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Judge strikes down zip code-based auto insurance rates

June 24, 1998
Consumers Union, 415/431-6747,
Mark Savage, Public Advocates, 415/431-7430
Marc Slavin, Office of the City Attorney, City of San Francisco, 415/554-6397
Mike Qualls, Office of the City Attorney, City of Los Angeles, 213/485-6493

Cities of Los Angeles, Oakland and San Francisco, Civil Rights and Consumer Groups Win In Precedent-Setting Lawsuit Against Quackenbush

OAKLAND, CA — In a major ruling for millions of California drivers today, a Superior Court judge struck down a policy that allowed companies to base auto insurance rates primarily on a driver’s ZIP Code, gender and other factors. In violation of Proposition 103, Insurance Commissioner Chuck Quackenbush had created the policy, which allowed insurers to base auto insurance rates primarily upon where consumers live rather than on their driving record, annual mileage and years of experience.
Judge Henry E. Needham, Jr. ruled in favor of the plaintiffs in two separate cases, one filed by the cities of Los Angeles, Oakland and San Francisco along with Consumers Union, the Spanish Speaking Citizens’ Foundation, and the Southern Christian Leadership Conference, and the other by the Proposition 103 Enforcement Project.
“Contrary to the requirements of Insurance Code [under Prop. 103],” Judge Needham wrote in his ruling, Quackenbush’s regulation “permits insurers to use individual optional factors that have a greater impact in the determination of rates and premiums than one or more of the three mandatory factors (i.e. the insured’s driving safety record, the number of miles he or she drives annually, and the number of years of driving experience the insured has had.)”
“The court agreed with what we’ve said all along: that Proposition 103 requires insurers to stop basing your auto insurance rates primarily upon where you live,” said Mark Savage, an attorney with Public Advocates, Inc., a public interest law firm representing the non-municipal plaintiffs in the case of Spanish Speaking Citizens’ Foundation v. Quackenbush. “We urge Commissioner Quackenbush to immediately put an end to this unfair practice. We need the Commissioner’s leadership, not further appeal and delay.”
Proposition 103, the auto insurance initiative passed by voters in 1988, requires three mandatory factors — driving record, number of miles driven, and years of driving experience — to be given the greatest weight in determining one’s auto insurance rates. In a press release last June, Quackenbush stated that his regulations would ensure that “rates be based primarily upon an individual’s driving record; not where they live.” However, he issued regulations that allow insurers to emphasize other optional factors, rather than requiring them to make the three mandatory factors most important.
The plaintiffs in the cases demonstrated that the insurers were using several optional rating factors that had a greater impact on rates than the mandatory factors. Judge Needham ruled that this violated Proposition 103. Quackenbush’s regulations had allowed insurers to take an average of all the optional factors, rather than setting forth individual numerical weights for each optional factor. By using this averaging method, insurers are able to give a high weight to factors like ZIP Code and gender while combining them with other factors with extremely low weights. Thus, when averaged, the weight for all optional factors could be less than any of the three mandatory factors.
Basing rates primarily on ZIP Code, rather than driving record, has serious consequences for many drivers. A young male driver would pay $1,706 for insurance from one major insurance company in San Luis Obispo. The same driver, with the identical driving record and other characteristics would pay $7,844 for insurance in South Central Los Angeles. The only difference in these two rates is ZIP Code. In Oakland, a premium in the city’s Fruitvale district would be $4,417, while in the wealthier Montclair district, the same driver would pay $3,398.
“The judge’s ruling means that insurance companies will finally have to obey Proposition 103,” said Earl Lui, staff attorney with Consumers Union. “California consumers have waited a long time for fairer auto insurance rates.”
“This is a resounding victory for California’s drivers, especially low-income drivers,” said Jose Arrendondo, executive director of the Spanish Speaking Citizens’ Foundation. “The law requires drivers to have auto insurance to drive themselves to work or their children to the doctor or school. Now, Commissioner Quackenbush and insurers will have to use fair auto premiums based on driving record factors, not redlining factors such as one’s ZIP Code.”
“Insurance rates should be based on a person’s driving record, not where they live,” said Los Angeles City Attorney Jim Hahn. “That’s what the voters wanted when they enacted Proposition 103, and today the court ordered Commissioner Quackenbush to end the subterfuge that has allowed insurance companies to camouflage their redlining practices. Today, we have finally won a long-awaited victory for everyone with a good driving record who has to pay for auto insurance in California.”
“I am pleased with the ruling,” said San Francisco City Attorney Louise Renne. “The insurance companies set rates that are discriminatory. I’m gratified that, since the Commissioner and the industry have not complied with the law, the Court ordered them to do so.”
The other case challenging the Commissioners’ regulation was filed by the Proposition 103 Enforcement Project, the grass roots group whose leaders sponsored Proposition 103. The Los Angeles-based Center for Law in the Public Interest, represented the Proposition 103 Enforcement Project.