2 Firms Granted Auto Rate Hikes : Insurance: Gillespie vows to try to block the court ruling. Decision could set precedent on Prop. 103.
In a significant victory for auto insurers, a Los Angeles judge ruled Monday that the Farmers group of companies may impose an average 5.9% statewide rate increase and Allstate may increase by 40% the rate it charges “bad drivers” among its assigned-risk policyholders.
The decisions could establish important precedents for later increases by a host of companies whose applications for rate increases under Proposition 103 are pending. They also could blow a hole in Insurance Commissioner Roxani Gillespie’s power under the landmark initiative to approve all auto rates before they go into effect.
Both Gillespie and lawyers for consumer groups were upset with Superior Court Judge Miriam A. Vogel’s orders.
Gillespie vowed to appeal the Allstate decision immediately to the state Court of Appeal, and said she will block the Farmers increase by sending a notice to the company requiring that it justify its rates.
But Farmers general counsel Jason Katz, noting that Vogel had given a bench order authorizing his company’s increase, said the rate increase--which is well above the consumer price index standard set by Gillespie--will be effective Jan. 1 regardless of Gillespie’s notice.
Katz and Farmers lawyer Leonard Venger said that Gillespie’s state Department of Insurance could certainly hold hearings on whether the rates Farmers charges its 2 million auto policyholders are excessive, but that any orders by her to refund premiums later could be appealed to the courts, a process that could take years.
But Gillespie declared that, once she issues her notice to Farmers to justify its rate increase, the company cannot legally go ahead with it.
Although she spoke in broad terms, Vogel characterized Monday’s decision regarding Farmers as limited in scope. She noted that Farmers had announced its rate increase at the end of September, a week before Gillespie imposed her freeze on auto insurance rate increases Oct. 2.
The judge said Farmers is a special case and that her decision allowing the company to raise its rates does not lift Gillespie’s general freeze for other companies selling to regular policyholders.
But for the assigned-risk policyholders who are “bad drivers”--people with accidents or more than one traffic citation in the last three years--Vogel indicated that her decision will soon allow all companies, not just Allstate, to raise their rates by 40% through Feb. 28.
Lawyers for the insurer-dominated assigned-risk board of governors said they would formally ask the judge for such an order as soon as possible. If all drivers in the assigned-risk plan are given such increases, about 400,000 of the 1.2 million present enrollees in the plan will be affected.
Assigned-risk drivers are those who cannot--or do not desire to--obtain the state-required minimum liability coverage by buying directly from insurers. Instead, they are divided among various companies according to each company’s share of the state’s auto insurance business.
The companies contend that they are losing $600 million a year handling assigned-risk customers. Farmers, in fact, justifies its entire 5.9% increase by saying it is paying off such losses.
Gillespie on Monday rejected the assigned risk board’s request for an average 112.3% increase for all 1.2 million drivers enrolled in the system. The rejection came 10 months after the request was made.
Perhaps more important than Vogel’s immediate orders Monday was her reasoning in justifying them.
Vogel noted Monday that the state Supreme Court, in its May decision upholding parts of Proposition 103, had ruled that insurance policyholders could recoup any excessive rates they were charged, with interest, if the insurance commissioner so ruled. Overcharges would be refunded by the companies.
But Vogel said there is nothing provided in any law to enable insurance companies to recoup money from customers if, after long rate freezes, regulators ruled that companies had been charging premiums that did not allow them a fair rate of return.
Vogel said she wanted to protect the companies by allowing them “interim rates” during the time they might be applying for increases.
Although the judge applied the principle Monday only to Farmers and Allstate--respectively the second- and third-largest sellers of auto insurance in the state--she clearly indicated at several points in a daylong hearing that next February she might apply the “interim” principle across the board if she is dissatisfied with the pace of Gillespie’s Proposition 103 implementation proceedings and her decisions on rate increase requests by various insurers.
Such decisions would reduce the insurance commissioner’s authority of prior approval over rate increases under Proposition 103.
The state Supreme Court gave Gillespie the authority to grant interim rate increases while she considers applications for permanent hikes, but the court made such rates discretionary, not mandatory.
Vogel, however, appeared to be contending Monday that such interim increases would be required, particularly if it appears that rate approval decisions are going to take a long time. The judge said she believes it might take years to make some of these decisions.
Gillespie, in holding to her rate freeze, has indicated on several occasions that she wants to put pressure on the companies to come to terms on implementing Proposition 103 by withholding interim increases.
Vogel’s rulings threaten this strategy. Gillespie’s special attorney for Proposition 103 matters, Karl Rubinstein, told the judge at the end of the hearing Monday that her decision would encourage what he called “legal razzmatazz” by the insurers to continue to delay implementing terms of the landmark initiative while they seek a series of interim rate increases.
As Gillespie vowed to appeal the decision, James Wheaton, attorney for Harvey Rosenfield’s Voter Revolt organization, sponsors of Proposition 103, said he was “outraged” at the Vogel decisions.
He said that given the ability of the insurers to appeal every decision on multiple judicial levels, Vogel’s reasoning will afford the companies far more protection in the future than consumers. The companies, he suggested, can now keep their high rates for a long period while consumers pay the bills. And if there should ever be refund orders, they can be appealed for years, he suggested.
Despite the displeasure of Gillespie and Wheaton, the insurance commissioner and the consumers prevailed Monday with Vogel on several points.
At the beginning of the day, for instance, Vogel circulated a tentative order in which she would have given Allstate, and by implication all the other companies with assigned-risk customers, the entire 112.3% increase for all assigned-risk policyholders that the governing board of the plan had asked for.
But Rubinstein, arguing for Gillespie, Wheaton for Voter Revolt and Fred Woocher for Atty. Gen. John K. Van de Kamp, succeeded in persuading the judge that such a mammoth increase would drive hundreds of thousands of people to drop their auto insurance, compounding already major problems in enforcing the state’s mandatory insurance law and adding to uninsured-motorist premiums.
Later, the same three, working together in arguing against several insurance company lawyers, persuaded Vogel that many “good drivers” with one or fewer citations cannot find insurance now in the regular market, and they should not be penalized with a rate increase. Vogel exempted the estimated 800,000 such drivers enrolled in the assigned-risk program.
Rubinstein and Wheaton told the judge that despite a provision in Proposition 103 mandating that no auto insurers can reject any “good driver” seeking to buy a policy, the Insurance Department has received information that many companies are flouting this provision. They said that pushing up the rates of the good drivers could lead many of them to drop their insurance also.
Vogel said that such practical considerations are powerful ones. In general, she said, she does not like to allow increases in auto insurance and is doing so in a limited way only because she believes the law requires it.
After the decision, Farmers general counsel Katz said the companies do not like raising their rates either. But, he asserted, the Legislature has failed to act on no-fault and other proposals to reduce the cost of claims to the companies. Until it does, he said, increases will be necessary.
