Court of Appeal Upholds Public Right to Scrutinize, Challenge Insurance Company Price Gouging

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Consumer Watchdog, Dep’t of Insurance Win Victory to Protect Prop 103, Save Policyholders Billions

Santa Monica, CA – The California Court of Appeal has rejected an attempt by the insurance industry to cripple the right of the public, under Proposition 103, to scrutinize and challenge unjustified rate increases.  The Court agreed with the nonprofit Consumer Watchdog and the Department of Insurance in upholding changes to state insurance regulations to make clear that insurance companies must pay the costs of consumer challenges to excessive insurance rates, in a decision issued last week.
“This important victory ensures that California motorists, homeowners and businesses will pay the lowest insurance premiums possible,” said Consumer Watchdog’s litigation director Pam Pressley, who wrote the briefs and argued the case for the organization. “Like many other provisions of Proposition 103 that the insurance industry has tried to attack with lawsuits, this one has helped save Californians billions of dollars. Companies can only be made to obey the law when the public can challenge insurers’ attempts to illegally hike rates and actively participate in the rate review and approval process as Prop 103 requires. Prop 103 and Consumer Watchdog continue to keep the insurance industry in check.”
Click here to read the Court of Appeal ruling.
Regulations Changed to Prevent “Cat and Mouse” Game by Insurance Company

Proposition 103, the sweeping insurance reform measure approved by voters in 1988, requires insurance companies to open their books and justify rate increases or decreases to the Insurance Commissioner, who must approve them before they take effect. The measure authorizes consumers to review and challenge such applications and mandates that insurance companies pay the legal and expert fees and expenses incurred by consumer representatives when they make a “substantial contribution” to the Insurance Commissioner’s decision on the application.
In recent years, Consumer Watchdog has helped save California homeowners, drivers, and doctors more than $1.7 billion by challenging excessive rates proposed or charged by insurers.  Click here to view a list of current and recently completed rate challenges brought by Consumer Watchdog. In these efforts, Consumer Watchdog brings legal, actuarial, and (in the case of earthquake insurance rates) geological experts to the Department of Insurance to make the case against price gouging.
Consumer Watchdog frequently challenges rate increases requests that are excessive, as well as applications in which the insurance company proposes to reduce rates but not by enough. In some instances, companies have withdrawn or dramatically reduced their rate proposals only after a challenge and after substantial work has been done by consumer experts but before the Department of Insurance has begun the process of conducting a formal hearing. Consumer Watchdog described these tactics as a “ ‘cat and mouse game’ played by insurance companies” in which a company would apply to charge more than it was entitled to, and hope that it wouldn’t get caught, but if it’s application was challenged, would withdraw or agree to charge a more appropriate rate.
Hoping to discourage consumers from challenging rate applications, insurance companies argued that they were not required to pay the legal costs if they withdrew or settled challenges to rate applications before a formal hearing on their application was called.  Seeking to preserve consumer participation, the Insurance Commissioner issued new rules confirming that the companies must pay if consumer representatives made a substantial contribution to his decisions whether or not there was a formal hearing. The insurance industry sued to invalidate the new regulations.  Insurance Commissioner Steve Poizner strongly defended the rules in court, as did Consumer Watchdog.
Currently, Consumer Watchdog is challenging excessive auto and homeowners insurance rates proposed by Mercury Insurance, Allstate, Geico, Liberty Mutual and Farmers. Click here to view details concerning those challenges.
Click here to read the trial court ruling here.
Click here to read Consumer Watchdog’s brief in the appeal.

Click here to read the Insurance Commissioner’s brief in the appeal.
Learn more about:
* Proposition 103’s rate review system,
* Consumer Watchdog’s challenges to unfair rates, and
* How much Consumer Watchdog’s work has saved California consumers.

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Consumer Watchdog is a nonprofit, nonpartisan organization.  For more information about Consumer Watchdog visit:

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

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