AAA to issue refunds to settle suit over new-policy surcharges
Refunds averaging $187 are in store for 120,000 policyholders of the Automobile Club of Southern California who were charged higher rates on new policies from 1999 to 2004 because they could not prove that they were previously insured.
The refunds, to be announced today, are part of an unusual legal settlement between AAA and a Santa Monica consumer group.
The lawsuit, filed in 2002 by the Foundation for Taxpayer and Consumer Rights, alleged that the auto club violated California’s Proposition 103 law by charging motorists an extra fee if they could not prove that they were previously insured.
The settlement with the auto club is a significant step toward ending the practice by insurance companies of punishing people with higher rates when they buy coverage for the first time, said Harvey Rosenfield, the Santa Monica attorney who wrote Proposition 103, which made auto insurance a highly regulated business in California.
The auto club, the state’s fourth-biggest insurer of cars and trucks, with about 1 million customers, did not acknowledge any wrongdoing but agreed to stop collecting the surcharge.
The auto club, however, contended that it did not charge extra premiums just because motorists could not prove they previously had insurance. Having prior coverage is only one element of a person’s driving record, which makes it a legitimate criterion for setting rates under Proposition 103, said spokesman Steve Lenzi.
He noted that the auto club’s rating system had been fully reviewed and approved by former Insurance Commissioner Chuck Quackenbush.
Lenzi said AAA settled the lawsuit after concluding that protracted litigation was not in the best interests of policyholders.
The settlement is similar to an April 2006 agreement between the foundation and Geico Corp. A case involving Safeco Corp. remains unresolved.
“If you didn’t have insurance, you ended up being penalized, which is exactly what the statute said you couldn’t do,” Rosenfield said. “It’s in everybody’s interest to have people insured.”
Proposition 103, Rosenfield said, clearly stipulates that “the absence of prior automobile insurance coverage, in and of itself, should not be a criterion for determining eligibility for a good-driver-discount policy.”
Such a policy gives drivers a 20% discount if they’ve had no more than one moving violation, such as speeding, or minor accident involving no injuries during the previous three years.
Although California Insurance Commissioner Steve Poizner was not involved in the lawsuit, he “applauded the efforts of the Foundation for Taxpayer and Consumer Rights” to make sure that insurance companies complied with the law, said spokesman Jason Kimbrough.
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