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

By Samuel Sorich and Larry Golub

On May 8, 2013, the California Supreme Court convened to hear oral argument in Zhang v. Superior Court. The case presents the issue of whether conduct of an insurer, which is related to conduct that would violate California’s Unfair Insurance Practices Act, Insurance Code, §790.03(h) et seq. (UIPA), can be the basis for a private civil cause of action against the insurer under California’s Unfair Competition Law, Business & Professions Code, §17200 et seq. (UCL).

The Court of Appeal in Zhang had ruled in October 2009 that an insurer may be sued by a private citizen for conduct prohibited by the UCL even though the conduct is within the scope of the UIPA. The Supreme Court accepted review of the matter in February 2010.

At the oral argument session, counsel for the insurer relied on the California Supreme Court’s 1988 ruling in Moradi-Shalal v. Fireman’s Fund Insurance Companies, which held that violations of the UIPA may be prosecuted only by administrative action taken by the Insurance Commissioner, not by civil action by private citizens. Counsel argued that the holding in Moradi-Shalal bars a UCL action against an insurer when the action is based on insurer conduct that is governed by the UIPA.

Counsel for the plaintiff insured responded that Moradi-Shalal does not preclude the insured’s UCL action against the insurer, pointing to language in the Moradi-Shalal decision which noted that “the courts retain jurisdiction to impose civil damages or other remedies against insurers in appropriate common law actions, based on such traditional theories as fraud, infliction of emotional distress, and (as to the insured) either breach of contract or breach of the implied covenant of good faith and fair dealing.”

We have monitored the Zhang case and other appellate court decisions on the interplay between the UIPA and the UCL in prior blogs. Please see here, here, here and here.

The Supreme Court is required to issue a written opinion in the Zhang case within 90 days of the date of the oral argument, or by August 6, 2013.

The Supreme Court focused on the UCL this week. On May 7, 2013, the Court heard oral argument in Rose v. Bank of America which presents an issue analogous to the issue in Zhang. The question in Rose is whether a cause of action under the UCL can be predicated on an alleged violation of the Truth in Savings Act (12 U.S.C. $4301 et seq.) despite Congress’s repeal of the private right of action initially provided for under that Act.

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In Howell v. Hamilton Meats & Provisions, Inc., the California Supreme Court ruled that where a plaintiff’s medical care provider, pursuant to a prior agreement with the plaintiff’s health care provider, accepted less than the billed amount as full payment, evidence of the full amount billed is not relevant on the issue of past medical expenses. The Howell ruling is discussed in this post.

In its Howell ruling, the Supreme Court expressly declined to decide whether evidence of the full amount billed is relevant or admissible on the issues of future medical expenses and noneconomic damages.

The California Court of Appeal (Second Appellate District) addressed those issues in its April 30, 2013, decision in Corenbaum v. Lampkin. Guided by the reasoning in Howell, the Court of Appeal made these three key holdings:

1. The full amount billed for past medical services is not relevant to the amount of future medical expenses and is inadmissible for that purpose.
2. Evidence of the full amount billed for past medical services cannot support an expert opinion on the reasonable value of future medical services.
3. Evidence of the full amount billed for past medical services is not admissible to determine the amount of noneconomic damages.

The Corenbaum decision is the latest appellate court case to apply the Howell ruling.

Last month, the Court of Appeal held in Luttrell v. Island Pacific Supermarkets Inc. that the Howell rule should be applied where the plaintiff’s health care was paid by Medicare. The court also explained how the Howell rule should be applied when the plaintiff’s recovery is reduced because of his failure to mitigate damages. The Luttrell case is discussed in this post.        

And, in March 2012, the Court of Appeal applied Howell’s holding to the analogous situation in which the insured employee’s medical expenses are paid through workers’ compensation. That decision, Sanchez v. Brooke, was the subject of this post.

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Numerous insurance-related bills have been introduced in the California Legislature this year. Legislative committees are now conducting hearings on the various measures. This year’s regular legislative session will end on September 13.

Here are summaries of a dozen noteworthy insurance-related bills.

AB 32 would increase the annual aggregate amount of qualified investments eligible for the Community Development Financial Institution tax credit from $10 million to $50 million. Insurers are able to obtain a credit against the insurance gross premium tax for qualifying investments. AB 32 is pending before the Assembly Revenue and Taxation Committee.

AB 231 would impose strict civil liability on a person who owns a firearm for each incidence of property damage, bodily injury, or death resulting from the use of his or her firearm; the owner would be able to avoid liability if he or she reports the firearm to local law enforcement as stolen prior to the damage, injury, or death. AB 231 is pending before the Assembly Appropriations Committee.

AB 584 would enact the NAIC Own Risk Solvency Assessment Model Law. AB 584 is pending before the Assembly Appropriations Committee.

AB 710 would require the governing board of the California Health Benefit Exchange to facilitate the purchase of qualified health plans through the Exchange by multi-employer plans. AB 710 is pending before the Assembly Health Committee.  

AB 724 would extend the provisional drivers licensing program to licensees who are 18 or 19 years old. AB 724 is pending before the Assembly Transportation Committee.

AB 862 would authorize an insurer to offer a separately rated, non-offset underinsured motorist policy for which the insurer’s maximum liability would be the insured’s underinsured motorist coverage limit without subtracting the amount paid to the insured by or for any person or organization that may be held legally liable for the injury. AB 862 is pending before the Assembly Insurance Committee.

AB 1236 would authorize a licensed contractor organized as a limited liability company to obtain limited liability insurance from an eligible surplus line insurer. AB 1236 is pending before the Assembly Insurance Committee.

AB 1309 would exclude specified professional athletes from California’s workers’ compensation laws. AB 1309 is pending before the Assembly Insurance Committee.

ABX 12 would require an insurer to offer, market and sell all of the insurer’s health benefit plans that are sold in the individual market to all individuals and dependents in each service area in which the insurer provides or arranges for the provision of health care services. The bill also would prohibit the use of preexisting condition exclusions in the individual insurance market. ABX 12 was passed by the Assembly and is waiting for a vote on the Senate floor.  

SB 146 would enact a provision stating that a copy of a prescription for workers’ compensation pharmaceutical services is not necessary unless a copy is required under a written contract between an employer, insurer, or third-party administrator and a pharmacy. SB 146 was passed by the Senate and is waiting for an assignment to an Assembly committee.

SB 251 would allow an insurer to offer to its policyholders the option of receiving notices, offers, renewals, and disclosures electronically. SB 251 is pending before the Senate Insurance Committee.

SB 626 would revise provisions relating to workers’ compensation independent medical reviews which were enacted as part of last year’s SB 863. SB 626 also would delete the provision that sets a limit on a chiropractor’s authority to serve as a treating physician. SB 626 is pending before the Senate Labor and Industrial Relations Committee.

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In Howell v. Hamilton Meats & Provisions, Inc. the California Supreme Court ruled that a plaintiff’s recovery of medical damages is limited to the amount paid by the plaintiff’s health insurer and accepted by the health care provider as full payment. The Supreme Court’s ruling was discussed by Larry Golub in Collateral Source Rule Inapplicable When Injured Person's Medical Expenses are Discounted by Health Insurer.

In its April 8, 2013, decision in Luttrell v. Island Pacific Supermarkets, Inc., the California Court of Appeal, First Appellate District held that the Howell rule applied to a case where the plaintiff’s health care was paid by Medicare.

The Court of Appeal’s decision also explains how the Howell rule should be applied when the plaintiff’s recovery is reduced because of his failure to mitigate damages.

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By Samuel Sorich and Larry Golub

On March 25, 2013, Los Angeles Superior Court Judge Gregory Alarcon issued a decision which found the California Department of Insurance’s regulation on estimating replacement costs for homeowners insurance to be invalid. The decision is Association of California Insurance Companies and Personal Insurance Federation of California v. Jones.

California Code of Regulation section 2695.183 was adopted by the insurance commissioner in 2010; the regulation went into effect on June 27, 2011. Section 2695.183 requires insurers to use a detailed method for estimating replacement costs for homeowners insurance. The regulation specifies that an insurer that communicates an estimate which does not comport with the regulation’s method makes a misleading statement in violation of Insurance Code section 790.03.

Two insurer trade associations, the Association of California Insurance Companies and Personal Insurance Federation of California, challenged the validity of section 2695.183. The associations petitioned the Los Angeles Superior Court for a judgment declaring section 2695.183 to be invalid because its adoption is beyond the insurance commissioner’s authority. Judge Alarcon granted the associations’ petition.

Insurance Code section 790.03 defines unfair and deceptive acts or practices in the business of insurance. Subdivision (b) of section 790.03 states that the definition of unfair or deceptive acts includes making a statement “which is known, or which by the exercise of reasonable care should be known, to be untrue, deceptive, or misleading.” The insurance commissioner relied on section 790.03(b) as authority to adopt section 2695.183, contending that the regulation simply interpreted section 790.03 by identifying one type of misleading statement.

Judge Alarcon rejected the commissioner’s reliance on section 790.03(b). The judge’s decision explains,

By characterizing all estimates of replacement costs as misleading (save the one provided by 10 CCR § 2695.183), Defendant, in exercising its authority under § 790.10, expands the meaning of something ‘known’ or which ‘should be known’ to be misleading beyond the parameters of § 790.03(b).”

Judge Alarcon’s decision notes that “[t]he limits of the authority granted by § 790.03 are underscored by Cal Ins Code § 790.06 which provides a special process which the commissioner can determine how acts not listed in § 790.03 can be defined as unfair or deceptive.”

The need to interpret the authority granted to the insurance commissioner by Insurance Code section 790.03 in light of Insurance Code section 790.06 was also central to the recent decision of California Administrative Law Judge Stephen J. Smith, who found that the Fair Claims Settlement Practices Regulations may not be used by the insurance commissioner to constitute unfair claims acts under section 790.03, which was discussed in this blog post.

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Two recent decisions by California Courts of Appeal reversed trial court rulings which denied surety company motions to vacate the forfeiture of bail bonds.

People v. International Fidelity Insurance Company was ordered published by the Court of Appeal for the Sixth Appellate District on January 24, 2013.

Saul Contreras was arrested on misdemeanor complaints of driving under the influence. International Fidelity posted bonds for his appearance in court. Contreras’s attorney, Michael Paez, appeared on Contreras’s behalf at arraignments and pretrial conferences. At the pretrial conferences, Paez advised the court that he had lost contact with Contreras and that he suspected Contreras was in Mexico.

The trial ordered the forfeiture of the bonds. International Fidelity filed motions to vacate the forfeiture of the bonds, arguing that Paez was authorized to appear on behalf of Contreras at the court proceedings. The Santa Clara County Counsel opposed the motions, arguing that Paez’s loss of contact with Contreras demonstrated the termination of Paez’s authority to represent Contreras at the proceedings. The trial court denied the motions to vacate the forfeiture of the bail bonds.

The Court of Appeal reversed the trial court’s denial of the motions. The court pointed to Penal Code section 977, which provides that an attorney may appear on behalf of a defendant in a misdemeanor driving under the influence case unless the court orders the defendant to be at a proceeding. In this case, there was no evidence that the court ordered Contreras to personally appear. The court rejected the argument that Paez’s lose of contact with Contreras removed his authority to represent Contreras; there was no evidence that Paez no longer had Contreras’s authorization to represent Contreras in court.

In the second case, the Court of Appeal for the Second Appellate District issued its decision in People v. Western Insurance Company on January 30, 2013.  

Chester Dizon was arrested on a felony complaint. Western Insurance Company posted a bond for Dizon’s appearance in court. After the posting of the bond, the trial court granted Dizon permission to travel to the Philippines and ordered Dizon to appear for trial on the day after his specified return date. Dizon failed to appear for trial. The trial court ordered forfeiture of the bail bond. Western filed a motion to vacate the forfeiture. Western contended that the trial court failed to advise Western of Dizon’s request to travel to the Philippines and argued that “there’s no way our company would have agreed” to it. The trial court denied Western’s motion to vacate the forfeiture of the bail bond.

The Court of Appeal reversed the trial court’s denial of the motion. The court concluded that Western’s liability under the bail bond agreement was discharged because the court order permitting Dizon to leave the United States materially increased Western’s risk.

The Court of Appeal’s opinion cites the United States Supreme Court’s 1869 decision in Reese v. United States. In the Reese case, the Supreme Court explained that:

there is an implied covenant on the part of the principal with his sureties, when he is admitted to bail, that he will not depart out of this territory without their assent. There is also an implied covenant on the part of the government, when the recognizance of bail is accepted, that it will not in any way interfere with this covenant between them, or impair its obligation, or take any proceedings with the principal which will increase the risks of the sureties, or affect their remedy against him.”

The Court of Appeal noted that over a century later the ruling in the Reese case continues to be valid.  

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On December 31, 2012, the California Department of Insurance received approval for the adoption of amendments to regulations which govern written estimates of auto repairs and non-original equipment manufacturer (non-OEM) replacement crash parts. The amendments will become effective on January 30, 2013. Insurers will be required to comply with the amendments in handling claims on and after March 30, 2013.

The amended version of subsections (f) and (g) of regulatory section 2695.8 is attached here.

The amendments to subsection (f) require an insurer’s written estimate of an auto repair to comply with standards described in regulations that are applicable to auto body repair shops. The subsection (f) amendments also specify requirements for adjustments that an insurer makes to a repair shop’s estimates.

The amendments to subsection (g) require an insurer that specifies the use of non-OEM replacement crash parts to provide a written disclosure that it warrants that those parts are at least equal to the original equipment manufacturer (OEM) parts in terms of kind, quality, safety, fit, and performance. The subsection (g) amendments also require an insurer that becomes aware that a non-OEM replacement crash part is not equal to the OEM part to immediately cease specifying the use of the part. In addition, the subsection (g) amendments require an insurer to pay costs related to the removal and replacement of non-OEM parts.

Insurers objected to the amendments at the public hearing on the amendments and in written submissions to the Department of Insurance.

Insurers argued that the department lacked the authority to impose auto body repair shop regulations on insurers. Insurer representatives also contended that the regulatory provision that an insurer must warrant a non-OEM part is inconsistent with a Business & Professions Code statute which explains that non-OEM parts warranties are provided by the manufacturer or distributor of the parts. Insurers pointed out that the amendments would be harmful to the public because the amendments’ restriction on the use of non-OEM parts will lessen competition in repair parts and will lead to higher repair costs.

Barger & Wolen will continue to track the developments of these new regulations.

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Within the last four months, two divisions of the California Court of Appeal’s Second Appellate District have taken different positions on the requirements for “disparage,” as that term is used in commercial liability insurance policies that provide coverage for “advertising injury.”

On June 21, 2012, Division One of the Second Appellate District decided Travelers Property Casualty Co. of America v. Charlotte Russe Holding, Inc. In that case, Travelers issued a commercial liability policy that promised to defend Charlotte Russe, a retailer, against any suit that sought damages for advertising injury claims. The policy provided that it covered claims alleging injury arising out of the publication of material that disparages a person’s goods, products or services.

Charlotte Russe had a contract to become the exclusive sales outlet for Versatile’s “People’s Liberation” brand of apparel. Displays in Charlotte Russe stores announced the sale of People’s Liberation jeans at 70% to 85% price markdowns. Versatile sued Charlotte Russe, alleging that the retailer’s pricing practices would result in significant and irreparable damage to the People’s Liberation brand. Charlotte Russe asked Travelers to defend the lawsuit. Travelers refused. The insurer maintained that coverage was not available because reduction of the price of a product is not a disparagement of the product.

The trial court granted Travelers’ motion for summary judgment, but Division One reversed the trial court’s ruling. (While initially unpublished, the appellate court’s decision was certified for publication on July 13, 2012.) The decision concluded that an allegation of disparagement may be implied. The Division One court held that the key issue is not whether Versatile expressly alleged that Charlotte Russe disparaged Versatile’s products, but instead whether Charlotte Russe’s statements and conduct could be understood to disparage Versatile’s products.

The Second Appellate District’s Division Three took an opposite view in its October 29, 2012, decision in Hartford Casualty Insurance Co. v. Swift Distribution, Inc.,which also involved a claim for coverage under a policy’s advertising injury coverage. The Division Three court ruled that the insurer in that case had no duty to defend because the lawsuit against the insured did not allege that the insured published an injurious falsehood directed at the plaintiff’s products. The court expressed disagreement “with the theory of disparagement apparently recognized in Charlotte Russe.” The court explained,

Charlotte Russe held that this reduced pricing was enough to constitute disparagement, which triggered the duty to defend. We fail to see how a reduction in price—even a steep reduction in price—constitutes disparagement.”

In September, the California Supreme Court denied review of the Charlotte Russe decision; the time to seek review in the Hartford Casualty has not yet run.

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September 30, 2012, was the deadline for Governor Jerry Brown to take action on bills passed by the California Legislature during the 2012 regular legislative session.

Here are summaries of noteworthy insurance-related bills that were signed into law. All of these new laws will go into effect on January 1, 2013.

Senate Bills

SB 863 increases workers’ compensation permanent disability benefits by an estimated $750 million per year, phased in over a two-year period. The new law changes several aspects of the workers’ compensation system. Among other things, SB 863 creates an independent medical review process for resolving medical care disputes, establishes an independent bill review process for resolving medical billing disagreements, adopts a statute of limitations for workers’ compensation liens, and restricts the reasons that can be used to avoid obtaining treatment within a medical provider network.

SB 1216 conforms California law to the revisions made to the NAIC Credit for Reinsurance Model Law (adopted in 2011). Among other things, SB 1216 establishes criteria that the insurance commissioner is to use in certifying reinsurers; reinsurance provided by certified reinsurers qualifies as an asset or credit against the liabilities of a ceding insurer.

SB 1234 and SB 923 create the California Secure Choice Retirement Savings Investment Board which is charged with conducting a market analysis to determine if the necessary conditions for implementation can be met and then report to the Legislature as to whether a statewide retirement savings plan for private employees, who do not participate in any other type of employer-sponsored retirement savings plan, should be created. The Board’s analysis would have to be paid for by funds made available through a non-profit or private entity, federal funding, or an annual Budget Act appropriation.

SB 1298 establishes conditions for the operation of autonomous vehicles on public roadways for testing purposes. The bill defines “autonomous vehicle” as a vehicle equipped with technology that has the capability to drive a vehicle without the active physical control or monitoring by a human operator.

SB 1448 conforms California law to the revision to the NAIC Insurance Holding Company System Regulatory Model Act (adopted in 2010). Among other things, SB 1448 requires the board of directors of an insurer, which is part of a holding company system, to file a statement affirming that the board is responsible for overseeing corporate governance and internal controls. In addition, SB 1448 authorizes the insurance commissioner to evaluate the enterprise risk related to an insurer that is part of a holding company.

SB 1449 permits the approval of life insurance and annuity products that include the waiver of premium during periods of disability and the waiver of surrender charges if the insured encounters specified medical conditions, disability, or unemployment.

SB 1513 expands the investment options available to the State Compensation Insurance Fund.

Assembly Bills

AB 53 requires each admitted insurer with written California premiums of $100 million or more to submit a report to the insurance commissioner on its minority, women, and disabled veteran-owned business procurement efforts. The first report is due July 1, 2013. An insurer is required to update its report biennially. AB 53 includes a January 1, 2019 sunset date.

AB 999 revises the standards used by the insurance commissioner to approve the rates for long-term care insurance. AB 999 prohibits an insurer from using asset investment yield changes to justify a rate increase for long-term care policies unless the insurer can demonstrate that its return on investments is lower than the maximum valuation interest rate for contract reserves for those policies; or the insurance commissioner determines that a change in interest rates is justified due to changes in laws or regulations that are retroactively applicable to long-term care insurance previously sold in California. AB 999 requires all of the experience on all similar long-term care policy forms issued by an insurer and its affiliates and retained within the affiliated group to be pooled together and used as the basis for determining whether a rate increase is reasonable.

AB 1631 removes the January 1, 2013, repeal date for the existing law which permits a person admitted to the bar of another state to represent a party in a California arbitration proceeding.

AB 1708 authorizes auto insurers to provide proof of insurance coverage in an electronic format that may be displayed on a mobile electronic device. Proof of insurance in this format is allowed to be presented to a peace officer.

AB 1747 requires every life insurance policy to include a provision for a grace period of not less than 60 days from the premium due date; the provision must state that the policy remains in force during the grace period. AB 1747 requires an insurer to provide an applicant for an individual life insurance policy an opportunity to designate at least one person, in addition to the applicant, to receive notice of lapse or termination of a policy for nonpayment of premium. AB 1747 provides that a notice of pending lapse or termination of a life insurance policy is not effective unless the notice is mailed by the insurer to the named policy owner, a designee for an individual life insurance policy, and a known assignee or other person having an interest in the individual life insurance policy, at least 30 days prior to the effective date of policy termination if termination is for nonpayment of premium.

AB 1875 limits the civil deposition of any person to one day of seven hours. The bill specifies exceptions to this limit.

AB 1888 allows a person who has a commercial driver’s license to attend a traffic violator school for a traffic offense while operating a passenger car, a light duty truck, or a motorcycle.  Attendance at the school prevents the offense from being counted as a point for determining whether the driver is presumed to be a negligent operator who is subject to license revocation. However, attendance at the school does not bar the disclosure of the offense to insurers for underwriting or rating purposes.

AB 2084 establishes new permitted types of blanket insurance policies and expands the list of eligible policyholders who can purchase blanket insurance.  

AB 2138 gives the insurance commissioner the authority to require every admitted disability insurer, and every other entity liable for any loss due to health insurance fraud, to pay an annual maximum fee of 20 cents for each insured under an individual or group insurance policy it issues in California. The fee is to be used to fund increased investigation and prosecution of fraudulent disability insurance claims. Under current law, the maximum fee is 10 cents. AB 2138 allows an insurer to recoup the fee through a surcharge on premiums or by including the fee in the insurer’s rates.

AB 2160 requires the California insurance commissioner to treat a domestic insurer’s investment in a company that has business operations in Iran as a non-admitted asset. We recently blogged on the passage of AB 2160 here.

AB 2219 removes the January 1, 2013, repeal date for the existing law which requires a contractor with a C-39 roofing classification to obtain and maintain workers’ compensation insurance even if he or she has no employees. AB 2219 also removes the January 1, 2013, repeal date for the existing law which requires an insurer that issues a workers’ compensation insurance policy to a roofing contractor, who holds a C-39 license, to perform an annual payroll audit for the contractor. AB 2219 adds the requirement that the insurer’s audit must include an in-person visit to the place of business of the roofing contractor to verify whether the number of employees reported by the contractor is accurate.     

AB 2298 prohibits an insurer that issues or renews a private passenger auto insurance policy to a peace officer or a firefighter from increasing the premium for the policy because the peace officer or firefighter was involved in an accident while operating his or her private passenger auto in the performance of his or her duty at the request or direction of his or her employer. AB 2298 provides that in the event of a loss or injury that occurs as a result of an accident during any time period when the private passenger auto is operated by the peace officer or firefighter and is used by him or her at the request or direction of the employer in the performance of the employee’s duty, the auto’s owner shall have no liability.

AB 2301 modifies the definition of “covered claims” in the Insurance Code article relating to the California Insurance Guarantee Association (CIGA) to make clear that a covered claim is one which is presented to the liquidator in the state of domicile of the insolvent insurer or to CIGA.  

AB 2303 is the Department of Insurance’s omnibus bill which addresses a variety of matters, including applications for non-resident surplus lines broker licenses, pre-licensing requirements for bail agents, the creation of a limited lines license for crop insurance adjusters, and changes to the conservation and liquidation process. AB 2303 abolishes the advisory committee on automobile insurance fraud within the Fraud Division of the Department of Insurance. AB 2303 also repeals the provision that excludes policies that have been effect less than 60 days from the statute which governs the cancellation of private passenger auto insurance policies.

AB 2354 revises the licensing requirements for travel insurance agents.

AB 2406 requires the Department of Insurance to publish on the Department’s website all requests by a person or group representing the interests of consumers for compensation relating to intervention in a proceeding on an insurer rate filing or participation in other proceedings. Findings on such requests also must be published on the website.

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On September 25, 2012, the Assembly Insurance Committee and Senate Insurance Committee held a two-hour joint informational hearing on Proposition 33 which will be on the November 2012 California ballot. The hearing was for information purposes only and therefore the committee took no action or vote on the proposition.

Proposition 33

Proposition 33 (click HERE for text) 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 last blogged on Proposition 33 in July and August 2012.

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. Proposition 33 would override this existing prohibition.

Proposition 33 would add a new section to the Insurance Code which would expressly allow an insurer to use continuous coverage as an optional rating factor for private passenger automobile insurance policies. The section defines “continuous coverage” to mean:

uninterrupted automobile insurance coverage with any admitted insurer or insurers, including coverage provided pursuant to the California Assigned Risk Plan or the California Low-Cost Automobile Insurance Program.”

The proposition states that continuous coverage is deemed to exist if a lapse of coverage is due to an insured’s military service, if there is a lapse of up to 18 months due to loss of employment, or if there is a lapse of coverage for not more than 90 days for any reason.

Proposition 33 would grant children residing with a parent a continuous coverage discount based on the parent’s eligibility for a continuous coverage discount. Finally, Proposition 33 would grant a proportional discount to a driver who is unable to demonstrate continuous coverage; the discount would reflect the number of years in the preceding five years for which the driver was insured. 

Testimony at the Hearing  

Testimony at the committees’ joint hearing was presented by three panels. That testimony was followed by comments from the public.

Legislative Analyst’s Office

Representatives of the Legislative Analyst’s Office stated that Proposition 33 would not have a significant effect on state revenue. According to the Office, the reduction in insurance premium taxes paid by drivers who get the proposition’s discount would be offset by the increased insurance premium taxes paid by drivers who do not qualify for the discount.

Proponents of Proposition 33

Representatives of the American Agents Alliance argued that Proposition 33 would reward drivers who obey the law that requires drivers to obtain insurance coverage. The proposition will allow more drivers to qualify for discounts.

Proposition 17, which also related to continuous coverage, was rejected by California voters in 2010. The Alliance representatives pointed out that Proposition 33 is entirely new. USAA and the Greenlining Institute opposed Proposition 17, but both organizations are supporting Proposition 33. 

The Alliance representatives testified that Proposition 33 is better for consumers than the current law. Under current law, a driver loses his or her discount whenever there is a lapse of coverage. In contrast, Proposition 33 would preserve the continuous coverage discount when the lapse results from military service, unemployment, or for any reason when the lapse is not more than 90 days.

Opponents of Proposition 33 contend that in states that allow continuous coverage to be used as a rating factor, drivers who do not maintain continuous coverage pay significantly higher insurance premiums. The Alliance representatives countered that California’s highly regulated system for automobile insurance is unique and thus comparisons with other states are invalid and misleading.

A representative of Pinnacle Actuaries testified that the major benefit of Proposition 33 is that it will encourage competition. Under the proposition, more insurance companies will be able to offer discounts. This will benefit consumers who shop for insurance.

The Pinnacle representative disagreed with the proposition’s opponents who argue that Proposition 33 will result in huge surcharges for many drivers. The actuary pointed to the experience during 1995-2002 when continuous coverage was authorized as a rating factor in California. During that time, there were no big surcharges.

Opponents of Proposition 33

Consumer Watchdog’s fundamental objection to Proposition 33 is that the proposition conflicts with the statutory provision enacted by Proposition 103, which states,

the absence of prior insurance coverage in and of itself, shall not be a criterion for determining eligibility for a Good Driver Discount policy, or generally for automobile rates, premiums, or insurability.”

Consumer Watchdog contends that proof of prior insurance is required for Proposition 33’s continuous coverage and drivers who lack prior insurance will be charged higher rates. According to Consumer Watchdog, this use of prior insurance to determine rates is barred by Proposition 103.

The Consumer Watchdog representative argued that there is no statistical evidence that the maintenance of continuous insurance coverage is related to a lower risk of loss. The representative testified that the rating factor authorized by the current Department of Insurance regulation is really a loyalty discount which is based on lower administrative costs rather than on a lower risk of loss.

A representative of Public Advocates described the organization as an association of civil rights groups. The representative stated that the Proposition 103 provision highlighted by Consumer Watchdog was aimed at insurer redlining practices. According to Public Advocates, Proposition 103 would encourage insurers to redline low income communities and communities of color.

A representative of the Consumer Federation of California characterized the supporters’ argument that Proposition 33 rewards those who obey the law as inaccurate because many law-abiding consumers will not qualify for the proposition’s discount. He pointed to drivers who let their insurance coverage lapse because of extended disabilities or use of mass transit.

The Federation representative argued that Proposition 33 would allow insurers to use continuous coverage as a rating factor without having to establish that continuous coverage has a substantial relationship to the risk of loss.

Public Comment

A representative of four veteran groups expressed support for Proposition 33.

A representative of USAA explained that USAA opposed Proposition 17 but the company supports Proposition 33 because military personnel would be better off under the proposition than they are today.

A representative of the Greenling Institute said that the organization opposed Proposition 17 but it supports Proposition 33. The Greenling Institute was established to oppose redlining practices. The Institute disagrees with those who contend that Proposition 33 would hurt low income communities and communities of color. The Institute representative accused the opponents of Proposition 33 of engaging in selective use of statistics to reach misleading conclusions.   

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