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November 2010

Mackay v. Superior Court (21st Century Ins. Co.) ? No Civil Action To Challenge An Approved Rate

Administrative Process With Judicial Review Is The Exclusive Means Of Challenging An Approved Insurance Rate

(October 6, 2010) _____Cal.App.4th ____; 10 C.D.O.S. 12914

The California Court of Appeal for the Second Appellate District issued a decision holding that after an insurance rate has been approved by the Department of Insurance (DOI) an insured may not pursue a civil action to challenge what it believes to be an illegal rate, because its exclusive means of challenging an approve rate are through the administrative process set forth in Insurance Code section 1861.05, and judicial review thereof.

Plaintiffs filed a class action lawsuit against Defendant 21st Century Insurance Company (21st Century) alleging that 21st Century used two illegal rate factors, "Persistency" and "Accident Verification," both of which allegedly considered the "absence of prior automobile insurance" in determining insurance rates in violation of Insurance Code section 1861.02. 

After the trial court granted class certification, it granted 21st Century's motion for summary adjudication as to the use of the "Persistency" rate factor, holding that the challenges to an approved rate plan could only be made via the administrative procedures set forth in the Insurance Code, and not through a separate civil action.  However, the trial court denied 21st Century's motion for summary adjudication as to the use of the "Accident Verification" rate factor, finding a triable issue of fact existed as to whether the factor had been approved by the DOI.  Plaintiffs filed a petition for writ of mandate as to the first ruling, and 21st Century filed a writ petition as to the second ruling. 

The Appellate Court first found that there was no triable issue of fact as to whether the DOI approved 21st Century's use of the "Accident Verification" factor.  21st Century submitted to the DOI the use of the "Accident Verification" as a factor affecting the rates to be charged by 21st Century.  In a 2006 enforcement action filed by the DOI against 21st Century, the commissioner of the DOI signed a consent order stipulating that the DOI approved the "Accident Verification" rating factor. 

The Appellate Court then reviewed and harmonized conflicting Insurance Code sections 1860.1 and 1861.03, before holding that a rate which has been previously approved by the DOI may only be challenged by means of the administrative procedure (with judicial review) set forth in the Insurance Code.  Insurance Code section 1860.1, exempts insurance ratemaking from all California laws outside the chapter of the Insurance Code on insurance ratemaking.  Insurance Code section 1861.03 contradicts section 1860.1, by making all of the laws of California applicable to any other business applicable to "[t]he business of insurance."   

The Appellate Court stated the well settled law that "a specific provision relating to a particular subject will govern in respect to that subject, as against a general provision, although the latter, standing alone would be broad enough to include the subject to which the more particular provision related."  The Appellate Court found that Insurance Code section 1861.03 was a broad statute that subjects the entirety of the business of insurance to the laws governing business generally, while Insurance Code section 1860.1 specifically exempts from other laws acts done and actions taken pursuant to the ratemaking chapter, including the charging of a preapproved rate. 
Plaintiffs argued that the original express purpose of Insurance Code section 1860.1, which was enacted as part of the McBride-Grunsky Act of 1947, was to immunize insurers from anti-trust laws and therefore it should not be applied to a case involving the acts of a single defendant acting alone. However, the Appellate Court noted that Proposition 103, adopted by voters on November 8, 1988, repealed the great bulk of the McBride-Grunsky Act, including the provision setting forth the purpose of that Act.  As a result, the Appellate Court found that it was inappropriate to limit Section 1860.1 by relying upon the now-superseded purpose for which it was initially enacted. 

Finally, the Appellate Court noted that its decision was supported by the case of Walker v. Allstate Indemnity Co. (2000) 77 Cal.App.4th 750, which also concluded that Insurance Code section 1860.1 precludes a challenge to an approved rate brought under laws outside the Insurance Code.  However, the Appellate Court noted that its holding, and Insurance Code section 1860.1, did not apply to insurer conduct that is not taken pursuant to the authority conferred by the ratemaking chapter.  As a result, the Appellate Court distinguished a number of cases which determined that Insurance Code section 1860.1 did not bar a Plaintiffs challenge of an insurance rate that was not approved by the DOI. 

Accordingly, the Court denied Plaintiff writ of mandate, and granted 21st Century's writ of mandate and ordered the trial court to vacate is order denying 21st Century's motion for summary adjudication and enter a new order granting the motion.  

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This opinion is not final.  Though it has been certified for publication, it may be modified on rehearing, or granted review by the Supreme Court of the State of California.  Should any of these events occur, the opinion would be unavailable for use as authority in other cases.

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Aaron P. Rudin