Opinion ID: 2604151
Heading Depth: 1
Heading Rank: 2

Heading: Regulation of Private Automobile Liability Insurance

Text: Automobile liability insurance in California is provided primarily by a private, competitive, largely unregulated market. California has less regulation of insurance than any other state, and in California automobile liability insurance is less regulated than most other forms of insurance. The principal regulatory law, the McBride-Grunsky Regulatory Act of 1947 (Ins. Code, § 1850 et seq.) enacts the minimal regulation required to exempt California insurance from federal antitrust law. It governs all forms of insurance including automobile liability insurance. The principal provision, section 1852, provides that Rates shall not be excessive or inadequate, as herein defined, nor shall they be unfairly discriminatory. [¶] No rate shall be held to be excessive unless (1) such rate is unreasonably high for the insurance provided and (2) a reasonable degree of competition does not exist in the area with respect to the classification to which such rate is applicable. No provision defines unfairly discriminatory rates. Subdivision (d) permits insurers to classify risks in accord with the probable effect on losses, utilizing individual experience, location or dispersion of hazard, or any other reasonable considerations. A person objecting to a rate or classification can complain to the insurer. (Ins. Code, § 1858.) If dissatisfied with the insurer's action, he can request a hearing before the Commissioner. ( Ibid. ) If the Commissioner believes the complaint states probable cause to find a violation of section 1852, he may hold hearings (§§ 1858.1, 1858.2), render findings (§ 1858.3), and impose sanctions (§ 1858.4). [12] His decisions are subject to judicial review. (Ins. Code, § 1858.6.) Insurers do not file rates with the Commissioner, nor do rates require his approval. He is forbidden to set or fix rates. (Ins. Code, § 1850.) Rates come to his attention only when, sua sponte or in response to a complaint, the Commissioner requests such information from the insurer. The Commissioner asserts no authority over refusals to insure, and complaints charging that an insurer has unreasonably refused to insure are routinely rejected as raising an issue beyond the Commissioner's jurisdiction. The declarations on file in this action make it clear that South Central Los Angeles is not a competitive market. Consequently the Commissioner has authority to determine whether rates charged for that area are unfairly discriminatory or unreasonably high. (Ins. Code, § 1852.) Efforts to obtain such a determination, however, have failed. The Commissioner appears to assume that so long as a rate is actuarially sound it cannot be unfairly discriminatory or unreasonably high. [13] The Commissioner's assumption that an actuarially sound rate is necessarily a fair and reasonable rate is open to challenge. One can argue that it is unfairly discriminatory to use classifications which result in charging good drivers in some areas much more than bad drivers in others parts of the state; it could be considered unreasonable to price liability insurance at levels many cannot afford. Rates which took affordability into account, and weighted driving record more than residence, would go far to alleviate the problem caused by the financial responsibility laws. [14] The Commissioner's practices, however, make it difficult for drivers to challenge this assumption. The Commissioner has issued no regulations, and published no decisions, stating explicitly how he or she determines whether a rate is reasonable and nondiscriminatory. [15] Plaintiffs allege that complaints are routinely dismissed without hearing. And the fate of the City of Los Angeles's suit shows that when hearings are held, the result may be a decision unsuitable for judicial review. [16] Apart from proceedings through the Insurance Commission, the California statutes provide a judicial remedy against discriminatory insurance practices. The Rosenthal-Robbins Auto Insurance Nondiscrimination Law (Ins. Code, § 11628 et seq.) prohibits a refusal to issue insurance on the same conditions as in other comparable cases for reasons of race, language, color, religion, national origin, ancestry, or location within a geographic area. This last phrase is defined, however, as a portion of this state of not less than 20 square miles defined by description in their rating manual of an insurer.... Differentiation in rates between geographical areas shall not constitute unfair discrimination. Thus the law has been interpreted to authorize territorial rate differentials, so long as rates are uniform within 20-square-mile blocks (See County of Los Angeles v. Farmers Ins. Exchange, supra, 132 Cal. App.3d 77, 84-85.) The result of the 20-square-mile provision is that insurers can draw lines which have the practical effect of discriminating between applicants on the basis of race. In sum, the deficiencies in California legislation and administrative regulation are apparent. The present case, however, is not a very suitable one for examining these deficiencies. Plaintiffs have not sought relief from the Commissioner, and thus may encounter questions of exhaustion of remedies. Even apart from those questions, the absence of the Commissioner as a party litigant may deny the court precise information concerning the Commissioner's policies and practices, and leave the court uncertain as to the reasons which he or she might advance in defense of those policies and practices. Finally, plaintiffs' failure to include insurance companies as defendants limits judicial inquiry into whether insurers are charging unfair or discriminatory rates in violation of Insurance Code section 1852, or following practices which violate section 11628.