lowered property values and discouraged business redevelopment, which has resulted in a loss of potential sales tax revenue.

In 1982, the county Board of Supervisors decided to drop its redlining suit, which also named Farmers, and instead had a committee study the issue. The group reported its findings in 1984 and generally supported the industry’s rate-setting methods.

Findings Suspect

On Thursday, Smith said those findings are suspect because the committee included several representatives of the insurance industry.

“They were just a rubber stamp,” he said.

Also at the press conference was plaintiff John Krishun, a 30-year-old resident of the Windsor Hills area in South Los Angeles. Krishun, who is single, said he became involved in the suit after complaining about his insurance rates to the American Civil Liberties Union, which is providing legal assistance in the case.

In 14 years of driving, Krishun said, ‘I never had an accident or a ticket in my life.”

For a dozen years, however, he drove without insurance and “always felt guilty about it.”

So two years ago, Krishun said, he decided to “shop around for the best rate.” After checking with 56 firms, he said, 11 refused to cover him at all, and the remaining 45 quoted average rates of $800 a year.