Appeals Court docket Denies California Residence Insurance Refund Order – Claims Journal
SACRAMENTO, Calif. (AP) – Consumer advocates said Tuesday they will petition the California Supreme Court to overturn an appeals court ruling that they said undermines the state's ability to order reimbursements from insurance companies in the billions.
A San Diego-based appeals court on Friday dismissed a 2016 California insurance commissioner finding that State Farm's California subsidiary overcharged its homeowner insurance rates.
Dave Jones, who was insurance commissioner at the time, ordered the company to reimburse its California policyholders for more than $ 100 million, a decision that was overturned by the appeals court.
In a broader sense, Consumer Watchdog founder Harvey Rosenfield said the decision also jeopardizes current Insurance Commissioner Ricardo Lara's order that insurance companies reimburse up to $ 3.5 billion. Orders at home last year.
Rosenfield said the ruling undermines the 1988 ballot he drafted that created California's elected Insurance Commissioner and enabled the commissioner to reject proposed rate increases and order refunds.
Assistant Insurance Commissioner Michael Soller had a narrower interpretation that the decision was specific to State Farm and an attempt by the state to prevent the company from "manipulating its corporate investment policies to increase insurance premiums for California consumers" – a demand that the court also rejected.
The panel of three judges of the 4th District Court of Appeal decided, after interpreting the powers imposed by Proposition 103, “that the retroactive rate and the refund were inadmissible”.
The initiative "should guarantee fair and reasonable tariffs" and the insurance commissioner has "a great deal of discretion in adopting rules to manage the initiative," the judges stated.
But that allows for a pre-approval system where companies apply for rate changes that are reviewed by the insurance commissioner before they go into effect – "not the kind of perpetual enforcement that the commissioner seems to claim," the court noted earlier in dismissing the method used by Jones claimed the company overcharged its policyholders.
"The Californians passed Proposition 103 to protect themselves against arbitrary tariffs and discriminatory practices by asking insurance companies to keep tariffs and premiums fair," Rosenfield said. The Court of Appeal's decision "has deprived the Insurance Commissioner of the powers that voters gave him to protect Californians from inflated tariffs."
He said the state Supreme Court had twice upheld the commissioner's authority to order refunds, despite the lower court saying the judges deal with related issues and "not generally at the commissioner's discretion."
State Farm said it was pleased with the court's rulings on both the retrospective refund and the rejection of the way Jones determined how much he thought the company owed.
State Farm established a California subsidiary for its non-automotive insurance lines in 1998, citing "the unusual risks that California's disasters face." At the time of Jones' appointment, the subsidiary was insuring about 20% of California homeowners.
In 2014, the company applied for a 6.4% rate increase for its home and tenant insurance.
Two years later, Jones ordered the refund instead, based in part on his calculation of how much State Farm had made by investing consumer insurance payments nationwide.
The appeals court said it could only consider the subsidiary's earnings, a decision Rosenfield argued opened the door to accounting tricks that underestimate the subsidiary's true profitability.
However, the court said opponents of its interpretation had "failed to determine that limiting interest rate manipulation was a purpose of Proposition 103". Specifically, she rejected the argument that based on her judgment, in the future, interstate insurers can be expected to cook the books.
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