Auto insurers can heavily weigh where a person lives in setting their insurance rates, a state appellate court said Friday in a decision that could mean differences of hundreds of dollars in yearly premiums.
The ruling by the California Court of Appeal in San Francisco overturned an earlier Superior Court decision and upheld regulations by the state Department of Insurance under former commissioner Chuck Quackenbush.
The court’s ruling was praised by the insurance industry and blasted by consumer advocates. But it is not likely to change insurance rates until litigation is completed and possible new administrative action is taken by the new commissioner, Harry Low.
The ruling came in a long-running struggle between the insurance industry and consumer groups over how to interpret Proposition 103, a voter initiative passed more than a decade ago.
The court upheld regulations mandating that while driving record, years of experience and average driving miles should be the primary factors that determine premiums, insurers can combine 10 other factors such as where the driver lives, driver-safety education, marital status, gender and number of years insured.
Those 10 optional factors together can count for more than any one of the three primary factors in determining premiums.
Consumer groups cried foul over the Quackenbush interpretation, saying it violated the spirit of Proposition 103, the 1988 initiative that overhauled auto insurance regulation in California and cut rates by about 20 percent.
Part of the initiative said insurers could not discriminate against drivers based on their ZIP codes. Drivers in urban areas were paying much higher rates than those in other parts of the state, despite having equally good driving records.
Using ZIP codes as a factor, drivers in Los Angeles, San Francisco and even Sacramento can pay hundreds of dollars more for car insurance than drivers in other areas.
Quackenbush and the insurance industry said that ZIP codes must be factored into the rates because losses were typically higher in some neighborhoods than in others.
The consumer groups, joined by the cities of Los Angeles, San Francisco and Oakland, sued insurance companies and the Department of Insurance, and in 1998 an Alameda County Superior Court judge ruled for the consumer groups.
But the appellate court Friday overturned that 1998 decision, saying Quackenbush‘s regulations struck a proper balance between Proposition 103‘s competing demands: lower insurance rates for good drivers and rates that fairly reflect insurers’ costs. Quackenbush‘s system offers price relief to more good drivers than any other system would, the justices said.
Jamie Court, executive director of the Foundation for Taxpayer and Consumer Rights, which opposed the Quackenbush rules, said an appeal to the state Supreme Court is likely.
“The appeals court thumbed its nose at the will of the voters and adopted industry reasoning that good drivers who live in bad ZIP codes should pay more,” Court said.
He said he hopes the Supreme Court will overturn the appellate court findings, or that Insurance Commissioner Low will adopt regulations eliminating the ZIP code from factors that determine premiums.
Low became commissioner in September, replacing Quackenbush, who resigned last summer after being accused of using at least $6 million from insurer settlements on television ads and other spending to benefit himself politically.
Representatives of the state Insurance Department could not be reached for comment late Friday.
A lawyer for Farmers Insurance Exchange praised the decision.
“This is not a victory for insurance companies. It’s a victory for everyone, for all policyholders and businesses,” said attorney Steven Weinstein.
“It establishes a precedent that rates will be based on the risk of loss that a policyholder presents to the insurance company. … It’s not fair for someone who lives in a suburban area, such as Woodland, to subsidize rates for people who live in downtown Sacramento.”