Prepared Remarks of Harvey Rosenfield
– Lawsuit Against Auto Club for Violation of Proposition 103 –
Santa Monica, California
October 25, 2012
Good morning, and thank you for coming. Joining us today is Ms. Jill Rogers, the plaintiff in the lawsuit we are here to discuss; Tim Blood, of the firm of Blood, Hurst and O’Reardon, a law firm that specializes in consumer protection litigation; and Laura Antonini, staff attorney for Consumer Watchdog, a non-profit, non-partisan organization. I am the founder of Consumer Watchdog and now its outside counsel, and author of Proposition 103, the insurance reform law approved by California voters in 1988, a provision of which is the subject of the lawsuit we are announcing today.
Today’s lawsuit, a class action against the Auto Club of Southern California, targets a form of discrimination that was once a common practice by insurance companies in California.
After the California Legislature first required motorists to buy auto insurance, in 1984, motorists who tried to comply with the law and buy insurance for the first time were faced with an outrageous “Catch-22”: if you went to an insurance company and said you weren’t previously insured, they would either refuse to insure you or they would levy a surcharge on you that could be hundreds or thousands of dollars. For many motorists, the result was the same: they were unable to buy the auto insurance that they were required by law to purchase. Just because they didn’t have insurance in the past.
It was a form of insurance redlining that had nothing to do with a motorist’s driving record, or even whether the person had never bought insurance in the past because they didn’t own a car, were a new driver, or had lived in a city with excellent mass transit and hadn’t needed a car. It particularly harmed people with limited incomes and minorities.
This abusive and unjust behavior by insurance companies put many more uninsured motorists on the road, which of course led to higher costs for everyone else.
The Insurance Commissioner at the time issued a bulletin to insurance companies urging them not to consider a person’s prior insurance, saying: “There are many reasons why an applicant may not have had prior insurance, many of which have no bearing on the applicant's future loss potential.” But back then – 1985 – the Commissioner had no power to stop the companies from doing it.
Citizen, low-income and minority rights organizations from Los Angeles sued to invalidate the mandatory insurance law specifically because of this and other discriminatory practices, and took the case all the way to the California Supreme Court, but the court said the issue was up to the legislature to address.
So the voters went to the ballot box and, as part of the sweeping insurance reform known as Proposition 103, barred auto insurance companies from considering whether an applicant had prior insurance.
Which brings me to the lawsuit we have filed against the Auto Club today. As the complaint explains, the Auto Club has put into place a commission system for its agents that penalizes them if they sell a policy to a consumer who does not have prior insurance. The penalty can be enormous: an agent can make $100 to $500 for selling a policy to someone who has previously been covered. But if the applicant did not have prior insurance, the agent can make as little as $20.
The company’s agents were not told that this discrimination violated the law. Not surprisingly, the agents – anxious to perform well and maximize their commissions – have figured out ways to avoid selling to people without prior insurance. As the plaintiff, Ms. Rogers, a former agent for the company, alleges in the complaint, when someone inquires about buying a policy, the first question agents ask after obtaining the person’s name and address is “are you insured?” If the consumer answers “no,” agents would hang up on them. Or quote them a completely fabricated, outrageously high price, hoping that the consumer would give up and go elsewhere. Or make them wait for unusually long periods of time to get a quote.
Today’s lawsuit, brought by Ms. Rogers on behalf of herself and other agents, asks the Auto Club to stop engaging in this practice, and to refund to agents the commissions they would have earned if they had not been penalized.
I think all of us here are keenly disappointed by the Auto Club’s conduct for two reasons.
First of all, the Auto Club is a membership association that has no stockholders. It’s supposed to represent the interests of its customers. It was one of the first companies to pay the rate rollbacks mandated by Proposition 103 back in 1988, and it was the first major company to comply with Proposition 103’s requirement that rates be based primarily on your driving safety record rather than zip code. Discriminating against people just because they don’t have prior insurance puts more uninsured motorists on the road and ends up costing the rest of its policyholders more. That’s not what the Auto Club is supposed to stand for.
Second, the Auto Club is well aware that this discrimination is illegal. In 2002, Consumer Watchdog learned that the Auto Club was imposing a surcharge directly on motorists who did not have prior insurance. We took them to court and they finally, in 2008, agreed to refund $22.5 million to approximately 120,000 policyholders. Now, by instituting a scheme that penalizes its employees and discourages them from selling auto insurance to people just because they didn’t previously have it, the Auto Club is trying to do indirectly what it knows it is forbidden by law from doing directly.
Before we go to questions and answers from the news media, I want to answer a question I got yesterday when talking to several reporters about this news conference. I was asked whether there was any connection between this lawsuit and Proposition 33 – the initiative on the November ballot, sponsored by Mercury Insurance Company’s chairman, that would allow insurance companies to consider prior insurance when setting premiums. Consumer Watchdog’s sister non-profit organization, Consumer Watchdog Campaign, is opposing 33.
Because we are asking the court for both injunctive relief and financial compensation to agents who lost money because of the Auto Club’s practice, this lawsuit will continue whether or not the voters reject Prop 33. Unlike the supporters of Proposition 33, who sued other consumer advocates and myself last August, we do not invoke the limited resources of the judicial branch to make a political point or try to undermine our opponents.
That said, it’s important to note what the complaint alleges: the Auto Club imposes the penalties on agents because the company doesn’t want to insure drivers who didn’t have insurance. Period. The insurance industry people behind Prop 33 have tried to frame their proposition in terms of savings for consumers or competition in the marketplace, but as the Auto Club’s scheme shows, legalizing the insurance industry’s ability to consider prior insurance has nothing to do with saving consumers money. It’s just a way to allow insurance companies to redline and discriminate against people they don’t want to sell insurance to.
Finally, I want to commend Ms. Rogers for coming forward to remedy the Auto Club’s practices. Being a plaintiff in a lawsuit requires courage and perseverance; we became aware of the Auto Club’s practice more than a year ago, but under the current process a person who has been victimized must step forward before we can ask the judicial branch to address illegal conduct like this.