Appeals Court Blocks Assigned-Risk Increase : Insurance: Gillespie gains a temporary victory in battle to hold off rate hikes under Prop. 103.

A state appeals court Friday blocked indefinitely a Los Angeles judge’s order allowing Allstate Insurance Co. to increase by 40% the rate it charges “bad drivers” among its assigned-risk policyholders.

The 2nd District Court of Appeal’s action to stay the order came within 24 hours of an appeal by Insurance Commissioner Roxani Gillespie. It gave Gillespie a temporary victory in her battle to keep the state’s auto insurance sellers from raising their rates until they cooperate with the implementation of Proposition 103.

The appeals court stayed the order of Superior Court Judge Miriam A. Vogel, who had indicated that she would quickly extend her Allstate order to all insurance companies participating in the assigned-risk plan. That would affect about 400,000 “bad drivers” with more than one traffic citation in the previous three years, but the stay issued Friday will apparently keep her from doing so for the time being.

Unaffected by the stay was another Vogel order allowing the Farmers group of companies to impose an average 5.9% statewide auto insurance rate increase Jan. 1. Gillespie is seeking to kill off that increase for 2 million drivers through administrative action, although Farmers executives have said they will ignore such action and go ahead with their increase.

The Court of Appeal ordered the parties in the Allstate case to submit briefs by next Friday arguing their respective positions, but it set no hearing date.

Both sides have predicted that the issue of whether Gillespie can block rate increases, pending Proposition 103’s implementation, will ultimately end up before at least the state Supreme Court and very possibly the U.S. Supreme Court.

An important practical question is whether the insurance companies will be allowed to raise their rates in the meantime or whether such increases will be halted until the matter is resolved. Friday’s stay was an initial indication that many rates could be frozen for a long time.

The Farmers case is a special one because that group of companies had given notice of a rate increase before Gillespie first imposed her freeze on rate increases Oct. 2, and Gillespie’s attorneys fear there that their position for a freeze may not be as strong as with companies that had made no such announcement.

Gillespie first indicated in October that she would not seek to apply her rate freeze to assigned-risk customers. However, she later said she wished to delay increases for those customers as well, at least until the assigned-risk system is reformed to guarantee that insurance mandated by the state is affordable to poor drivers.

Under the assigned-risk system, drivers who cannot--or do not desire to--obtain the state-required minimum liability coverage by buying directly from insurers are assigned among various companies, according to each company’s share of the state’s auto insurance business.

The companies contend that most of these customers, which now number about 1.2 million, are higher risks to insure than regular customers. The companies say they are losing $600 million a year on such business, and they have been applying to Gillespie since last February for a 112.3% increase to stem these losses.

Gillespie rejected any increase shortly before Vogel’s order Monday to allow a 40% “interim” rate increase for the 400,000 of these drivers who have bad safety records. Her attorneys argued before Vogel, and in their appeal later, that imposing such an increase would simply push many of these drivers to abandon the insurance system and illegally go uninsured.

The Gillespie appeal also argued that Vogel’s order had been improper because all of the insurers’ administrative remedies before the Department of Insurance had not been exhausted.

Friday’s stay was announced mid-afternoon after most of the parties, including Gillespie, Allstate spokesmen and attorneys for the insurer-dominated Assigned Risk Plan board of governors, had left for the Christmas holiday, so none of them were available for comment.

However, one of Gillespie’s attorneys, Dana Carli Brooks, expressed satisfaction with the order, and indicated that the commissioner will be pursuing other action in the next few days to block the Farmers increase as well.