Court Upholds Right of Consumers to Sue Insurers for Overcharges Under Proposition 103

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Second District Court of Appeal confirms the right of consumers to challenge insurers’ illegal conduct in court

Santa Monica, CA — Consumers can sue insurance companies in court for overcharges and other violations of insurance reform Proposition 103, a California appeals court ruled yesterday.

The Second District Court of Appeal upheld the right of consumers to challenge insurers’ illegal conduct in court, rejecting insurers’ arguments that only the Insurance Commissioner can remedy such abuses. Consumer groups hailed the decision as vindicating an important enforcement tool of the initiative that has come under concerted attack by insurers recently. Click here to read the court decision.

“This is a vindication of the public’s right to hold insurance companies accountable in the courts for overcharges and other misconduct,” said Harvey Rosenfield, author of Proposition 103 and counsel for the Foundation for Taxpayer and Consumer Rights, which filed a friend of the court brief in Donabedian v. Mercury (click here to read the brief) and in a similar case against State Farm (click here to read the brief) soon to be argued in the same appellate court.

“It is clear that the insurance industry’s number one goal in California is to evade legal liability when they break the law, whether by overcharging consumers, failing to offer policies to motorists, improperly canceling or refusing to renew policies, or engaging in other abusive practices. Yesterday’s court decision makes it clear that insurers must obey the law like everybody else and marks yet another rejection of insurers’ repeated attempts to gut Proposition 103‘s reforms,” said Rosenfield.

In simplest terms, the court has affirmed what voters approved at the ballot box 15 years ago — that “any person has the right to go to court to enforce any provision of Proposition 103.”

FTCR has sued three other insurers — Safeco, Auto Club and GEICO — for violating the same provision of Proposition 103 that Mercury was charged with violating. It forbids insurers from surcharging motorists simply because they were not previously insured or had a lapse in coverage. The lawsuits seek redress on behalf of policyholders forced to pay hefty surcharges and an injunction to stop the practices.

In the closely-watched case, Mercury argued that only the Insurance Commissioner, and not the courts, can hear consumers’ complaints. It relied on provisions of the 1947 insurance law that Proposition 103 replaced. Mercury also argued that the Insurance Commissioner had approved its misconduct, and that it was therefore immunized regardless of whether it broke the law.

Superior Court judge Carolyn Kuhl agreed with Mercury, dismissing the case. On appeal to the Second District Court of Appeal, State Farm joined in Mercury‘s effort.

In their fifty-page brief, attorneys for FTCR defended Proposition 103‘s right to go to court. Insurance Commissioner John Garamendi also filed a friend-of-the-court brief urging the court to confirm the private right of action, explaining that the Department of Insurance “simply lacks sufficient resources to pursue every allegation.” The Court concluded that consumers have the right to enforce Proposition 103 through the state’s Unfair Competition Law (UCL).

Attorneys for The Foundation for Taxpayer and Consumer Rights included Rosenfield, Pamela Pressley, Richard Marcantonio of Public Advocates and former Missouri Insurance Commissioner Jay Angoff.

Mercury Also Rebuffed in Effort to Repeal Anti-Surcharge Law

Fearing this loss in the courts, Mercury went to Sacramento two years ago and after massive campaign donations, obtained Gray Davis‘s signature on a bill to effectively repeal 103’s ban on illegal surcharges. FTCR and other groups, joined by Insurance Commissioner Garamendi, challenged the law as an illegal amendment to Prop 103; and a superior court judge invalidated the law in January, 2004. Meanwhile, newspaper reports have uncovered the fact that the author of the Mercury legislation, Senator Don Perata, may have enriched himself by laundering donations from Mercury Insurance through political committees to his own consulting firm.

Insurers Seek to Gut Consumers’ Legal Remedies

The insurance industry’s unsuccessful effort to evade Proposition 103 is only one aspect of their campaign to evade liability in the courts for their illegal actions.

Insurers and other business groups are backing a bill, AB 2369 (Correa) aimed at gutting key provisions of the unfair competition law that consumer groups were allowed to use in the wake of yesterday’s ruling. AB 2369 would immunize insurers’ and other businesses’ conduct from civil liability if a regulatory agency designates any action it takes as the “final and exclusive” enforcement remedy for the company’s violation of law.

“Insurers and big business would rather place their fate in the hands of regulators who they believe are more likely than the courts to let them off with a slap on the wrist,” stated Pamela Pressley, Litigation Program Director of the Foundation for Taxpayer and Consumer Rights. “California allows any consumer to go to court to enforce consumer protection laws. With yesterday’s ruling the court has upheld that right and lawmakers must rebuff insurers’ proposal and stand up for the public as well.”

Insurers are also backing a proposed November ballot initiative to gut the same consumer protection laws.

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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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