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Major Victory in California Insurance Redlining Lawsuit

Monday, April 26, 2003
Mark Savage – 415-431-6747
Jenny Huang – 415-431-7430

Insurers Fought Disclosure By Claiming Data That Could Expose Discrimination Was A Trade Secret

SAN FRANCISCO, CA — The California Supreme Court decided unanimously today that the state must disclose to the public the data it has collected from insurance companies to determine whether insurers are engaged in redlining by discriminating against consumers based on their race, income, or the ZIP code where they live. In State Farm v. Garamendi (Case # S102251), the Court rejected the insurance industry’s attempt to block disclosure of the redlining data and decided that it must be made public, as Proposition 103 requires.
“This is a major civil rights and consumer victory that affirms the public’s right to know,” said Mark Savage, Senior Attorney with Consumers Union’s West Coast Regional Office. “Public disclosure of this data is critical to ending insurance redlining in communities whose economic livelihood has been undermined by such discrimination.”
In its decision today, the California Supreme Court ruled that the state Insurance Commissioner did not exceed his statutory authority in promulgating, under California’s Proposition 103, a regulation requiring public disclosure of insurers’ redlining data by ZIP code. The Court noted that regardless of whether the filings contain trade secrets, the Commissioner’s regulation and Proposition 103 make those filings available for public inspection.
In 1999, State Farm sued former Insurance commissioner Chuck Quackenbush, claiming that its redlining data was a trade secret. Consumers Union and the Southern Christian Leadership Conference of Greater Los Angeles, represented by Public Advocates, intervened in the case because they sought the data in order to track potential redlining abuses by insurers. The San Francsico Superior Court ruled for the groups, finding that the public had a right to review the redlining data under Proposition 103. In a unanimous decision, the First District Court of Appeal affirmed the ruling.
Shortly after State Farm began losing its case in the San Francisco Superior Court, another group of insurers filed a similar suit against the Insurance Commissioner in Fresno. The consumer and civil rights coalition intervened in that case as well and won a favorable ruling from the Fresno Superior Court, which denied the insurers’ request for a preliminary injunction to keep the redlining data secret while they litigated their full case. Those insurers appealed and the Fifth District Court of Appeal ruled that the trial court should have considered more of the insurers’ argument. In the meantime, the State Supreme Court agreed to review the issue.
Since 1994, state regulations have required insurers to file certain basic data to verify whether an insurer is heeding or violating prohibitions against redlining. Under current law, the Department must issue an annual report summarizing the data filed for the previous calendar year. The reports summarize each insurer’s record in all underserved zip codes combined, which makes it difficult to pinpoint where individual companies may be engaged in redlining.
“Public disclosure laws can be a great deterrent to discriminatory practices,” said Jenny Huang, Staff Attorney with Public Advocates. “Home mortgage lenders are required to publish similar data regarding their lending practices, which has proven to be an effecticve way to expand access to home loans in underserved communities.”
The Insurance Department reports show great disparities between the rate at which insurance companies write policies in minority and low income communities versus the rate at which they write policies elsewhere in the state.
Based on the latest comprehensive report by the Department of Insurance in 1999, 16.16% of California’s population lived in “underserved” communities, but State Farm’s data revealed that State Farm had only 2.59% of its agents in underserved communities combined. While 16.16% of California’s population lived in “underserved” ZIP codes, the average insurer wrote only 5.57% of its private passenger automobile liability policies, 6.62% of its homeowners policies, and 9.55% of its commercial multi-peril (non-liability) policies in these low-income, minority ZIP codes. State Farm’s record was even worse, with only 4.31% of its private passenger automobile liability policies, 5.19% of its homeowners policies, and 9.13% of its commercial multi-peril (non-liability) policies in these low-income, minority ZIP codes combined.
“Redlining hurts California’s low income and minority communities by shutting out crticially needed investment and economic development,” said Reverend Norman Johnson, Executive Director of the Southern Christian Leadership Conference (SCLC) of Greater Los Angeles. “Without commercial insurance, people cannot start small businesses and employ others from their communities. Without homeowners insurance, people cannot buy homes. And without auto insurance, people cannot drive to doctors, schools, grocery stores and work without violating the law.”