An auto insurance company must offer its lowest rate to all good drivers, and can’t hide behind so-called club memberships in order to overcharge motorists.
That’s the legal argument Consumer Watchdog recently made in a federal class action alleging insurance companies unlawfully overcharged policyholders (King v. National General Insurance Company). Consumer Watchdog filed a “friend of the court” brief clarifying some protections of Proposition 103, the seminal insurance reform law established 37 years ago. Proposition 103 requires insurance companies to offer their lowest rates to any driver who qualifies for the 20% “Good Driver Discount” under the initiative.
Trying to defeat a lawsuit by its policyholders seeking refunds for overcharges, the defendants, National General Insurance Company and its affiliates, argued that they can refuse to provide their lowest Good Driver rate unless the policyholder also belongs to a special “affinity group” or a “club” that the insurers created in order to avoid offering lower prices to Good Drivers.
For example, the defendants offered something called “Club Dent Pro,” which anyone can join – so as long as the motorist pays a separate fee.
Consumer Watchdog pointed out that Proposition 103 contains no exemption for “club memberships.” Indeed, a provision of California law—Section 1861.16—requires groups of affiliated insurance companies to extend the “lowest price available” requirement to everyone. The “club” membership requirement directly conflicts with Proposition 103.
So the lowest rate must be offered to everyone, even if they are policyholders of different subsidiaries of the same company—unless the Insurance Commissioner had determines that the subsidiary is completely independent—which did not happen in this case.
“In effect, [the defendants] ask the court to create a marketing-based exception to Proposition 103 that would somehow permit their conduct,” our amicus brief argued.
But the exception argued by insurers simply doesn’t exist.
“Indeed, neither Proposition 103 nor any accompanying regulation refers to ‘affinity groups.”’
The policyholders’ lawsuit also contends that the defendants try to avoid giving the “Good Driver Discount” to people who qualify for it if those people are buying a policy with different deductibles or other coverages . But this also goes against core consumer protections of Prop 103, which make insurance fairer, more affordable, and more transparent.
Bottom line: Companies can’t create phony loopholes through “memberships” in order to avoid giving good drivers the discounts required by law.
