Court Rejects Industry Challenge To Insurance Rate Review Rules

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Santa Monica, CA – A sweeping legal assault by Mercury Insurance and various insurance company lobbying groups on rate review regulations that have saved California consumers over $100 billion since the passage of Proposition 103 in 1988 was rejected by the Sacramento Superior Court in a decision filed on June 11th. The court decision upholds a 2013 order by Insurance Commissioner Dave Jones requiring Mercury to lower its overall homeowner's rates by 5.4%.

Rejecting Mercury and the industry lobbying groups’ attack on the Prop 103 regulations, the court ruled that Mercury was not deprived of a fair profit under the U.S. Constitution and refused to allow insurance industry lobbying groups to expand the case into a full fledged attack on Proposition 103.

Read the court’s decision here:

"The court's careful ruling correctly follows the landmark California Supreme Court decision issued 20 years ago, 20th Century Ins. Co. v. Garamendi, which upheld the Prop 103 prior approval regulations as constitutional.  This latest attack by Mercury and the industry’s lobbying groups is yet another failed attempt to overturn rate regulations that have successfully saved consumers billions of dollars over the last 20 years while allowing insurers to earn fair profits," stated Pamela Pressley, Consumer Watchdog's Litigation Director.

Insurance Industry Lawsuit Challenges Prop 103 Rate Review Rules

After a full public hearing requested by Consumer Watchdog, Mercury’s application for an overall 8.8% rate hike on its homeowners insurance line was rejected, and the company was ordered to reduce its overall rates by 5.4%. Mercury then filed suit, arguing that the rate regulations were unconstitutional because they denied the company a fair profit. Six lobbying groups representing virtually all property-casualty insurers selling homeowners and auto insurance in California, including State Farm, Farmers, Allstate, Progressive, Liberty Mutual, and Nationwide intervened in the lawsuit, joining Mercury’s attack on the regulations. The lobbying groups also challenged a limit on the kinds of advertising expenses that can be passed through to policyholders, claiming the limit deprived insurance companies of their free speech rights.

The Court's thorough, 20-page ruling decisively rejects Mercury's arguments and upholds the Commissioner's 2013 rate decrease order.  The decision states that the Commissioner properly rejected Mercury’s attempt to ignore the Prop 103 rate rules and formulae, and that the Commissioner correctly interpreted the Prop 103 regulations to exclude from Mercury’s rates its “institutional advertising.” The Court further agrees that the Prop 103 prior approval regulations are constitutional. Finally, the Court rejected the insurance industry lobbying organizations’ attempt to broaden the lawsuit into a frontal attack on elements of the Proposition 103 rate formula that Mercury itself had not challenged in the administrative hearing. “The Court…declines to consider arguments raised by [the industry lobbying groups] that were not, and could not be raised by [Mercury] in this litigation.”

The Commissioner's 2013 rate decrease order saved Mercury homeowner policyholders over $16 million in annual premiums.  

Proposition 103 and the Prior Approval Rate Regulations

Proposition 103, approved by voters despite an $80 million industry campaign, requires auto, home and business insurance companies to open their books to public scrutiny and justify rate changes before they take effect. The California Supreme Court unanimously upheld the law and the rate review regulations in 1989 and 1994, respectively. According to a November, 2013, report by the Consumer Federation of America, the Proposition 103 prior approval regulations have saved California motorists over $100 billion in the twenty five years since the measure passed – approximately $8000 for every family in California.  California’s average auto insurance premium was lower in 2010 than in 1989, the report found – the only state in the nation where premiums went down.  Read about the CFA report and link to it here:

A ballot initiative sponsored by Consumer Watchdog to extend the same insurance rate insurance protections to health insurance consumers will be on the California ballot in November of this year.

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Pam Pressley
Pam Pressley
Consumer Watchdog's Senior Staff Attorney, Pamela Pressley has led Consumer Watchdog's efforts to enforce Proposition 103's mandates in court to protect California insurance policyholders against discriminatory practices and premium overcharges. Pam has authored appellate briefs and presented oral argument in cases successfully upholding the insurance initiative and other California consumer protection laws, resulting in numerous precedential published opinions, including The Foundation for Taxpayer and Consumer Rights v. Garamendi.

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