Insurance Price Plan Struck Down : Prop. 103: A judge rules against proposal by Commissioner Gillespie to suppress ZIP codes as a basis for setting auto premiums.

A Los Angeles judge on Friday struck down Insurance Commissioner Roxani Gillespie’s auto insurance pricing plan that suppressed ZIP codes--or neighborhoods--as a basis for setting premiums and ruled out use of gender and marital status in pricing. Gillespie was ordered to draft a new plan.

Judge Miriam A. Vogel said Gillespie’s plan, announced last Dec. 6, must fall because pricing of auto insurance has to continue to be cost-based. Vogel said that where one lives is an important factor. But she said the part of Proposition 103 that the commissioner cited for justification of her plan is inconsistent with another part of the measure and must yield to it.

At the same time, however, Vogel ruled that Gillespie’s freeze on auto insurance rates, announced last Oct. 2, will be allowed to continue indefinitely.

The practical effect of the ruling was that Los Angeles and other urban drivers will not be getting the rate decreases that Gillespie promised. On the other hand, rural and many suburban drivers will not be getting the small increases implied when she issued the plan. Current rate structures, under which city drivers, particularly in minority and low-income neighborhoods, pay the most will stay in effect.

Gillespie’s attorney for Proposition 103 matters, Karl Rubinstein, vowed to appeal Vogel’s ruling against the commissioner’s pricing plan to the state Court of Appeal and seek a stay of the injunction against the plan Vogel said she will issue next week.

But the effect of Friday’s rulings was once again to delay implementation of key provisions of Proposition 103. Vogel specifically said the insurance companies will now not have to file new rating plans on May 11, as Gillespie was demanding.

Eighteen months after the initiative was approved by the electorate, its most important parts--the new pricing plans, rate rollbacks and rate regulation according to a fair rate of return formula for the companies--remain in limbo.

Gillespie vowed last May, for instance, to make all rate rollback decisions by last November, ruling which, if any, companies would have to give rebates of premiums. But six more months have passed and she has yet to make a decision regarding a single company.

Even when she does set fair rate of return standards for the companies, her decision is subject to court appeal, as would be subsequent decisions on which companies, according to these standards, will have to roll back their rates and give their customers rebates. The appeals process could take years.

Consumer advocates were discouraged by Vogel’s decision, with Proposition 103 author Harvey Rosenfield saying it guts a substantial part of the measure.

But even some insurance company lawyers expressed weariness with the legal process and a few pointed out that the freeze on rates that Vogel supported Friday has already lasted seven months and seems sure now to last beyond the November election.

To that extent, the insurers’ lawyers said, Gillespie has been successful in that she has stopped what had been a high rate of annual auto insurance price increases for the better part of a year.

Vogel is now charged with hearing virtually all litigation involving Proposition 103--more than a dozen cases. She won the role after the appellate courts denied a motion of bias filed against her by Gillespie, who believes that Vogel favors the insurance companies too much in her rulings.

In her tentative written ruling Friday, which she indicated might be revised slightly before being made final next week, Vogel reiterated that “negative social implications” of current insurance rates, such as charging the poor the highest rates, cannot be allowed to be decisive considerations in ruling whether a regulation passes muster.

Even if Gillespie’s regulations were socially desirable, the judge wrote, they “are simply not a proper basis for excluding (pricing) factors that . . . (are a) sound actuarial basis for fixing rates.”

Besides, in mandating substantially lower rates in the cities while allowing insurers to recoup only part of the difference with slightly higher rates in rural areas, Gillespie was virtually ruling out the possibility that the insurers could receive a fair rate of return on their total business, Vogel said.

Vogel added that there was “no substantial evidence” that Gillespie is justified in giving special price advantages to urban areas, regardless of the higher accident and claims rates in those areas.