Insurers Sue to Block 15% Rate Rollback Law in Nevada
Eight insurance companies doing business in Nevada, including all of the state’s leading auto carriers, have filed suit in federal court to block a 15% rollback of auto liability insurance rates.
The Nevada law, which is supposed to go into effect Oct. 1, would roll back rates from July 1, 1988, levels and freeze them for a year. It is more sweeping than California’s Proposition 103, as rewritten in May by the California Supreme Court, in that the Nevada measure allows companies to escape the rollbacks only if they can demonstrate that they are going broke everywhere they operate in the United States.
In California, the state Supreme Court ruled unconstitutional a clause in Proposition 103 that would have allowed companies to win exemptions from mandated 20% rollbacks only if they could show that the rollbacks would cause insolvency. The court substituted a new standard, saying the companies could escape the rollbacks if they could demonstrate that the new rates would not allow them to receive a fair rate of return.
But in Nevada, the Legislature, acting hurriedly June 28 at a time when lawmakers were under pressure for voting themselves huge pensions, set an insolvency standard. It also set strict penalties for any effort by insurers to escape the rollbacks by canceling policies.
Higher Premiums
The insurer lawsuit claims that the Nevada law “on its face, violates the United States Constitution” by taking property without due process of law. It suggests that the new law would in effect force policyholders in other states to pay, through higher premiums, for insurance company losses in Nevada.
“Implementation and enforcement of (the law) will permanently deprive plaintiffs of millions of dollars, will unlawfully affect the solvency of motor vehicle liability insurers and thus will immediately and irreparably injure plaintiffs, other insurers and the insurance buying public,” the complaint declares.
The companies filing suit in U.S. District Court in Reno were State Farm, Farmers, Allstate, USAA, Safeco, Guaranty National, Nationwide and Northland.
Legislators who supported the Nevada statute argued that auto insurance rates have soared in Nevada without justification. However, the companies contest this.
For instance, State Farm issued a statement saying that while its rates in the state increased 45% in the decade from 1978 to 1988, claims payments during the same period increased 124%.
Rollback proposals have been made in many states since California adopted Proposition 103 in November, but only Nevada has thus far legislatively adopted one.
