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California Court Ends Insurance Industry Lawsuit Challenging New State “Good Driver” Regulations

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Court Upholds New Regulations Barring Auto Rates Based Mostly on ZIP Code

SACRAMENTO, CA – A Sacramento Superior Court judge today ruled for consumers and the Insurance Commissioner in a lawsuit filed by the insurance industry challenging new state regulations benefiting good drivers. The new regulations, adopted by the Commissioner last year, require insurers to begin basing auto insurance premiums primarily on policyholders’ driving records rather than their ZIP code, marital status, or other factors.

“Today’s ruling confirms what we have known all along,” said Mark Savage, Senior Attorney for Consumers Union. “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.”

Since August 2006, when insurance companies were first required to file new plans to implement the new regulation, many insurers have filed plans resulting in significant savings for California drivers. According to the Department of Insurance, auto insurers have filed rate plans that cut premiums by $1.01 billion since the implementation of the regulation began.

In today’s ruling, Judge Loren E. McMaster granted a motion for summary judgment filed by Consumers Union and a coalition of consumer and civil rights organizations and California cities, which intervened in the lead case, American Insurance Association et al v. John Garamendi. An identical motion for summary judgment was filed by former Insurance Commissioner Garamendi.

In his ruling, Judge McMaster noted that the new state auto insurance regulations adopted last summer by Garamendi were not “arbitrary or capricious” as the insurance industry had maintained. Instead, he found that they were consistent with and reasonably necessary to implement Proposition 103, passed by California voters in 1988. Proposition 103 required insurers to base their auto rates primarily on three mandatory factors: a policyholder’s driving safety record, annual miles driven, and years of driving experience. Under Proposition 103, other factors such as ZIP code must be given less weight by insurers when determining auto rates.

In his ruling, Judge McMaster noted that the “…administrative record before [the] court at this time contains substantial evidence that basing rates on ZIP codes is arbitrary and does not reflect the cost of providing insurance.”

Consumers Union and the coalition that intervened in the lawsuit petitioned Insurance Commissioner John Garamendi in 2003 to make the rule change in keeping with Proposition 103. Over the course of Commissioner Garamendi’s three years of public hearings, Consumers Union presented numerous reports documenting that ZIP-code based rates hurt good drivers throughout the state and that these rates are not cost-based.

Consumers Union also found that insurers are charging good drivers in some small rural communities far more than good drivers living in some suburban and urban communities. In December 2005, Consumers Union issued a report that showed insurers charge good drivers living in California’s predominantly African American and Latino ZIP codes substantially more for automobile insurance than good drivers in predominantly white communities.

After conducting three years of field hearings on the issue, Garamendi concluded that insurers’ premiums based primarily on ZIP codes were unfair and arbitrary and he adopted the new regulations. But insurance industry trade associations soon filed suit to try to block them.

The original petition in support of the new regulations was filed by Consumers Union, The Foundation for Taxpayer and Consumer Rights, the National Council of La Raza, the Southern Christian Leadership Conference of Greater Los Angeles, Spanish Speaking Citizens' Foundation, Public Advocates, and City Attorney John Russo for Oakland, City Attorney Dennis Herrera for San Francisco, and City Attorney Rocky Delgadillo for Los Angeles. Other community leaders throughout the state, such as the MAAC Project in San Diego, the California NAACP, and Fresno Metro Ministry in Fresno, also championed the new regulations over the three years of hearings.

For more information on this issue, including research by Consumers Union showing how ZIP code-based rates hurt good drivers throughout the state, see: .