Court Ruling on Insurance Rate Hikes Backs Gillespie

A state appellate court decision has reduced the chance that California auto insurers will get large interim rate increases while their proposed rate hikes are being reviewed by the state insurance commissioner.

The decision also makes clear the commissioner’s right to consider rate filings at length.

If it is later determined that the rates the companies charged during the period of consideration were too low, then the companies could be allowed to recoup by charging higher rates later, the 2nd District Court of Appeal said in Los Angeles in a 2-1 decision.

Lawyers for Insurance Commissioner Roxani Gillespie, Atty. Gen. John K. Van de Kamp and various insurers said the ruling last week represents a victory for stringent review of rate applications by the insurance commissioner and perhaps a victory for consumers.

The opinion by Justices Earl Johnson and Mildred L. Lillie overturned a ruling by then-Superior Court Judge Miriam Vogel authorizing the Allstate Co. to increase assigned risk rates for bad drivers by an interim 40%, pending a long-delayed decision by Gillespie on an application for a 112% increase.

Vogel also had ruled that future recoupment of premiums lost because rates were too low was impractical.

Under the assigned risk system, drivers who are unable to obtain insurance through the regular market are assigned to insurers in proportion to the percentage of business done by each company in California.

The Court of Appeal majority held that Allstate was not entitled to an interim increase because it had not exhausted all administrative remedies with Gillespie before going to Vogel’s court for relief. It said if Allstate could later show that it received inadequate premiums during the interim period, it could recoup the amounts with higher rates.

“The (insurance) commissioner faces a daunting task in creating from scratch a system for determining automobile insurance rates,” the ruling said. “This task is not made any easier by having to defend lawsuits by insurance companies challenging virtually every move she makes.”

The justices concluded that the delay was more the companies’ fault than the commissioner’s.

Allstate’s 40% interim rate increase had been stayed on appeal. Since the appeal was filed last December, some of the issues were rendered moot by an order from Gillespie authorizing an 85% statewide average increase for all assigned risk policies.

Attorneys said the decision’s importance lies not in the specific case but in the principles the decision established.

Dissenting from the appellate court decision was Justice Fred Woods.