Consumer groups that successfully challenge insurance rate increases can recoup their legal fees from the insurers, even when the companies drop their requests or agree to a compromise, a state appeals court has ruled.
The decision by the Second District Court of Appeal in Los Angeles last week focused on the fine points of a 1988 voter initiative – whether its reimbursement provisions covered only formal rate hearings before the state insurance commissioner or applied to all rate proceedings.
But the author of the ballot measure said the ruling was an important victory for consumer advocates and would encourage them to hire experts who could take on insurance company witnesses.
"The insurance industry was attempting to escape accountability when they ask for permission to raise rates," Harvey Rosenfield, founder of an organization called Consumer Watchdog, said Monday. "If they can prevent consumer groups from scrutinizing rates, they’re more able to overcharge."
Mitchell Tilner, lawyer for the Association of California Insurance Companies and other industry groups, declined comment on the ruling. His clients could appeal to the state Supreme Court.
Rosenfield’s Proposition 103 authorized an elected insurance commissioner to regulate rates for auto insurance and other property and casualty coverage. Once an insurer applied for a rate increase, Prop. 103 allowed consumer advocates to take part in the proceedings and seek compensation if they made a "substantial contribution" to the outcome.
Wednesday’s ruling addressed what Rosenfield’s group described as the common practice of insurers asking the commissioner for rate increases but reducing or withdrawing their proposals when faced with opposition.
A judge ruled in 2005 that consumer groups were not entitled to reimbursement for legal costs in those cases, because the commissioner never ruled on the rates. Then-Commissioner John Garamendi adopted regulations in 2006 that covered all proceedings after the rate application, saying the rules would encourage both sides to settle their disputes. His successor, Steve Poizner, defended the new rules in court after taking office in 2007.
The insurance industry challenged the regulations, saying Prop. 103 applied only to public rate proceedings and not to private negotiations and settlements. A Los Angeles judge disagreed and ordered industry groups to pay $122,000 to Consumer Watchdog for its legal costs in the case.
Upholding that ruling, the appeals court said Prop. 103 regulates all phases of insurance rate consideration, from the application onward, and was intended to encourage public participation throughout the proceedings.
E-mail Bob Egelko at [email protected].