AAA Sued Over $500-Million Surplus

Three policyholders of the Automobile Club of Southern California went to court Friday seeking to force the insurer to distribute part of its $500-million surplus to its 500,000 customers.

In a class-action suit filed in Los Angeles Superior Court, the three accused the Auto Club of maintaining a bloated surplus in its insurance operation, the Interinsurance Exchange, and of running up “excessive” administrative expenses, “including salaries, bonuses, expense accounts and other perks to officers, directors and managing agents.”

They also charged that the Auto Club has illegally installed its own directors as the board of the insurance unit and has failed to keep premium rates to a minimum.

Auto Club spokeswoman Layna Browdy, declaring herself puzzled by the lawsuit, said the nonprofit organization pays lower salaries than its competitors in the corporate sector and that its surplus--equal to about 60% of yearly premiums written--is below the industry average of 70%.

Of the insurance unit’s board, she said: “The organization has been around for decades and is in compliance with all regulations and the law.”

James T. Perona, a lawyer for the three policyholders who filed the suit, said he had no idea what a proper surplus would be for an insurer the size of the Auto Club, which ranks fourth in Southern California in auto insurance. Neither could he provide figures on Auto Club officers’ salaries.

“I know I have a case, but I don’t know those numbers,” he said. He added that he expected such evidence to come out during the lawsuit’s discovery phase.

The three complaining policyholders are Woo Chull Lee and Joong Kun Lee of Los Angeles and Rosemarie Flocken of Long Beach.