Three insurance trade groups filed a lawsuit seeking declaratory and injunctive relief to stop enforcement of what they consider to be unfair California Department of Insurance (CDI) auto rating regulations which the insurers say will harm millions of California policyholders. 

The lawsuit was filed by Kent Keller, managing partner with Barger & Wolen LLP, on behalf of the Association of California Insurance Companies (ACIC), the American Insurance Association (AIA) and the Personal Insurance Federation of California (PIFC). The three trades represent more than 90 percent of insured drivers in California. The new regulations require insurers to place more weight on how safely policyholders drive than on where they live when setting rates.

The lawsuit is asking the Sacramento Superior Court to declare the regulations illegal and to grant a preliminary injunction because the regulations force 60 percent of California drivers to pay more for auto insurance so other motorists can pay less.

"CDI's regulations will significantly reduce where a car is garaged as a rating factor in developing auto insurance rates," said Sam Sorich, president, ACIC. "As a result, insurers will be forced to charge unfair rates, compelling a majority of drivers - particularly in rural areas - to subsidize premiums paid by other Californians."

"Under these regulations, the state will be picking 'winners' and 'losers' and forcing insurers to charge arbitrary rates," said Rex Frazier, president, PIFC. "The California Court of Appeal ruled in 2000 in a case known as Spanish Speaking vs. Low that the auto rating regulations used today are legal and comply with the requirements set forth in Proposition 103. These new regulations violate Proposition 103 because they would require insurers to charge rates that do not reflect the actual risk of loss."

"It is a shame that Insurance Commissioner John Garamendi ignored the concerns of millions of Californians. Decades of data prove that insurance costs differ among areas in California," said Ken Gibson, AIA vice president, western region. "Besides being actuarially sound, it is just common sense that a driver traveling 50 miles a day through congested downtown Los Angeles faces a far greater risk of having an accident than another motorist traveling the same distance on rural roads."

Garamendi defends his efforts

"The Office of Administrative Law (OAL) has approved my regulations requiring insurers to place more weight on how safely you drive than on where you live when setting rates. This was the hope of voters who passed the landmark Proposition 103 in 1988 to end zip code discrimination. I commend the OAL and Governor Schwarzenegger for moving the approval process along expeditiously.

"...[This] action finally realizes the promise Californians sought when they voted for Proposition 103. Until now, insurers have been able to set rates based primarily on zip codes or other optional factors, rather than on the three mandatory factors of Proposition 103: driving record, annual miles driven and driving experience. No more.

"I strongly encourage all insurers to follow the example of the Auto Club of Southern California in working with the Department to implement the regulations immediately, and in a manner that benefits their policyholders."