Judge Strikes Down Car Insurance Rates Based on Zip Codes

A Superior Court judge in Oakland on Wednesday struck down state Insurance Commissioner Chuck Quackenbush’s policy of allowing auto insurance companies to continue to use ZIP Code-based pricing.

In a decision that could lead to sharp reductions in car insurance prices in the state’s urban centers, Judge Henry E. Needham Jr. ruled that a pricing plan approved last year by Quackenbush violates the terms of Proposition 103, the 1988 insurance reform initiative.

Proposition 103 mandates that a person’s driving record, years of driving experience and miles driven annually should be more important in pricing calculations than the neighborhood in which one lives.

But Quackenbush’s approved pricing plan allowed the companies to continue to use ZIP Codes as the dominant factor. At present, rates in Los Angeles and other urban centers can exceed those in San Luis Obispo or Eureka by three or four times.

Needham, however, seemed to presage further delay in a legal struggle that has already consumed 10 years by suggesting that Quackenbush could keep using his pricing plan while fashioning a new one.

Needham did not set a time limit for Quackenbush, who is seeking reelection in November, to change the plan. However, this could become the subject of further court proceedings.

Needham’s decision could also be appealed to higher courts.

The ruling came on two lawsuits filed by the cities of Los Angeles, San Francisco and Oakland, and consumers and civil rights groups, eager to strike down what are often known as territorial ratings.

Through spokeswoman Dana Spurrier, Quackenbush gave only a limited response to the ruling. “Any change to the current regulations would mean auto insurance prices would go up for many Californians,” she said.

Many expect Quackenbush or the insurance companies to appeal the decision.

Moving prices downward in urban areas would necessitate raising them for motorists elsewhere in the state, if the new pricing plan is to bring in the same amount of revenue.

There were partisan undertones to the discussion of Needham’s ruling.

Many of the urban neighborhoods where car insurance is the highest are heavily populated by racial and ethnic minorities who traditionally vote Democrat. Many of the areas where prices would rise are populated by white Republicans, and Quackenbush is a Republican.

Quackenbush’s Democratic challenger in the November general election, Assemblywoman Diane Martinez of Monterey Park, called upon him to resign.

“He knowingly violated the law,” Martinez said. “This is another clear indication of him being in the pocket of the insurance industry. He ought to be ashamed of himself.”

Spurrier had no comment on the resignation demand.

Los Angeles City Atty. James Hahn, a prime mover in the lawsuits, said that plaintiffs’ lawyers would quickly ask Needham to order Quackenbush to act on an emergency basis to draft a new pricing plan.

Although the State Court of Appeal could stay Needham’s order, Hahn suggested that for political reasons Quackenbush might decide to prepare a new plan rather than appeal.

“He has to know, if he wants his job after November, that he has to act,” Hahn said. “If he wants to delay this, he could lose his job.”

However, Quackenbush’s statement about the threat of price increases indicates that the commissioner may feel that complying with the order would be more unpopular than popular.

Harvey Rosenfield, the author of Proposition 103, called Wednesday’s ruling “a vindication to the voters and yet another slap in the face to Chuck Quackenbush.”

“It means good drivers will pay less,” he said. “Premiums will not be determined by ZIP Codes, and motorists will find it easier to purchase coverage.”

Despite such assertions, any revenue-neutral plan, pricing experts have said, would result in some good drivers being charged more in rural and suburban areas where the prices have always been low.

“Here we go again,” said Barry Carmody, president of the Assn. of California Insurance Companies. “The consumer is going to be kicked in the side.

“The court has said that the pricing plan is no longer valid, and it’s thrown the plans back to be rewritten,” Carmody said.

“That leaves all California auto insurance prices in limbo once again. . . . The market is being constantly disrupted.”