California Insurers Lose Bid to Block Payments to Advocates

A California appeals court upheld changes to state insurance regulations that clarified that insurers must pay the cost of challenges to rates deemed excessive. The appellate panel rejected a challenge from the Association of California Insurance Companies and others.

The decision in Association of California Insurance Companies vs. Steve Poizner and the Foundation for Taxpayer and Consumer Rights rejected "an attempt by the insurance industry to cripple the right of the public, under Proposition 103, to scrutinize and challenge unjustified rate increases," according to a statement from Consumer Watchdog, as the foundation is currently known. The ruling from the second appellate district upheld regulatory changes adopted in 2006 and 2007 that expanded the criteria for when insurance companies must reimburse the cost of rate challenges.

"As insurance companies fail to provide any authority that the statute is intended to shift liability for compensation from insurers to the department, their assertion is without merit," the judges wrote.

ACIC President Samuel Sorich expressed disappointment in the appellate decision, which upheld a lower-court ruling, and said ACIC has not yet made a decision on whether to appeal to the state Supreme Court.

Under 1988's Proposition 103, insurers were required to reimburse the expenses of a consumer group, individual or other entity that made a substantial contribution to a rate filing decision; the threshold for reimbursement was typically when there was a proceeding. The regulatory change developed under former Insurance Commissioner John Garamendi and implemented under Poizner, his successor, redefined a proceeding as any kind of pre-hearing activity, Sorich said.

ACIC has not argued that a consumer group is not entitled to fees when there is a proceeding. However, it is hard to determine what a "substantial contribution" means under the expanded definition when there's no hearing, Sorich said. While reimbursement decisions are still made by the insurance commissioner, "The door is open ... to potential abuses," he said.

Hoping to discourage consumers from challenging rate applications, insurance companies argued that they were not required to pay the legal costs if they withdrew or settled challenges to rate applications before a formal hearing on their application was called, Pam Pressley, Consumer Watchdog’s litigation director, said in a statement. The revised regulation stemmed from a 2005 court case that said a consumer group was not entitled to reimbursement because there was no hearing, Sorich said.