AMWEST SURETY INSURANCE COMPANY, Plaintiff and Respondent, v. Pete WILSON, as Governor, etc., et al., Defendants and Respondents; John Garamendi, as Commissioner, etc., Defendant and Appellant; Voter Revolt, Intervener and Appellant.
This appeal challenges the validity of Assembly Bill 3798 (AB 3798) which exempts surety from the rate-regulating provisions of the Insurance Code 1 adopted by Proposition 103 in 1988. This challenge raises the issue of the role of the judicial system in reviewing legislative acts which amend statutes which have been adopted by the electorate. We find that, in order to provide minimum constitutional protection to the power of the electorate through initiatives, the courts cannot simply defer to legislative findings which attempt to justify amendments to initiatives but must examine the propriety of the exercise of the Legislature's limited authority, as granted by the initiative.
In this case, it cannot be said that the Legislature properly acted within its limited authority to adopt amendments which serve the purposes of the initiative by exempting surety from the requirements of Proposition 103.
We therefore reverse the trial court's judgment and remand the matter, directing the superior court to vacate the judgment and proceed as appropriate.
I. Proposition 103
The California voters approved Proposition 103 on November 8, 1988. The initiative was based on the premise that insurance reform was necessary and was prompted by the failure of the Legislature to act in this area critical to California citizens. It begins with a statement of findings, declaring “[e]normous increases in the cost of insurance have made it both unaffordable and unavailable to millions of Californians.” Its stated purposes were “to protect consumers from arbitrary insurance rates and practices, to encourage a competitive insurance marketplace, to provide for an accountable insurance Commissioner, and to ensure that insurance is fair, available, and affordable for all Californians.”
The findings and declaration also stated, “․ First, property-casualty insurance rates shall be immediately rolled back to what they were on November 8, 1987, and reduced no less than an additional 20%. Second, automobile insurance rates shall be determined primarily by a driver's safety record and mileage driven. Third, insurance rates shall be maintained at fair levels by requiring insurers to justify all future increases. Finally, the state Insurance Commissioner shall be elected. Insurance companies shall pay a fee to cover the costs of administering these new laws so that this reform will cost taxpayers nothing.”
Salient features of the statute thereby enacted by the electorate are the rolling back of rates to what they were a year earlier and an additional reduction of at least 20 percent (§ 1861.01, subd. (a)), and the requirement that all rate increases be approved by the Insurance Commissioner, who may not approve rates which are “excessive, inadequate, unfairly discriminatory or otherwise in violation of [the initiative].” (§ 1861.05.)
The statute requires automobile insurance rates be determined by a driver's safety record and mileage. It provides for the election of the state Insurance Commissioner rather than appointment by the governor. The statute specifies procedures for hearing applications for rate approvals. (§§ 1861.04–1861.10.)
Prior to November 8, 1989, rates were to be increased only if the commissioner found “that an insurer is substantially threatened with insolvency.” (§ 1861.01, subd. (b).) This provision was later held to be unconstitutional on its face. (Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 258 Cal.Rptr. 161, 771 P.2d 1247, hereinafter Calfarm.)
The law applies to “all insurance on risks or on operations in this state, except those listed in Section 1851.” (§ 1861.13.) “Surety” has been subject to the Insurance Code provisions since 1935 (Stats.1935, ch. 145, p. 501; § 105) and is currently defined by the code to include guarantee and performance bonds, forgery insurance, and insurance included in guarantee or indemnification contracts.2
Section 1851, referred to in section 1861.13, exempts certain types of insurance from the application of the Insurance Code provisions regulating insurance rates. This provision was part of the McBride–Grunsky Insurance Regulatory Act, originally adopted in 1947 (Stats.1947, ch. 805, p. 1896). This Act was a comprehensive revision of the Insurance Code designed to regulate insurance rates on a free market basis, “to the end that they shall not be excessive, inadequate or unfairly discriminatory.” (§ 1850.) 3
At the time of the enactment of Proposition 103, section 1851 exempted reinsurance, life insurance, certain types of marine insurance, title insurance, workers' compensation insurance, mortgage insurance and insurance transacted by county mutual fire insurers or county mutual fire reinsurers. (Calfarm, supra, at p. 812, fn. 1, 258 Cal.Rptr. 161, 771 P.2d 1247.)
“․ [W]hether the statute was enacted by the Legislature or through the initiative process ․ the ‘adopting body is presumed to be aware of existing laws․' (In re Lance W. (1985) 37 Cal.3d 873, 890, fn. 11, 210 Cal.Rptr. 631, 694 P.2d 744 [ ].)” (National Indemnity Co. v. Garamendi (1991) 233 Cal.App.3d 392, 405, 284 Cal.Rptr. 278 [Prop 103 not intended to cover commercial vehicle insurance.].) Because section 1851 did not exempt surety, the provisions of Proposition 103, in their literal terms and express reference to section 1851, apply to the category of insurance known as surety.
II. The Procedural History of This Action
On November 9, 1988, the day after the electorate adopted Proposition 103, Amwest sought a writ of mandate or injunction in the superior court to stay its enforcement, contending the initiative was facially and factually unconstitutional and if implemented and enforced would cause immediate and catastrophic injury to Amwest and the California insurance industry.
Before a final decision was rendered, the issue of the validity of the initiative was addressed by the California Supreme Court in response to petitions for writs of mandate filed by various insurers immediately following the enactment of Proposition 103. In May 1989, the Court issued its opinion in Calfarm. Although upholding most of the rate regulating provisions, the court held the insolvency standard of section 1861.01, subdivision (b) on its face violated the due process clauses of both state and federal Constitutions. However, this provision was found to be severable and thereby did not invalidate the other rate regulating provisions.
After the Calfarm decision was announced, Amwest amended its complaint and petition, now contending that “the authors of Proposition 103 had no knowledge of the surety business, did not intend to include surety under the Proposition and that the application of 103 to surety is unconstitutional.” Although Amwest acknowledged and alleged, “[a]ll lines of property-casualty insurance, including surety, are subject to Proposition 103,” it contended that the “finding, declaration and purpose” of Proposition 103 were not applicable to surety, and application of its provisions to surety was unconstitutional.
In a verified second amended complaint and petition, Amwest alleged the following: Amwest rates were “readily affordable by any California consumer,” and that Amwest had not significantly increased any rates for five years. The 20 percent rate reduction would cause Amwest to suffer substantial losses. Its application for an exemption from the rollback showed a return on equity of 9.3 percent, “substantially less than the Insurance Commissioner's benchmark of 11.2%.” There was “no need to subject Amwest or other surety companies to the expensive and time-consuming rate approval and rate filing requirements of Proposition 103.” 4
A demurrer by the defendants was overruled and these state defendants filed an answer. On March 12, 1990, the trial court held that the proposition was not unconstitutional on its face as to Amwest and denied Amwest's petition without prejudice to a petition for writ of mandate once the commissioner had acted on Amwest's rate application.
Before action on Amwest's rates had been completed, the Legislature enacted AB 3798, which provided for the exemption of surety from the rate regulations of Proposition 103 (sections 1861.01 and 1861.05) and the application of a file-and-use rate system in their stead. The amendment was chaptered on August 24, 1990, to become effective January 1, 1991. (Stats.1990, ch. 526.)
Voter Revolt, the citizen group that sponsored Proposition 103, was granted leave to intervene in the Amwest action in superior court and filed a complaint in intervention for declaratory relief and petition for writ of mandate. Voter Revolt, along with the newly-elected Insurance Commissioner, John Garamendi (the Commissioner), argued that AB 3798 violates the California Constitution and Proposition 103.
The superior court held that AB 3798 does not violate the California Constitution, article II, section 10(c) nor section 8(b) of Proposition 103. In doing so, the court deferred to the Legislature's determinations that the amendment furthered the purposes of Proposition 103.5 Judgment on Voter Revolt's complaint in intervention was entered in favor of Amwest and the petition for writ of mandate was denied.
The Commissioner and Voter Revolt appeal from the judgment.6
III. AB 3798
The contested bill had proceeded quietly, if not rapidly, through the legislative process. Sponsored by California surety companies, AB 3798 was introduced in the Assembly on March 1, 1990, to “exempt surety insurance from the provisions that regulate rates․” (Assem.Bill No. 3798 (1989–90 Reg.Sess.) Legislative Counsel's Digest.) The sponsors, the surety companies, contended that the findings in support of Proposition 103 were not applicable to surety. They represented that surety rates had remained stable over the previous decade and that “to date, no one, neither the proponents of Proposition 103, nor the Attorney General, nor the Department of Insurance, has advanced a single, affirmative, public policy need which is served by subjecting surety insurers to the disputed provisions.” (Leg.Hist., 3, p. 2.)
Originally the bill was drafted to amend the definition of “casualty insurance” (§ 1850.4) to exclude “surety insurance” (§ 105), based on a proposed finding that “surety insurance is not casualty insurance.” (Id., at p. 2.) The only rate regulation to be applied to surety was that rates “shall not be excessive, inadequate, or unfairly discriminatory.”
The Department of Insurance recommended amendments to the original bill because its effect appeared to be the “deregulation of surety insurance to a much greater degree than it had been under pre-Proposition 103 law.” As a result of “extensive negotiations between the department and representatives of the surety industry,” recommendations were made and the bill amended to retain some degree of rate regulation.7
The amended version was passed, apparently with no discussion or hearings, by unanimous vote in the Assembly and the Senate by August 6, 1990, and signed by the Governor on August 24, 1990. (1989–1990 Assem.Final Hist. 2420.) While the Legislature received letters urging enactment of the bill from members of the industry, there appears to have been no public comment or discussion.
Section 1861.135 as adopted by the Legislature, provides:
“(a) Notwithstanding Section 1861.13, surety insurance shall not be subject to Sections 1861.01 and 1861.05; however, any rate, rating plan or rating system for surety insurance shall be filed with the commissioner before it may be used in this state, and that rate, rating plan, or rating system may be used immediately upon filing with the commissioner.
“(b) The rates for surety insurance shall not be excessive, inadequate, unfairly discriminatory, or otherwise in violation of this chapter, except Sections 1861.01 and 1861.05.”
The Legislature supported the adoption of AB 3798 with the finding and declaration, “that this act furthers the purpose of Proposition 103 by clarifying the applicability of the proposition to surety insurance.” (1990 Stats., ch. 562, § 2.)
Is AB 3798 a valid exercise of the Legislature's power to amend Proposition 103?
A. The People's Power of Initiative
The California Constitution ensures the citizens' right to advance legislation independently of the Legislature. Article 2, section 8, subdivision (a), provides: “The initiative is the power of the electors to propose statutes and amendments to the Constitution and to adopt or reject them.” 8
The initiative is a powerful tool of the electorate which allows the people to circumvent the power, or the inaction, of the Legislature.
The California Supreme Court has observed, “ ‘․ [T]he initiative is in essence a legislative battering ram which may be used to tear through the exasperating tangle of the traditional legislative procedure and strike directly toward the desired end․’ (Key & Crouch, The Initiative and the Referendum in Cal. (1939) p. 485, italics added.)” (Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization (1978) 22 Cal.3d 208, 228–229, 149 Cal.Rptr. 239, 583 P.2d 1281.)9
“ ‘ “The amendment of the California Constitution in 1911 to provide for the initiative and referendum signifies one of the outstanding achievements of the progressive movement of the early 1900's. Drafted in light of the theory that all power of government ultimately resides in the people the amendment speaks of the initiative and referendum, not as a right granted the people, but as a power reserved by them. Declaring it ‘the duty of the courts to jealously guard this right of the people’ the courts have described the initiative and referendum as articulating ‘one of the most precious rights of the democratic process'․ ‘[I]t has long been our judicial policy to apply liberal construction to this power wherever it is challenged in order that the right be not improperly annulled. If doubts can reasonably be resolved in favor of the use of this reserve power, courts will preserve it.’ ” ' (Citations omitted; Fair Political Practices Com. v. Superior Court (1979) 25 Cal.3d 33, 41 [157 Cal.Rptr. 855, 599 P.2d 46.] )” (California Common Cause v. Fair Political Practices Com. (1990) 221 Cal.App.3d 647, 652, 269 Cal.Rptr. 873.)
With its grounding in the Constitution the initiative power of the people has been carefully guarded by the courts. In considering constitutional challenges to Proposition 13, which imposed important limitations upon the assessment and taxing power of state and local governments, the California Supreme Court delineated the “limited nature” of its inquiry. “․ We do not consider or weigh the economic or social wisdom or general propriety of the initiative. Rather, our sole function is to evaluate [the initiative] legally in the light of established constitutional standards․” (Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization, supra, 22 Cal.3d 208, 219, 149 Cal.Rptr. 239, 583 P.2d 1281.)
The Supreme Court reiterated the importance of the power of the people as expressed by initiative.
“It is a fundamental precept of our law that, although the legislative power under our constitutional framework is firmly vested in the Legislature, ‘the people reserve to themselves the powers of initiative and referendum.’ (Cal. Const., art. IV, § 1.) It follows from this that, ‘ “[the] power of initiative must be liberally construed ․ to promote the democratic process.” ’ (San Diego Bldg. Contractors Assn. v. City Council (1974) 13 Cal.3d 205, 210, fn. 3 [118 Cal.Rptr. 146, 529 P.2d 570] and cases cited; see Associated Home Builders etc., Inc. v. City of Livermore (1976) 18 Cal.3d 582, 591 [135 Cal.Rptr. 41, 557 P.2d 473].) ․” (Amador Valley Joint Union High Sch. Dist. v. State Bd. of Equalization (1978) 22 Cal.3d 208, 219–220, 149 Cal.Rptr. 239, 583 P.2d 1281; see, also, Calfarm Ins. Co. v. Deukmejian, supra, 48 Cal.3d at p. 814, 258 Cal.Rptr. 161, 771 P.2d 1247.)
Thus, the will of the electorate as embodied in statutes enacted by initiative is entitled to consideration at least equal to any deference due acts of the Legislature.
B. The Legislature's Power to Amend
The people's initiative power is protected by a constitutional limitation on the Legislature's authority to amend or repeal such enactments.
Article 2, section 10, subdivision (c) provides, “The Legislature ․ may amend or repeal an initiative statute by another statute that becomes effective only when approved by the electors unless the initiative statute permits amendment or repeal without their approval.”
“Under article II, section 10, subdivision (c), the voters have the power to decide whether or not the Legislature can amend or repeal initiative statutes. This power is absolute and includes the power to enable legislative amendment subject to conditions attached by the voters. (See Franchise Tax Bd. v. Cory (1978) 80 Cal.App.3d 772, 776–777 [145 Cal.Rptr. 819].)” (California Common Cause v. Fair Political Practices Com. (1990) 221 Cal.App.3d 647, 652, 269 Cal.Rptr. 873, original italics.)
Unless the voters through the initiative measure itself expressly authorize its amendment or repeal without their approval, any such amendment is invalid until ratified by the voters. (Brosnahan v. Brown (1982) 32 Cal.3d 236, 293, 186 Cal.Rptr. 30, 651 P.2d 274.)
“․ An amendment is ‘․ any change of the scope or effect of an existing statute, whether by addition, omission, or substitution of provisions, which does not wholly terminate its existence, whether by an act purporting to amend, repeal, revise, or supplement, or by an act independent and original in form, ․’ (Sutherland, Statutory Construction (4th ed. 1972) § 22.01, p. 105.) A statute which adds to or takes away from an existing statute is considered an amendment. (Robbins v. O.R.R. Company (1897) 32 Cal. 472.)” (Franchise Tax Bd. v. Cory (1978) 80 Cal.App.3d 772, 776, 145 Cal.Rptr. 819 [Legislature's budget bill which acted as an amendment to an initiative statute held invalid for failure to comply with amendment requirements set forth in initiative.].)
Proposition 103 permits legislative amendment by spelling out both the method and circumstances under which provisions of the initiative may be altered without further ratification by the voters.
Section 8(b) of Proposition 103 provides:
“The provisions of this act shall not be amended by the Legislature except to further its purposes by a statute passed in each house by roll call vote entered in the journal, two-thirds of the membership concurring, or by a statute that becomes effective only when approved by the electorate.”
AB 3798 was approved by unanimous votes in both the State Assembly and the Senate, thereby complying with the two-thirds membership requirement. However, the Commissioner and Voters Revolt contend that the amendment is invalid because it does not comply with the requirement that it further the purposes of Proposition 103. We agree.
C. Standard of Review
Generally, the courts defer to the California Legislature's determinations except as circumscribed by constitutional principles. (See, e.g., Methodist Hosp. of Sacramento v. Saylor (1971) 5 Cal.3d 685, 691, 97 Cal.Rptr. 1, 488 P.2d 161.) 10
Although the state Legislature's power is described as “omnipotent,” in the sense that its powers are not derived from the Constitution as is the case in the federal system, nevertheless this “plenary” authority is subject to the exception of the powers of initiative and referendum which are reserved to the people. (13 Cal.Jur.3d (Rev.) Constitutional Law, § 111, pp. 254–255.) Thus, the Legislature's power to amend a statute adopted by initiative is fundamentally different from its usual legislative powers. The Legislature has no power to amend, except as that power is granted by the electorate. Because the scope of the Legislature's power to amend is derived from the electorate's constitutional initiative powers, and the amendment power conferred on the Legislature is expressly limited in Proposition 103 to amendments “which further [the initiative's] purpose,” the question of whether AB 3798 furthers the purposes of Proposition 103 is a matter in which there cannot be complete deference to the Legislature's own determination.
The interpretation of constitutional limitations upon legislative powers is a judicial function. (Bishop v. City of San Jose (1969) 1 Cal.3d 56, 63, 81 Cal.Rptr. 465, 460 P.2d 137; City of Sacramento v. State of California (1984) 156 Cal.App.3d 182, 196–197, 203 Cal.Rptr. 258.)
For example, it has been held that it is a judicial function to determine whether a matter is a municipal affair or of statewide concern for constitutional purposes. The home rule provision of the Constitution precludes state regulation except by applicable general state laws. “․ [T]he fact, standing alone, that the Legislature has attempted to deal with a particular subject on a statewide basis is not determinative of the issue as between state and municipal affairs, nor does it impair the constitutional authority of a home rule city or county to enact and enforce its own regulations to the exclusion of general laws if the subject is held by the courts to be a municipal affair rather than of statewide concern; stated otherwise, the Legislature is empowered neither to determine what constitutes a municipal affair nor to change such an affair into a matter of statewide concern.” (Bishop v. City of San Jose, supra, 1 Cal.3d at p. 63, 81 Cal.Rptr. 465, 460 P.2d 137; fn. omitted.)
Similarly, it is a judicial function to determine whether the Legislature acted properly in amending a statute enacted by initiative. While the court may defer to the Legislature's interpretation of its own acts (as revealed by legislative history or subsequent amendments and administrative acts) there is no rationale for deferring to the Legislature on the question of its authority to amend a statute adopted by initiative. The courts have the power to invalidate a Legislative act which does not comply with the Constitution, including article 2, section 8. (See, e.g., Brosnahan v. Brown, supra, 32 Cal.3d 236, 186 Cal.Rptr. 30, 651 P.2d 274.) Likewise, the courts have power to determine whether the Legislature has conformed to the requirements of an initiative in amending it.
The Governor and the Attorney General take the position that the Legislature's authority to amend is “plenary within the scope of the grant.” They argue that the electorate chose to delegate authority to amend to the Legislature and therefore the usual presumption of validity of the exercise of its authority applies. Looking beyond the plain meaning of the initiative, which the Attorney General concedes covers surety, the Legislature learned that it contained “an anomaly or latent ambiguity” because key attributes presumed to apply to all classes of insurance might “in fact” not apply to surety. Upon its determination of “the true underlying purposes ” of the initiative, the Legislature could amend as it sees fit to fulfill these purposes.
The Attorney General's analysis ignores the limited scope of the authority granted the Legislature by the Constitution and the initiative. This approach would render constitutional limitations void and the Legislature would have the power to disregard the will of the people. The court must examine the legislation and the reasonableness of the Legislature's finding against the purposes of the initiative as independently determined by the court.
D. The Invalidity of AB 3798
“In discerning the intent of the voters in enacting [an initiative measure] ․ we begin with the language used, giving the words their ordinary meaning. (Lungren v. Deukmejian (1988) 45 Cal.3d 727, 735 [248 Cal.Rptr. 115, 755 P.2d 299].) Where the meaning is clear there is ordinarily no reason to look further. (Ibid.)” (Huening v. Eu (1991) 231 Cal.App.3d 766, 778–779, 282 Cal.Rptr. 664.)
The plain meaning of Proposition 103 is that surety is subject to its requirements. “Courts ‘ “ ‘must follow the language used and give it its plain meaning, whatever may be thought of the wisdom, expediency, or policy of the act, even if it appears probable that a different object was in the mind of the [voters].’ ” [Citations.]' (People v. Weidert (1985) 39 Cal.3d 836, 843 [218 Cal.Rptr. 57, 705 P.2d 380].) It is not our province to rewrite statutory enactments to reach what might be considered a more rational result.” (Id., 231 Cal.App.3d at p. 779, 282 Cal.Rptr. 664.)
The “plain meaning” rule of interpretation is especially compelling in the context of an initiative adopted by the People. The electorate voted on the basis of what it understood the initiative to mean, and the clear terms of the proposed legislation provide the most meaningful clue to that understanding. It must be recognized that voters are motivated by campaigns, politicians and literature that may distort or vary the actual provisions. Yet the best source, the most reliable source of the voters' intent must be the initiative itself.
Respondents contend the Legislature was not limited to the four corners of the proposition for a determination of its meaning. From that premise they leap to the conclusion that the Legislature could make the findings it did that surety was not of concern and delete surety from the act. The Legislature determined that “certain key attributes presumed to apply to all classes of insurance named in Prop 103,” did not in fact apply to surety.
One of the express purposes of Proposition 103 was, “[I]nsurance rates shall be maintained at fair levels by requiring insurers to justify all future increases.” Whether or not respondents are accurate in their representations of the fairness of surety rates in the past, which they argue should exempt them from Proposition 103's rate regulations, it cannot be said that this important purpose of the initiative would be furthered by removing the prior approval rate regulations. The proposition was designed not only to correct existing or past rate abuses, but to prevent such problems in the future.
The Legislature's “finding” that AB 3798 “furthers the purpose of Proposition 103 by clarifying the applicability of the proposition to surety insurance,” fails to rationally justify the Legislature's action. It in effect declares that Proposition 103 was not intended to cover surety, despite its clear language to the contrary. On the other hand, if the Legislature concluded that Proposition 103 rate regulations should not apply to surety, then it is evident the amendment does not further the purposes of the initiative as adopted by the people. In either case, the conclusion is that AB 3798 is invalid.
Our comments on the dissent will be brief.
The issue is whether the limited grant in the initiative permitting amendments by the Legislature, grants the Legislature authority to destroy the initiative itself. The dissent reaches this result by concluding that the Legislature has the authority to determine the scope of the grant to amend. In the dissent's view any amendment is authorized if the Legislature can invent a rational basis for the amendment.
Several facts are undisputed. First, the initiative included surety insurance. Second, the legislative authorization to amend an initiative is limited by the terms of the initiative itself. In other words unless the initiative authorizes amendments, the Legislature may not amend it. If the initiative does authorize amendments, any amendment is limited to the terms of the grant. Third, the initiative was adopted by the people of this state because for decades the Legislature refused to regulate the insurance industry effectively.
In light of these undisputed facts it is not rational to contend that the voters intended to allow the Legislature unbridled authority to define its limits to amend. It is not rational to contend that if the Legislature has “a rational basis” for amending the initiative, it may do so.
If the dissent's view prevails that the Legislature furthers the purposes of the initiative by removing surety insurance, it follows that the Legislature could remove automobile insurance in an identical fashion.11
The initiative was adopted to remove the fox from the insurance hen house. The dissent would put the fox back in charge.
Judgment reversed. The matter is remanded to the trial court for further proceedings as appropriate. Appellants Commissioner Garamendi and intervenor Voter Revolt are awarded costs on appeal.
I respectfully dissent.
This case is about the exercise of legislative power. Its resolution necessarily must be founded upon settled rules of constitutional construction.
The generally applicable principles were summarized by the Supreme Court in Methodist Hosp. of Sacramento v. Saylor (1971) 5 Cal.3d 685, 97 Cal.Rptr. 1, 488 P.2d 161. “Unlike the federal Constitution, which is a grant of power to Congress, the California Constitution is a limitation or restriction on the powers of the Legislature. [Citations.] Two important consequences flow from this fact. First, the entire law-making authority of the state, except the people's right of initiative and referendum, is vested in the Legislature, and that body may exercise any and all legislative powers which are not expressly or by necessary implication denied to it by the Constitution. [Citations.] In other words ‘we do not look to the Constitution to determine whether the legislature is authorized to do an act, but only to see if it is prohibited.’ [Citation.]” [¶] Secondly, all intendments favor the exercise of the Legislature's plenary authority: ‘If there is any doubt as to the Legislature's power to act in any given case, the doubt should be resolved in favor of the Legislature's action. Such restrictions and limitations [imposed by the Constitution] are to be construed strictly, and are not to be extended to include matters not covered by the language used.’ [Citation.] Conversely, a constitutional amendment removing those restrictions and limitations should, in cases of doubt, be construed liberally ‘in favor of the Legislature's action.’ ” (Id., at p. 691, 97 Cal.Rptr. 1, 488 P.2d 161.)
The majority does not quarrel with these general principles. However, it has chosen to recognize a distinction based on the fact that the legislative act under review here was an amendment to an initiative measure previously approved by the electorate. Whether this circumstance should change the fundamental analysis which must be made in the judicial review of legislative action is the issue upon which I differ with the majority opinion.
It is certainly true that all power of government finally resides in the people, who reserved to themselves, by a 1911 amendment to the Constitution, the power of initiative and referendum. (California Common Cause v. Fair Political Practices Com. (1990) 221 Cal.App.3d 647, 652, 269 Cal.Rptr. 873.) This is an important right. The courts have historically and consistently regarded it as a solemn duty “to jealously guard” that reserved authority as “ ‘ “one of the most precious rights of our democratic process.” ’ ” (Amador Valley Joint Union High Sch. Dist. v. State Board of Equalization (1978) 22 Cal.3d 208, 248, 149 Cal.Rptr. 239, 583 P.2d 1281; see also Associated Home Builders etc., Inc. v. City of Livermore (1976) 18 Cal.3d 582, 591, 135 Cal.Rptr. 41, 557 P.2d 473, and cases cited therein.) However, as a review of those cases will reflect, they have each arisen in the context of an attack upon an initiative or the people's authority to enact it. Thus, they provide little support for the critical distinction which the majority seeks to make. They certainly have no application to the facts of this case.
This court was not presented with an issue involving an attack on the people's exercise of initiative power; there has been no question raised as to the right of the people to enact Proposition 103. In characterizing respondents' defense of AB 3798,1 and the trial court's judgment upholding the statute, as an attack on the initiative, appellants make a fundamental error; in so doing, they have led the majority astray.
A proper resolution of this case requires recognition of the simple fact that the validity of AB 3798 depends upon whether the Legislature acted properly under the Constitution. As I will try to demonstrate, this determination should be made as it would in any other case where legislation is attacked as beyond the power and authority of the legislative branch.
What was the source of the Legislature's authority to enact AB 3798? It is found in the confluence of the Constitution and the provisions of Proposition 103. The Constitution provides for a limitation on the Legislature's authority to amend or repeal initiatives. “The Legislature may amend or repeal referendum statutes. It may amend or repeal an initiative statute by another statute that becomes effective only when approved by the electors unless the initiative statute permits amendment or repeal without their approval.” (Cal. Const. Art. II, § 10(c); emphasis added.)
Proposition 103 provided such authority. “The provisions of this act shall not be amended by the Legislature except to further its purposes by a statute passed in each house by roll call vote entered in the journal, two-thirds of the membership concurring, or by a statute that becomes effective only when approved by the electorate.” (Prop. 103, § 8(b); emphasis added.)
The record herein reflects that AB 3798, which added section 1861.135 to the Insurance Code in 1990,2 was passed unanimously by each house of the Legislature. Most significantly, such enactment process included committee hearings which determined that there was “no known” opposition. Indeed, opposition to it was dropped by one of the appellants herein, the Department of Insurance, after certain significant amendments, requested by the Department, were made.3 Thus, its validity, under the Constitution, depends upon whether it satisfies the condition imposed by the electorate in the grant of authority. That is, does AB 3798 “further the purposes” of Proposition 103?
The appellants argue, and the majority concludes, that this question can be answered by the syllogism: (1) surety insurance is included within Proposition 103 under the “plain meaning” rule,4 (2) AB 3798 would remove surety insurance from under some of the regulatory features of Proposition 103, (3) therefore, the purposes of Proposition 103 will not be furthered by any modification in the application of the initiative to a covered line of insurance and AB 3798 must be invalid.5 This seems to me to be overly simplistic. In my view, the majority's acceptance of that argument ignores (1) the law with respect to the plenary power of the Legislature,6 (2) the fundamental purposes of Proposition 103 and (3) the impact which the Supreme Court's decision in Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 258 Cal.Rptr. 161, 771 P.2d 1247 (“Calfarm”) has had upon the means and methods by which those purposes can best be furthered.7
It is well settled that “ ‘[A]ll presumptions and intendments favor the validity of a statute and mere doubt does not afford sufficient reason for a judicial declaration of invalidity. Statutes must be upheld unless their unconstitutionality clearly, positively, and unmistakenly appears.’ [Citations.]” (In re Ricky H. (1970) 2 Cal.3d 513, 519, 86 Cal.Rptr. 76, 468 P.2d 204.)
Over twenty years ago our high court emphasized that, “It is no small matter for one branch of the government to annul the formal exercise by another and coordinate branch of power committed to the latter, and the courts should not and must not annul, as contrary to the constitution, a statute passed by the Legislature, unless it can be said of the statute that it positively and certainly is opposed to the constitution.” (Methodist Hosp. of Sacramento v. Saylor, supra, 5 Cal.3d at p. 692, 97 Cal.Rptr. 1, 488 P.2d 161; emphasis added.)
These simple and long accepted rules are particularly relevant to the analysis required in a case such as this where the validity of the Legislature's act depends upon the existence of a specific fact or circumstance: in this case, the furtherance of the purposes of Proposition 103. The presumptions and intendments to be given to statutory enactments place a heavy burden upon one who attacks them. “ ‘The existence of facts supporting the legislative judgment is to be presumed and the burden of overcoming the presumption of constitutionality is cast upon the assailant.’ [Citations.]” (Dribin v. Superior Court (1951) 37 Cal.2d 345, 351, 37 Cal.2d 345, 231 P.2d 809; City of Walnut Creek v. Silveira (1957) 47 Cal.2d 804, 811, 306 P.2d 453.) I do not believe that appellants have met that burden. Indeed, the record fully supports the Legislature's action.
In enacting AB 3798, the Legislature stated that it “finds and declares that this act furthers the purpose of Proposition 103 by clarifying the applicability of the proposition to surety insurance.” As I discuss below, I believe the Legislature had the authority to make this determination as long as a rational basis existed for it.8
The majority opinion cites no authority for the imposition of the novel standard of judicial oversight applied in this case. As the trial court pointed out,9 the Constitution draws no distinction between the plenary power of the Legislature and the grant of legislative authority under an initiative. There is no obvious reason why the difference between these two sources of legislative authority should compel different analyses upon judicial review. In the former the Legislature has power because it has not been denied and in the latter the power exists because it has been delegated. In the exercise of the judicial responsibility to determine if the Legislature has exceeded its constitutional authority, the standard of review in each case requires no more than a rational basis for the legislative action.
A determination of whether AB 3798 furthers the purposes of Proposition 103 raises the question as to just what are those purposes. The answer is found in the initiative itself. It finds that “[e]normous increases in the cost of insurance have made it both unaffordable and unavailable to millions of Californians” and that “the existing laws inadequately protect consumers and allow insurance companies to charge excessive, unjustified and arbitrary rates.” It then expressly states that its purpose is to “protect consumers from arbitrary insurance rates and practices, to encourage a competitive insurance marketplace, ․ and to ensure that insurance is fair, available, and affordable for all Californians.”
Certainly, AB 3798 is not inconsistent with that. From the committee hearings conducted by the Legislature and from the record presented to this court it is clear the uncontradicted evidence before the Legislature established that surety insurance differed substantially from conventional lines of insurance and (1) was highly competitive, (2) was affordable and available, (3) had stable rates over the prior decade, (4) had generated little or no consumer complaints, (5) was not regarded as a problem line by the Department of Insurance and (6) had a rate of return on investment below that tentatively set by the Department as reasonable.10
There seems to be little dispute that “surety insurance,” although described in the Insurance Code (see § 105), is unlike any other kind of insurance. As the court put it in Schmitt v. Insurance Co. of North America (1991) 230 Cal.App.3d 245, 281 Cal.Rptr. 261. “ ‘A surety bond is not an insurance policy. [Citations.] It represents nothing more than “an undertaking to indemnify a person, or the public, against losses resulting from acts of the principal. A surety guarantees payment up to the principal sum. But if losses occur, the surety may recover from its principal.” [Citation.] It merely constitutes a guarantee the surety will assume the principal's liability only if the latter is unable to make full payment. It cannot be construed as providing any more, such as the requiring of the surety to undertake the defense or to immediately pay the settlement of the surety to undertake the defense or to immediately pay the settlement without the principal's default. [Citations.] In other words, “[a] liability insurance policy is written for the [financial] protection of the insured. However, a financial responsibility bond does not protect the principal by insuring him against liability․’ [Citation.]” (Id., at pp. 256–257, 281 Cal.Rptr. 261, quoting from Lumbermans Mutual Casualty Co. v. Agency Rent–A–Car, Inc. (1982) 128 Cal.App.3d 764, 769–770, 180 Cal.Rptr. 546; emphasis in the original.) 11
In short, there was an undisputed factual and legal basis for the Legislature's apparent conclusion that surety insurance presented none of the problems which Proposition 103 sought to correct and thus the removal of the two regulatory provisions (§§ 1861.01 and 1861.05) which were effectively irrelevant to that industry could hardly undercut the expressly stated purpose of the initiative.
However, because AB 3798 does not undermine the purpose of Proposition 103 does it necessarily follow that it “furthers” it? That is a more difficult question and the answer may depend upon who is entitled to provide it. Suppose, for example, an amendment furthers one purpose but not another? What if the satisfaction of one purpose conflicts with or defeats another? The reduction of rates compelled by the initiative could result in a number of insurers deciding to abandon the California market. In such event, insurance would become more affordable but less available. Such a conflict requires a policy decision. Who is to make it, the Legislature or the courts? To raise the question is to answer it.
Similarly, what of the impact and consequences of the enormous administrative burdens imposed on the commissioner by the Supreme Court's decision in Calfarm which was handed down just a few months after the electorate approved the initiative? 12 These changed circumstances certainly were not anticipated by the voters. Who is to make the policy choices regarding the management of that problem and the necessary allocation of scarce public resources? In our democratic system such issues of public policy are for the Legislature to decide, not the courts.
The judicial function has historically been limited to a search for a rational and legitimate basis for the questioned legislative act. However, appellants oppose, and the majority opinion appears to reject, any judicial deference to the legislative action which is the subject of this proceeding. In my view, such a posture represents a significant departure from the well settled and long accepted standard of deference extended by the courts to legislative acts attacked on constitutional grounds. Three obvious and relevant examples come to mind.
The first involves “urgency” legislation. Our constitution requires that in order for a statute to take effect immediately upon enactment and thus defeat the people's referendum rights, the Legislature must make a determination of “necessity.” The courts have consistently extended great deference to the Legislature's factual determination as to the existence of such fact. (Davis v. County of Los Angeles (1938) 12 Cal.2d 412, 422, 84 P.2d 1034; Livingston v. Robinson (1938) 10 Cal.2d 730, 740, 76 P.2d 1192; Behneman v. Alameda–Contra Costs Transit Dist. (1960) 182 Cal.App.2d 687, 691, 6 Cal.Rptr. 382.) 13
The second relates to the claim of a substantive due process violation. Legislative classifications attacked as violative of the equal protection clause of the 14th Amendment, other than those relating to fundamental rights or protected classes not involved here, are upheld where there is a rational basis for the choices which are made. For example, such an attack was made on the restrictions imposed solely on medical malpractice actions by the Medical Injury Compensation Reform Act of 1975 (“MICRA”). The Supreme Court held that equal protection principles were not violated by the limited application of the act “since there was a rational and legitimate basis for the Legislature's decision to attempt to reduce insurance costs in the medical malpractice area․” (American Bank & Trust Co. v. Community Hospital (1984) 36 Cal.3d 359, 373, 204 Cal.Rptr. 671, 683 P.2d 670; see also Cory v. Shierloh (1981) 29 Cal.3d 430, 438–439, 174 Cal.Rptr. 500, 629 P.2d 8; Brown v. Merlo (1973) 8 Cal.3d 855, 862, fn. 2, 106 Cal.Rptr. 388, 506 P.2d 212.)
Finally, this same deference to the legislative determination or policy choice is given by the federal judiciary to the legislative acts of Congress. As I have already noted, the federal Constitution is one of delegated powers. Nonetheless, plenary legislative authority is judicially recognized even when it involves a congressional determination relating to its own power to act. Congress has the delegated power to regulate commerce (U.S. Const., Art. I, § 8). In rejecting an attack upon the National Trails System Act Amendments of 1983 (16 U.S.C. §§ 1241–1251) as an invalid exercise of congressional power under the Commerce Clause, the United States Supreme Court stated, “We evaluate this claim under the traditional rationality standard of review: We must defer to a congressional finding that a regulated activity affects interstate commerce ‘if there is any rational basis for such a finding’, [citation], and we must ensure only that means selected by Congress are ‘ “reasonably adopted to the end permitted by the Constitution.” ’ [Citations.]” (Preseault v. ICC (1990) 494 U.S. 1, 17 [110 S.Ct. 914, 924] [108 L.Ed.2d 1].) Similarly, when Congress found that surface coal mining on “prime farmland” affected interstate commerce and acted to regulate it under the Surface Mining Control and Reclamation Act of 1977 (30 U.S.C. §§ 1201 et seq.) the Supreme Court held that a rational basis existed for such legislation and it was therefore within the delegated commerce power. (Hodel v. Indiana (1981) 452 U.S. 314 [101 S.Ct. 2376] [69 L.Ed.2d 40].) “It is established beyond peradventure that ‘legislative Acts adjusting the burdens and benefits of economic life come to the court with the presumption of constitutionality․’ [Citations.] A court may invalidate legislation enacted under the Commerce Clause only if it is clear that there is no rational basis for congressional finding that the regulated activity affects interstate commerce, or that there is no reasonable connection between the regulatory means selected and the asserted ends. [Citations.]” (Id., at pp. 323–324, 101 S.Ct. at 2382–2383.)
I see no reason why these principles of judicial deference should not apply to the Legislature's exercise of the delegated power to amend Proposition 103. To validate such legislative act it should only be necessary to find a rational and legitimate basis for the Legislature's determination that the purposes of Proposition 103 would be furthered by the enactment of AB 3798. Thus, the remaining issue is whether the record supports the existence of such a rational basis.
The first thing which seems beyond dispute is that the electorate had no thought or concern as to surety insurance. In addition to demonstrating that the causes, goals and purposes of Proposition 103 were not related to or directed at surety insurance, the record before us reflects that the electorate had neither knowledge nor concern about surety insurance when they voted to approve Proposition 103. There is no reference to surety insurance in either the initiative itself or in any of the ballot materials.14 The most that appellants can point to are materials which state that Proposition 103 is intended to apply to “all rates for auto, home and business insurance.” 15
Thus, the regulation of surety insurance, in spite of the technical reading of sections 1861.13 and 1851 on which the majority opinion so heavily relies, was clearly not something which Proposition 103 was devised or passed by the voters to achieve. The Legislature could rationally conclude that, given scarce public resources, the purposes of the initiative would be better served by the elimination of the need to administer something which was obviously not considered a problem by the electorate in the first place? 16
The elimination of surety insurance from the rate rollback and prior approval provisions affirmatively furthered the fundamental purposes of Proposition 103 by freeing up administrative staff to work on those insurance lines which were truly the object of the initiative. Proposition 103 cannot be looked at in a vacuum, but must be considered in light of the prolonged and still continuing administrative burdens created by the Supreme Court's decision in Calfarm. That decision effectively imposed rate regulatory and administrative burdens on the Commissioner which are exponentially greater than those contemplated by the voters when they approved Proposition 103.
This conclusion certainly finds support in the fact that there was no opposition to AB 3798 from either the electors or the proponents of Proposition 103. Indeed, even the Department of Insurance dropped its opposition to the bill after its proposed and more restrictive amendments were adopted. All of the regulation of the surety industry which was necessary, at least in the then view of the Department, would be provided by AB 3798.17
In my view, these specific and peculiar circumstances provide support for the proposition that a rational basis existed for eliminating the surety companies from the two specific provisions of Proposition 103 which are truly causing all of the administrative work and delay, thereby freeing up some of the Commissioner's limited resources. Certainly, the Legislature could have reasonably concluded that this was at least one of the reasons for the Department of Insurance's acceptance for this legislation after its proposed amendments were adopted. Those amendments retained a regulatory control over surety insurance rates which the Department obviously believed sufficient for that particular industry.
Contrary to the approach of the majority, a proper analysis of the exercise of legislative authority should be made from the perspective of a legislative body which is not restricted by the rules of judicial interpretation. Judicial inquiry into the meaning and intent of a statute is only predicate to the effective and fair enforcement of that statute. It does not involve inquiry into the wisdom and worth of the statute and the possible need for its modification or repeal.
A legislative body, on the other hand, in the exercise of its legislative function to enact, modify or repeal statutes, is not so constrained in the construction and application of the constitutional or statutory language on which its authority to act is based. For example, the Legislature was here free to consider the testimony received at the public hearings and the committee reports and to decide on the basis of rational and legitimate considerations just what the fundamental purposes of Proposition 103 were and just how they could best be served. In other words, the Legislature could rationally conclude that (1) Proposition 103 was directed at automobile, general liability and casualty and property insurance and (2) given the changed circumstances created by Calfarm, there was no need, nor had there been any real intent, to regulate surety insurance to the same extent.
Finally, I reject appellants' assertions that if such a deferential standard is applied to the amendment of this initiative statute (1) there will be no effective restraint on the Legislature which may then proceed to freely emasculate the initiative and (2) no future initiative will be drafted to permit any amendment, thus preventing the correction of any errors or unintended consequences. Both arguments are hyperbolic and overblown. First, the most effective restraint on the irresponsible legislative amendment of an initiative is the power of the judiciary to strike it down where it lacks a rational and legitimate basis. This is an objective requirement with which the judiciary has long experience and considerable competence. Second, the electorate well understands that the initiative process is a flawed one which can result in legislation untested in the crucible of public hearings and vigorous floor debate. It presents the voter with only a yes or no choice on a proposition which drafting inadequacies or the passage of time and events may make undesirable. The absence of any authority for legislative amendment may alone be reason enough to defeat an initiative at the polls. In my view, the threat that all future initiatives will withhold such authority is neither credible nor a justification for adopting a new and different standard of judicial oversight of the Legislature's exercise of its delegated authority.
A rational basis exists here for the Legislature's basic conclusion that the purposes of Proposition 103 were not served by its application to surety insurance. AB 3798 corrects this in a way which releases administrative resources which can now be devoted to carrying out the fundamental purposes of the initiative. Given these circumstances, the judiciary has no business second guessing the accuracy or wisdom of the Legislature's conclusion or its policy choices.
I would affirm the judgment.
1. Unless otherwise specified, statutes in this opinion will refer to the Insurance Code.
2. Section 105 provides, in part, as follows: “Surety insurance includes: [¶] (a) The guaranteeing of behavior of persons and the guaranteeing of performance of contracts ․ other than insurance policies and other than for payments secured by a mortgage, deed of trust, or other instrument constituting a lien or charge on real estate. [¶] (b) Insurance against loss resulting from the forgery or alteration of any instrument of any kind or character or of any signature thereon․ [¶] (c) Any of the following insurance when included as a part of contract containing any such guarantee of behavior or performance or in a contract indemnifying any bank, banker, broker, financial or moneyed corporation or association, any state, political subdivision, public or municipal corporation: ․”
3. The McBride–Grunsky Insurance Regulatory Act did not adopt the model rate regulatory legislation recommended by the National Association of Insurance Commissioners, adopted by most states. (Weinstock and Maloney, History and Development of Insurance Law in California, Ins.Code, §§ 1 to 1279 (West 1972) XXXVII, at p. LXVII.)“The model legislation requires, among other things, the filing of rates with the Insurance Commissioner or Superintendent in advance of their effectiveness and empowers him to prevent their becoming effective by timely disapproval thereof; that insurers who are members or subscribers of licensed rating bureaus adhere to the rates filed by such bureaus except to the extent of authorized deviations; and that rates be not excessive, inadequate or unfairly discriminatory. The California law, on the other hand, does not require filing of insurance rates with the Insurance Commissioner and expressly negatives any authority in him to fix a rate level. The enforcement approach is the hindsight method and the principal instrumentality of such enforcement is the power of examination which the statute vests in the Commissioner. It authorizes licensed rating bureaus and subjects them to regulation, but it expressly prohibits any rule or agreement to adhere to the same rates. It fixes standards that rates shall not be excessive, inadequate or unfairly discriminatory, but it circumscribes them by expressly providing that no rate shall be held to be excessive if a reasonable degree of competition exists with respect to the classification and the area to which it is applicable, nor held to be inadequate unless it threatens the solvency of the insurer using it or tends to destroy competition or create a monopoly. It expressly declares it to be the intent of the law to permit and encourage competition between insurers on a sound financial basis․”
4. After the Calfarm decision, 449 companies submitted 4,189 applications for exemption from the 20 percent rollback. The Attorney General had asked for hearings on the applications of 284 companies, including Amwest. (See Wilshire Ins. Co. v. Garamendi (1992) 5 Cal.App.4th 1573, 1578, 8 Cal.Rptr.2d 55, in which this Division held that applications for exemption from the rate rollback provision of section 1861.01, subdivision (a), were not deemed approved pursuant to section 1861.05, subdivision (c), which applied to rate increases after the first year rollback period.) Amwest was placed on the “slow track” which, according to a newspaper report, the commissioner indicated could take as long as 10 years to complete. In October 1989, the commissioner noticed a consolidation of rollback hearings, bifurcated into “generic” and “company specific” issues.
5. The statement of decision of the superior court stated, “If the Legislature considered, evaluated, and thereafter acted on legitimate, rational considerations in concluding that AB 3798 furthered Proposition 103 purposes, this court should not second guess its conclusion․ [¶] AB 3798 is not inconsistent with the express purposes of Proposition 103. There is no evidence that the electorate was even remotely concerned about availability and cost of surety insurance. There is no evidence the proponents of Proposition 103 were concerned about surety insurance. There is no evidence that during the time AB 3798 was being considered by the Legislature the public or the proponents were concerned about surety insurance. [ ] The Department of Insurance did not identify surety insurance as a line of insurance with rate problems and did not oppose the legislation. The only suggestions offered were incorporated [ ].”
6. By motion, Voter Revolt has requested this court to take judicial notice of two bills introduced in the California Legislature, contending specifically that AB 135 “illustrates so clearly the catastrophic effect the superior court's ruling would have both on Proposition 103 and on the voters' power to condition legislative amendments of their initiatives.” The proposed bill is described as repealing the initiative's requirement that future rate increases be approved by the Insurance Commissioner.Voter Revolt also has requested judicial notice of the Department of Insurance's Notice of Noncompliance to an insurance company and the insurance company's answer, regarding the sale of surety bonds to automobile drivers.Although official acts of the legislative, executive, and judicial departments may be noticed (Evid.Code, § 452, subd. (c)), these particular acts, relating to the possible consequences of various policies, are irrelevant to the key legal issues presented.
7. The department never endorsed AB 3798. The department changed its position from “oppose unless amended,” on the original bill, to “neutral,” on the amended bill. (Leg.Hist., SFA–6, 7.)
8. A statewide initiative measure to enact a statute requires a petition signed by electors equal in number to 5 percent of the votes for all candidates for Governor at the last gubernatorial election. (§ 8, subd. (b).)
9. The quote continues: “ ‘Virtually every type of interest-group has on occasion used this instrument. It is deficient as a means of legislation in that it permits very little balancing of interests or compromise, but it was designed primarily for use in situations where the ordinary machinery of legislation has utterly failed in this respect. It has served, with varying degrees of efficacy, as a vehicle for the advocacy of action ultimately undertaken by the representative body.’ [Citation.]” (22 Cal.3d, at pp. 228–229, 149 Cal.Rptr. 239, 583 P.2d 1281.)
10. “Unlike the federal Constitution, which is a grant of power to Congress, the California Constitution is a limitation or restriction on the powers of the Legislature. Two important consequences flow from this fact. First, the entire law-making authority of the state, except the people's right of initiative and referendum, is vested in the Legislature, and that body may exercise any and all legislative powers which are not expressly or by necessary implication denied to it by the Constitution. In other words, ‘we do not look to the Constitution to determine whether the legislature is authorized to do an act, but only to see if it is prohibited.’“Secondly, all intendments favor the exercise of the Legislature's plenary authority: ‘If there is any doubt as to the Legislature's power to act in any given case, the doubt should be resolved in favor of the Legislature's action. Such restrictions and limitations [imposed by the Constitution] are to be construed strictly, and are not to be extended to include matters not covered by the language used.’ Conversely, a constitutional amendment removing those restrictions and limitations should, in cases of doubt, be construed liberally ‘in favor of the Legislature's action.’ ” (Methodist Hosp. of Sacramento v. Saylor, supra, 5 Cal.3d at p. 691, 97 Cal.Rptr. 1, 488 P.2d 161; citations omitted.)
11. The prospect of a legislative attempt to remove automobile insurance from the terms of the initiative is not idle speculation. Counsel for respondent, the Governor, in response to a question from the bench during oral argument, stated that the same rationale could be used to remove automobile insurance from the initiative.
1. AB 3798 was the number of the bill which resulted in the enactment of Insurance Code section 1861.135. (See fn. 2, post.) Technically, it is the validity of that statute which is here at issue, not the legislative vehicle of its enactment. Nonetheless, the parties as well as the majority opinion, have adopted and utilized the legislative rather than the statutory reference. As a matter of convenience and consistency, I will do the same.
2. All statutory references are to the Insurance Code, unless otherwise stated.Section 1861.135 provides:“(a) Notwithstanding Section 1861.13, surety insurance shall not be subject to Sections 1861.01 and 1861.05; however, any rate, rating plan or rating system for surety insurance shall be filed with the commissioner before it may be used in this state and that rate, rating plan, or rating system may be used immediately upon filing with the commissioner. [¶] (b) The rates for surety insurance shall not be excessive, inadequate, unfairly discriminatory, or otherwise in violation of this chapter, except Sections 1861.01 and 1861.05.”
3. As originally drafted on March 1, 1990, AB 3798, subsections (a) and (b) read: “(a) Rates for surety insurance shall not be excessive, inadequate, or unfairly discriminatory. [¶] (b) The Legislature finds and declares that surety insurance is not casualty insurance. However, the provisions of this article shall apply to surety insurance except that surety insurance shall not be subject to Sections 1861.01 and 1861.05.”On May 2, 1990, the Department of Insurance wrote to the Assembly Finance and Insurance Committee and suggested two amendments which strengthened and clarified the application of the legislation to surety companies. In its letter, the Department explained its reasons for requesting these changes:“As you know, the Department of Insurance has been sued over the application of Proposition 103 to surety. It has been, and remains, our intention to vigorously defend that suit, as we believe that the electorate could rationally and lawfully include surety within the scope of Proposition 103. Nonetheless, with respect to the rate rollback and prior approval provisions, we have decided that we will not resist the [L]egislature if it concludes that an exemption for surety is in order. However, we think that any such exemption should be as narrowly drawn as possible. We believe that the language of subdivision (b) is too broad.“Subdivision (a) of the proposed section 1861.135 attempts to create the exemption from rollbacks and prior approval, but accomplishes too much. Subdivision (b) fails to adequately curtail the scope of subdivision (a)․“We also think that an information ‘file and use’ requirement might be worthwhile. Openness and public access to information was one of Proposition 103's primary objectives. It would serve this interest if consumers had the rate information available for review, even if the department would not possess the authority to prohibit use until the rates were approved. A file and use system would also provide a convenient way to evaluate whether the rates are adequate, excessive, or unfairly discriminatory. Since this criteria would still be applicable to surety, it makes sense to have an ongoing data base with which to evaluate particular issues relating to adequacy, excessiveness, or discrimination. We would urge you to consider some provision along these lines.”These proposed changes were accepted by the Legislature and the final form of the legislation was enacted as reflected in footnote 2, ante.
4. Proposition 103 provides (in § 1861.13) that, “This article shall apply to all insurance on risks or on operations in this state, except those listed in section 1851.”Section 1851 lists such lines as life insurance, title insurance disability insurance, Workmen's compensation insurance and mortgage insurance. It does not list surety insurance.
5. Specifically, the majority's opinion concludes that either the Legislature (1) has declared that Proposition 103 was not “intended” to cover surety insurance in spite of the initiative's “clear language to the contrary” or it (2) has concluded that Proposition 103's rate regulations “should not apply” to surety insurance. “In either case,” says the majority, “the conclusion is that AB 3798 is invalid.”
6. Indeed, the majority opinion echoes the arguments of appellants that the Legislature is simply not to be trusted and that a new standard of judicial oversight, not heretofore recognized by any authority cited to this court, is properly interposed in reviewing the exercise of delegated legislative authority.
7. It would be hard to overstate the impact of Calfarm. The Governor's budget report to the Legislature for the 1990–1991 fiscal year stated, “In May , the state Supreme Court upheld the rate-rollback provision and changed the standard for an insurer to be eligible for a rate-rollback exemption from ‘threat of insolvency’ to ‘not receiving a reasonable rate of return.’ This decision significantly increased [ ] regulatory workload [of the Department of Insurance]. The decision requires the Insurance Commissioner to determine what ‘a reasonable rate of return’ is for insurers and effectively allows many more insurers to apply for a rate-rollback exemption than under the ‘threat of insolvency’ standard provided initially by Proposition 103. [¶] In response to the court decision, the Insurance Commissioner issued emergency regulations for insurance companies to file exemptions from rate rollback. By June, approximately 450 insurers had filed about 4,200 applications for exemptions.”
8. However, I would concede that the Legislature could have made a more comprehensive statement of how AB 3798 furthered the purposes of Proposition 103. On this record, it is clear that AB 3798 did more than simply “clarify” the initiative's application to surety insurance. It also contributed to the lessening of the administrative burden imposed by the Supreme Court's decision in Calfarm.
9. Specifically, the trial court stated, “The Constitution draws no distinction between the plenary power of the Legislature and the grant of power from the people to amend or repeal initiative measures. Within the confines of the grant, the Legislature's power to amend or repeal is plenary. [¶] The scope of review of legislative enactments, therefore, should be the same whether or not the legislation amends an initiative statute, as long as the amendment is within the confines of the legislative power granted by the electorate.” (Emphasis added.)
10. A report on AB 3798, prepared for the Assembly Committee on Finance and Insurance, stated in part, “According to information supplied by the California Surety Federation, surety rates have remained stable over the last decade. Accordingly, it is the sponsors' view that in the absence of consumer complaints with respect to rate increases, availability problems or affordability problems, no compelling public purpose is served by subjecting this industry to the expenses of the rate rollback or prior approval rate filing determinations․ [¶] The industry contends this bill is appropriate because to date no one, neither the proponents of Proposition 103, nor the Attorney General, nor the Department of Insurance, has advanced a single, affirmative, public policy need which is served by subjecting surety insurers to the disputed provisions. Accordingly, the sponsors seek relief in the Legislature where the merits of their view can be considered. [¶] Surety coverage includes many classes of product. These include a) judicial bonds (bail bonds in criminal actions and bonds permitting the release of property pending the outcome of a civil action), b) contract bonds (bid and performance bonds), c) license and permit bonds, d) public official bonds, e) fidelity bonds, f) fiduciary bonds, and g) other miscellaneous bonds.”
11. The Legislature clearly recognized this distinction. In the analysis prepared for the Senate Rules Committee with respect to AB 3798 it was noted, “Surety coverage includes many classes of products. This includes bail bonds, contract bonds, license and permit bonds, fidelity and fiduciary bonds, and other types of bonds. Surety bonds is [sic] different than insurance in that a surety bond is based on the faithful performance of the bondholder. When that performance harms a third party, that party may go against the bond should the bondholder refuse to pay the damages that resulted from his or her lack of performance. The bond is typically canceled and the result is often cancellation of the bond and the consequent adverse effects to the bondholder. Insurance coverage on the other hand indemnifies the policyholder in the event of loss or liability for loss, and typically without adverse effect upon the policyholder.”
12. This is a critical factor to which the majority opinion gives little or no attention. In striking down the provision in Proposition 103 (Ins.Code, § 1861.01, subd. (b)) which prohibited an increase in rates or premiums unless an insurer was “substantially threatened with insolvency” and substituting the standard of “not receiving a reasonable rate of return,” the Calfarm decision brought about the need for extensive and ongoing regulatory hearings. Such hearings were necessary to determine if the initiative's mandatory rate reductions were “confiscatory” as well as to process the thousands of applications filed by hundreds of insurance companies seeking to maintain existing rates and/or to obtain approval for rate increases. This process is still going on and although nearly five years have passed it has not yet resulted in the approval of any such applications. Indeed, the Supreme Court has before it, but has not yet decided, the critical question of whether each insurer applicant is entitled to a company specific administrative hearing on these issues. (20th Century v. Garamendi, Docket No. S032502.)
13. As the supreme Court put it in Davis, “ 'The authority and duty to ascertain the facts which ought to control legislative action are, from the necessity of the case, devolved by the Constitution upon those to whom it has given the power to legislate, and their decision that the facts exist is conclusive upon the court, in the absence of an explicit provision in the Constitution giving the judiciary the right to review such action.” [Quoting from Stevenson v. Colgan (1891) 91 Cal. 649, 652, 27 P. 1089.] [p] Since the adoption by the people in 1911 of section 1, article IV of the Constitution, reserving the powers of the initiative and the referendum, the courts have nevertheless adhered to the fundamental philosophy that questions of fact, necessity and expediency are for the legislature. It has been felt that the requirement for a statement of the facts constituting the necessity in emergency legislation does not modify the principle nor bestow upon the judiciary power to declare the declaration invalid unless it appears clearly and affirmatively from the legislature's statement of facts that a public necessity does not exist.‘ [Citations.]‘ ‘ ( Davis v. County of Los Angeles, supra, 12 Cal.2d at pp. 421-422, 84 P.2d 1034.)
14. Indeed, the focus of the ballot materials was primarily on motor vehicle insurance and secondarily on liability and fire coverage. For example, the several contributors to the ballot pamphlet used such phrases as:a. “․ automobile and other property/casualty insurance.” (Attorney General )b. From the Legislative Analyst:(1) “․ automobile, liability, fire, health and life.”(2) “Motor vehicle insurance ․”(3) “․ various types of insurance, including motor vehicle, fire and liability.”(4) “․ motor vehicle, fire and liability insurance but not ․ life, mortgage and disability insurance.”c. “․ all of your automobile, home and business insurance premiums.” (Argument in Favor )d. Finally, the Rebuttal Argument focused almost exclusively on automobile insurance.
15. This statement is not entirely accurate. Proposition 103 (in § 1861.13) exempted title insurance and mortgage guarantee insurance (subsequent court decisions extended further exemptions to commercial motor vehicle insurance [National Indemnity Co. v. Garamendi (1991) 233 Cal.App.3d 392, 404–405, 284 Cal.Rptr. 278] and to policies issued under the California Automobile Risk Plan [Calif. Auto. Assigned Risk Plan v. Garamendi (1991) 232 Cal.App.3d 904, 914, 283 Cal.Rptr. 562] ). As with the other lines also listed in section 1851, these presented none of the problems which Proposition 103 sought to address. As already noted, the same can legitimately be said for surety insurance.
16. That the Department of Insurance, which has responsibility for handling this administrative burden, may now see no problem with that burden is unpersuasive. The Legislature, with its general policy and fiscal responsibilities, including review and approval of the Department's budget, is both entitled and, on this record, justified in concluding that California need not endure the financial expense of regulating the surety insurance industry in the same manner as the other more conventional lines of insurance to which Proposition 103 was clearly directed.
17. AB 3798 did not totally remove surety insurance from the control of Proposition 103, but only from the requirements of sections 1861.01 (“rollback” provision) and 1861.05 (requiring the Commissioner's “prior approval” for rate increases). The industry is still required to comply with a “file and use” system of rate regulation (in which it may increase its rates, but only after providing the Insurance Commissioner with documentation of planned increases); in addition, a surety insurer is still prohibited from charging rates which are excessive, inadequate or unfairly discriminatory.
HINZ, Associate Justice.
KITCHING, J., concurs in the result.