Auto Policy Discount Rejected
California insurance companies can’t charge higher rates for drivers who previously didn’t have coverage, a state appeals court ruled Tuesday in a case brought by consumer activists.
The 2nd District Court of Appeal in Los Angeles found that Mercury Insurance’s awarding of so-called persistency discounts to motorists who had automobile liability policies with Mercury or other insurers violated Proposition 103, the landmark auto insurance initiative approved by voters in 1988.
The ruling, if it stands, could lead to lower rates for the state’s estimated 5 million to 6 million uninsured drivers, who didn’t buy state-required basic liability policies. An industry trade group warned that the absence of such discounts could cause premiums to rise for insured drivers.
“This is going to get uninsured motorists off the road,” said Harvey Rosenfield, the author of Proposition 103 and an attorney with Santa Monica-based Foundation for Taxpayer and Consumer Rights, which brought the original complaint against Mercury, a subsidiary of Mercury General Corp. of Los Angeles. Tuesday’s decision by the three-judge panel upheld a 2004 finding by Los Angeles County Superior Court Judge Dzintra Janavs.
Rosenfield also praised the judges in both courts for throwing out a 2003 state law that had overturned two previous insurance commissioners’ orders limiting Mercury’s ability to offer the persistency discounts.
Mercury had lobbied heavily for the bill, contributing $895,000 to politicians in Sacramento in 2002 and 2003, according to the foundation’s review of public records.
Mercury General couldn’t be reached for comment on the appellate court decision. But Sam Sorich, president of the Assn. of California Insurance Companies, a codefendant in the lawsuit, said no decision had been made on whether to appeal to the state Supreme Court.
Sorich said the persistency discount raised an important issue about how to interpret Proposition 103 to create a more competitive insurance market with more affordable auto insurance premiums. “This was an incentive for people to get and maintain insurance and encourages people to shop around for insurance,” he said.
The appeals court, however, found that Proposition 103 required rates to be based primarily on a motorist’s driving safety record, miles driven annually and years of driving experience. The 2003 law “undermines one of the major purposes of Proposition 103,” the appeals court said.
