Insurance Litigation Law Blog | Regulatory Law | Bad Faith | California | Lawyer | Attorney | Barger & Wolen

On January 18, 2012, California Secretary of State Debra Bowen announced that an initiative on automobile insurance rates has qualified for the November 6, 2012 ballot.

The initiative, named the “2012 Automobile Insurance Discount Act,” would allow insurers to use continuous automobile insurance coverage with any admitted insurer or insurers as a rating factor for private passenger automobile insurance. We previously reported on this topic last summer, when the initiative was being circulated for signatures.

Under an existing California Department of Insurance regulation, an insurer may use continuous coverage as a rating factor when an individual is currently insured for automobile insurance with the insurer.

The existing regulation prohibits an insurer from basing the continuous coverage rating factor on coverage provided by another non-affiliated insurer. The initiative would override this existing prohibition.

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We recently blogged here about the California Supreme Court’s decision in Howell v. Hamilton Meats.

In a long-awaited, and nearly unanimous decision, the California Supreme Court has held that an injured plaintiff whose medical expenses are paid through private health insurance may recover as economic damages no more than the amounts paid by the plaintiff’s insurer for those medical services, and that this discounted amount does not fall within the collateral source rule.

Dan Walters in a recent Sacramento Bee post, 'Tort war' could hit the California Capitol is wondering if the trial attorneys will take this loss lying down:

The issue in the case (Howell v. Hamilton Meats) was whether the injured party could collect the full medical bills imposed by doctors, hospitals and other medical care providers, or would be limited to the amounts actually paid by insurers, which are often pennies on the dollar.

The case, stemming from a 2005 collision in San Diego County, involved $200,000 in medical bills that were whittled down to $60,000 before payment.

The trial judge decreed that only the smaller amount need be paid, while an appellate court said it should be the full amount, and several other pending cases had conflicting appellate court decisions, so the issue was kicked upstairs to the Supreme Court.

Its widely watched ruling hit personal injury lawyers in their wallets but elated insurers, who had said an adverse outcome would have cost them, and their policyholders, another $3 billion a year. (emphasis added)

The legislature has just returned to Sacramento, and, according to Mr. Walters, the “Consumer Attorneys of California, the lobbying arm of personal injury lawyers, has made no secret that it wants legislation to counteract the Supreme Court decree.”

We’ll keep you posted if and when legislation is introduced.

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By Sam Sorich and Larry Golub

On January 4, 2012, the California Secretary of State announced that signatures may be collected for a proposed initiative which would bring prior approval of rates for health insurance to California, and also amend the existing regulation of automobile and homeowners insurance.

Jamie Court, the President of Consumer Watchdog, is the proponent of the measure, termed the Insurance Rate Public Justification and Accountability Act. There were actually two virtually identical versions of the initiative submitted to (and allowed to proceed to collect signatures by) the Secretary of State, file numbers 11-0070 and 11-0072, but it is expected that Consumer Watchdog will pursue signature gathering for only the second version of the initiative.  (In fact, its website only links to the second version of the initiative.)

In order to qualify for the November 6, 2012 ballot, backers of an initiative must file 504,760 valid signatures in support of the measure. The deadline for submitting signatures for the initiative is June 4, 2012.

Among other things, the initiative would give the California Insurance Commissioner the power to approve health insurance rates proposed after November 6, 2012. The rate approval statutes enacted by Proposition 103 in 1988 for most property and casualty insurance would be made applicable to health insurance. A health insurer’s rate application would have to be accompanied by a sworn statement by insurer’s chief executive officer declaring that the contents of the application are accurate and comply in all respects with California law.

The initiative would require a health insurance company to pay refunds with interest if the insurance commissioner determines that the company’s rates are excessive; this requirement would apply to rates in effect on November 6, 2012 and rates in effect after that date.

Large group health insurance policies would be excluded from the scope of the initiative unless any one of four specified conditions exists; two of the conditions relate to the level of the proposed rate increase.

For health insurance, as well as automobile and homeowners insurance, the initiative would prohibit insurers from using the absence of prior insurance coverage or a person’s credit history as a rating factor or a criterion for determining insurance eligibility.

The initiative specifies that it may be amended only (1) by the Legislature if the legislation furthers the initiative’s purposes and is passed by a two-thirds vote in both the Assembly and the Senate or (2) by another voter ballot initiative.

In its summary of the fiscal effects of the initiative if approved by the voters, the Legislative Analyst’s Office estimates that the measure would increase “state administrative costs in the low tens of millions of dollars annually to regulate health insurance rates, funded with revenues collected from filing fees paid by health insurance companies.”

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By Sam Sorich and Larry Golub

In a unanimous opinion handed down on December 29, 2011, the California Supreme Court ruled in Harris v. Superior Court that the Court of Appeal used an erroneous analysis when it decided that claims adjusters are not exempt from California’s overtime pay requirement. 

The California Labor Code sets forth a general requirement that employees are entitled to overtime pay for work in excess of eight hours in one workday or 40 hours in one week. However, the Code exempts administrative employees from the overtime pay requirement.

Claims adjusters employed by Liberty Mutual Insurance Company and Golden Eagle Insurance Corporation sued the companies for damages based on the failure to pay them for overtime work. The companies argued that the adjusters were administrative employees and thus were not entitled to overtime pay.

The California Court of Appeal rejected the insurance companies’ argument, primarily relying on a prior Court of Appeal decision in Bell v. Farmers Insurance Exchange, 87 Cal. App. 4th 805 (2001). The companies asked the California Supreme Court to review the Court of Appeal’s decision.

The Supreme Court’s ruling concluded that the Court of Appeal used an incorrect analysis when it rejected the argument that the adjusters were administrative employees. According to the Supreme Court, the Court of Appeal relied too heavily on the administrative/production worker dichotomy used in the Bell decision and failed to consider more recent regulations issued by the California Industrial Welfare Commission and applicable federal regulations which are supposed to guide California in applying the administrative employee exemption to the general overtime requirement.

In reversing the Court of Appeal’s decision, the Supreme Court remanded  the case back to the Court of Appeal with directions that it apply the legal standards that are set forth in the Supreme Court’s ruling.

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By Robert W. Hogeboom, Samuel Sorich and Steven Weinstein

On November 10, 2011, the California Department of Insurance (“CDI” or “Department”) conducted a workshop to consider potential changes to regulations that govern prior approval of property/casualty insurance rates and class plan applications. The list of topics discussed at the workshop is included in the CDI Notice of Workshop Regarding the Scope of Prior Approval dated September 21, 2011.

The workshop grew out of the 2010 MacKay v. Superior Court case in which the court held, among other things, that Insurance Code Section 1860.1 exempts approved rates from civil actions and that such rates are subject only to a limited prospective challenge by administrative procedure (under Insurance Code Section 1858 et seq.). 

Barger & Wolen was counsel for the prevailing insurer, 21st Century Insurance Company, in MacKay, and our two blogs on the MacKay case can be accessed here and here.

MacKay involved 21st Century’s use of the accident verification factor which plaintiffs asserted was not an approved rating factor, but only an unapproved underwriting guideline.

The court concluded that the “language submitted to the Department for approval” is what is relevant as to whether a guideline is “submitted to the Department as a factor affecting the rates to be charged.” 

Here, though accident verification was contained as an underwriting guideline, the insurer explained the use of accident verification in an exhibit to its rate application as affecting the rates to be charged and had been approved by the Department. 

Based on MacKay, the use of underwriting guidelines was a prominent issue in the workshop.

Heading the workshop from the CDI were General Counsel Adam Cole, Joel Laucher, Chief Deputy of Rate Regulation, and Bryant Henley, Senior Counsel for the Rate Enforcement Bureau. 

While there was an exchange of views among insurer representatives, representatives of consumer groups and the CDI staff, no decisions were made at the workshop.

Mr. Cole announced that interested parties have until December 1, 2011, to submit written comments on the workshop topics.

At that point, the CDI presumably will review the workshop record and determine whether to propose any new regulations relating to the workshop topics.

Following is a summary of the key issues discussed at the workshop:

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Barger & Wolen's Insurance Litigation & Regulatory Law and Life, Health, Disability Insurance Law blogs have been named to LexisNexis' Insurance Law Community's Top Insurance Blogs 2011.

According to LexisNexis,

These top blogs offer some of the best writing out there. They contain a wealth of information for all segments of the insurance industry, and include timely news items, expert analysis, practice tips, frequent postings and helpful links to other sites and sources.

These sites demonstrate the power of the blogosphere, by providing a collective example of how bloggers can—and do—impact and influence the law and the business of insurance.

We are honored to be included among so many well-written and well-regarded blogs.

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Our philosophy for our blogs is to provide an open platform for our partners and associates to write. Whether commenting on a recent news item, informing our readers about a new piece of legislation, or providing case summaries and case reviews, each of our blogs maintains a distinct focus:

• Insurance Litigation & Regulatory Law – Larry Golub, Editor
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For all of their hard work, we would like to congratulate and thank the editors of our blogs, as well as all our attorney contributors.

All of our blogs are available for complimentary subscription via e-mail or RSS feed. Please visit each blog individually to subscribe.

In addition to our insurance law focused blogs, please visit the firm's Litigation Management & Attorney Fee Analysis Blog.

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On November 2nd, the Group Solvency Issues Working Group (“GSIWG”) met at the National Association of Insurance Commissioners' (NAIC) Fall National Meeting to discuss the latest exposure draft of the NAIC Own Risk and Solvency Assessment (“ORSA”) Guidance Manual (the “Manual”), and regulators’ controversial plan to implement the ORSA requirement by incorporating it into the Form B Insurance Holding Company System Annual Registration Statement (“Form B”) that each insurer is required to file annually with its domiciliary regulator. 

Once implemented, ORSA would require each non-exempt insurer (or insurance group on behalf of a subsidiary insurer) to

assess the adequacy of its risk management and current, and likely future, solvency position, internally document the process and results, and provide a high level summary report annually to the domiciliary regulator, if requested.” See Manual, Exposure Draft, dated October 14, 2011. 

An insurer would be exempt from the ORSA requirement if:

1. it has less than $500 million in annual direct written premium and
2. it is not a member of a group of affiliated insurers that has $1 billion or more in annual direct written premium.   

One of the primary objectives of ORSA is to provide state regulators with a means of assessing on a group wide – instead of merely on a legal entity – basis the enterprise risk management framework and capital adequacy of an insurance group. 

In effect, regulators are seeking various tools (ORSA among them) that will assist them in preventing another AIG-type scenario where risks generated by non-insurers in the group potentially pose an existential threat to the insurer legal entity.

At the meeting, the GSIWG accepted proposed revisions to the Manual that were generally non-substantive in nature and then voted to adopt the Manual (as revised) for the Financial Condition (E) Committee to implement as part of the U.S. Solvency Framework. 

However, the GSIWG’s proposal to utilize the Form B requirement as the legal vehicle for imposing the ORSA requirement was met with firm opposition by the industry.

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Barger & Wolen is proud to announce that the firm has received a first-tier ranking in the 2011-2012 U.S. News – Best Lawyers “Best Law Firms” survey for our regional Los Angeles insurance law practice. The firm is also recognized for our national insurance law practice as well.

In addition, partners Kent R. Keller and Royal F. Oakes are listed for their work in Insurance Law.

“Barger & Wolen continues to be honored by our inclusion in US News & World Report and Best Lawyers’ ranking for the second year in a row,” said Steven H. Weinstein, chairman for Barger & Wolen. “Receiving this national recognition for the work our firm is doing validates for us that we truly are providing the quality legal services our clients’ demand, while maintaining the competitive price structure the insurance industry seeks.”

About the Survey

U.S. News & World Report uses data compiled by Best Lawyers to produce their Best Law Firms rankings. Best Lawyers combines hard data with peer reviews, and client assessments to produce their annual reports.

Rankings of 75 national practice areas are included in U.S. News & World Report’s Money issue, available November 15, with the full results available online today here.

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The California Department of Insurance issued a notice on October 24, 2011, which advises that most of the amendments to regulatory section 2632.13 apply to accidents that occur prior to the amendments’ December 11, 2011, effective date. 

However, provisions in the amendments relating to the threshold for principally at-fault determinations and to presumptions about principally at-fault accidents do not apply to accidents that occur prior to December 11, 2011.

Background

The question of whether a driver was principally at-fault for an accident has significant implications for the driver. A principally at-fault accident affects the driving record that is used to determine the driver’s auto insurance premium and also affects the driver’s eligibility for the statutory good driver discount.

Regulatory section 2632.13 sets forth the requirements that a private passenger auto insurer must follow when the insurer determines whether a driver was principally at-fault for an accident. The section was first adopted in 1994.

Two years ago, the Department of Insurance started the process of amending section 2632.13. The process resulted in amendments to section 2632.13 which were adopted on March 16, 2011. The amendments will go into effect on December 11, 2011. 

The amendments address a number of issues including insurers’ reliance on loss underwriting exchange data, notices that insurers must send to drivers, the injury or property damage accident threshold that must be met in order for a driver to be considered principally at-fault for the accident and certain presumptions that insurers must follow when they make principally at-fault determinations.

October 24, 2011, Notice

The amended version of subsection (b) of section 2632.13 changes the accident threshold that must be met in order for an insurer to determine that a driver was principally at-fault for an accident. The amended version of subsection (c) of section 2632.13 changes the presumptions that an insurer must follow when the insurer makes a principally at-fault determination.

The question of whether the amended threshold and presumptions in subsections (b) and (c) apply to accidents that occur prior to the amendments’ December 11, 2011, effective date needed resolution.  

The department’s October 24 notice advises that the amended version of subsections (b) and (c) do not apply to accidents that occur prior to December 11, 2011, because the subsections change the legal consequences of past behavior and there is no evidence that those two subsections are intended to be applied retroactively.  

The October 24 notice concludes that the remaining amendments to section 2632.13 are procedural and do apply to accidents that occur prior to the amendments’ December 11, 2011, effective date.

The department’s October 24 notice advises that the amended version of subsections (b) and (c) do not apply to accidents that occur prior to December 11, 2011, because the subsections change the legal consequences of past behavior and there is no evidence that those two subsections are intended to be applied retroactively.

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