California Court Delivers Verdict on Insurance Industry Lawsuit

Anthony Fontanelle
February 19, 2007

For good, a California court has upheld the new regulations which will prohibit insurance companies from basing their rates on ZIP codes. Judge Loren E. McMaster of the Sacramento Superior Court has decided in favor of consumers in the courts’ decision on the lawsuit which was filed by the insurance industry. This case is one which disputes the adoption of a new insurance regulation which will benefit good drivers no matter what their ZIP code is. The court ruled that insurance companies should base insurance premiums on the driving records and not primarily on their ZIP code, marital status or other factors.

Mark Savage, Senior Attorney for Consumers Union, stated that the “ruling confirms what we have known all along”. Savage added further that “California’s new auto insurance regulations are fair and will benefit good drivers throughout the state. Good drivers will get a break on their premiums and will be protected from discrimination based on their ZIP code”.

The regulation, since it was implemented in August of last year has been of great help to car owners. Since the regulation requires insurance companies to file new regulation with regard to their rates, California drivers have saved significantly. The Department of Insurance has stated that with the new regulation, insurance premiums were cut down by as much as $1.01 billion since the start of the implementation of the said regulation. This saving can be likened to the cutback enjoyed by a driver if he opts for an EBC pad for the brake system of his car.

The verdict of Judge McMaster lay to rest the lawsuit filed by the insurance industry. In his decision, he cited that the regulation adopted by Insurance Commissioner John Garamendi is not “arbitrary or capricious”. This is contrary to what the American Insurance Association has sustained. As a matter of fact, Judge McMaster found out that the regulation is consistent with the Proposition 103 which was passed by California voters in 1988. Proposition 103 stated that insurance companies are required to base their premium rates on three factors. These factors are: the policyholder’s driving safety record, annual miles driven, and years of driving experience. The said proposition also stated that other factors such as ZIP code of the driver must be given less weight in the determination of auto rates.

Consumers Union, which took the lead in the intervention in the trial, is also the same institution which urged then Insurance Commissioner John Garamendi to make a regulation that will be necessary in the implementation of Proposition 103. The institution has gone through the three years of public hearings presented report after report which show that basing auto rates on ZIP codes is not helping and even hurts good divers.

In one of their reports, the Consumers Union presented facts that insurance companies charge drivers from small communities significantly more than what they charge for good drivers living in selected suburban and urban communities. Another discrimination found out by the Union is that insurers charge more from drivers who live in areas which are predominantly African American or Latino communities.

After the three years of public hearings and the amount of reports shown by the Consumers Union, Garamendi arrived at the conclusion that using ZIP codes as the main factor which determines auto rates were unfair and arbitrary. With these conclusions, the Insurance Commission adopted the regulation which forbids insurance companies from basing their premium rates on the ZIP codes of drivers. This move on the part of the agency is not a welcome issue for insurance companies hence they filed the lawsuit to try to make the regulation void.

Source: Amazines.com