LOS ANGELES, CA — California insurance companies must comply with state regulations requiring them to pay the legal and expert fees of consumers or groups that challenge a proposed rate change if the challenge impacts the end result, whether a formal hearing takes place or not, according to a Los Angeles Superior Court ruling.
The March 7 ruling affirms regulations adopted by the insurance commissioner’s office to implement Proposition 103, which established regulatory oversight over the state’s insurers. Amended rules promulgated by then-Insurance Commissioner John Garamendi in late 2006 and made effective under current Commissioner Steve Poizner made it easier for consumer advocates and others to recoup fees incurred during the process even when a formal hearing does not occur.
"Commissioner Poizner applauds the court’s decision," Poizner spokeswoman Molly DeFranc said.
The Foundation for Taxpayer and Consumer Rights, which joined Poizner’s office in defending the regulations, praised the ruling for keeping insurance companies accountable.
"The court upheld the principle that consumers should be encouraged to participate in the rate-setting process to force companies to justify their rates. By upholding the rules, the court ensured that consumer groups can continue to fight for and win lower rates by being compensated when they make a substantial contribution," FTCR Litigation Director Pam Pressley said in a statement.
Samuel Sorich, president of the Association of California Insurance Companies, a petitioner in the case, did not dispute that consumers and organizations are entitled to legal and expert fees. However, the insurers’ position was that under the state’s insurance code, they are only entitled to fees incurred during an actual proceeding — and not eligible for reimbursement for activities before a hearing or that lead to a hearing not being necessary.
"We believe the regulations are not consistent with the insurance code," Sorich said.
"We are disappointed with the decision. The underlying issue is how can FTCR be paid for participation in a proceeding in a situation where there is no proceeding? This is yet another instance of FTCR benefitting from Prop 103, which was written by FTCR’s principals to benefit FTCR," Nicole Mahrt, a spokeswoman for the American Insurance Association, said in a statement.
No decision has been made on whether to appeal the ruling, Sorich said.
Sean P. Carr is senior associate editor at BestWeek: [email protected]