ALLSTATE INSURANCE COMPANY v. CALIFORNIA AUTOMOBILE ASSIGNED RISK PLAN CAARP

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Court of Appeal, Second District, Division 7, California.

ALLSTATE INSURANCE COMPANY and Allstate Indemnity Company, Plaintiffs and Respondents, v. Roxani GILLESPIE, as Insurance Commissioner of the State of California, Defendant and Appellant; CALIFORNIA AUTOMOBILE ASSIGNED RISK PLAN (CAARP), Defendant and Respondent.

No. B047071.

Decided: November 27, 1990

Sonnenschein, Nath & Rosenthal and William T. Barker, Jeffrey P. Lennard, Alan M. Posner, Darin W. Snyder and Brian E. Mahoney, and Morrison & Foerster and Marc P. Fairman and Michael M. Carlson, for plaintiffs and respondents Allstate Ins. Co. and Allstate Indem. Co. Rubinstein & Perry and Karl L. Rubinstein, Dana Carli Brooks, and Kathleen M. McCain, for defendant and appellant Roxani Gillespie, Ins. Com'r. LeBoeuf, Lamb, Leiby & MacRae and James R. Woods, Sanford Kingsley and Thomas E. McDonald, for California Automobile Assigned Risk Plan (CAARP), for defendant and respondent.

After the Insurance Commissioner refused Allstate Insurance Company's request for a 112 percent increase in its premiums for assigned risk policies, Allstate sought a writ of mandate from the superior court directing the Commissioner to either relieve Allstate from what it termed confiscatory restrictions on its automobile insurance rates or relieve Allstate from its obligation to continue to handle assigned risk policies. Allstate alleged in its petition the current rates it was allowed to charge for assigned risk policies were confiscatory and that it was suffering irreparable injury from being confined to those rates.

The trial court issued a peremptory writ of mandate compelling the Commissioner to permit Allstate a 40 percent increase in the rates for assigned risk policies as to certain policyholders and a preliminary injunction prohibiting the Commissioner from interfering with Allstate's 40 percent increase. The writ of mandate and injunction were subject to several conditions including the requirement the increase is to be refunded to the policyholders, with interest, to the extent it is ultimately determined to be unfair and unreasonable.

The Commissioner appealed the judgment and we issued an order staying enforcement of the writ and injunction. We now reverse the trial court's judgment because we have concluded Allstate failed to exhaust its administrative remedies and exhaustion of those remedies would not have resulted in irreparable injury to Allstate.

FACTS AND PROCEEDINGS BELOW

A. The Parties

Petitioners, Allstate Insurance Company and Allstate Indemnity Company (Allstate), provide private-passenger automobile insurance and other lines of insurance in California and elsewhere. Respondent, Roxani Gillespie, is the Insurance Commissioner of the State of California (Commissioner). The Commissioner is charged with the duty of enforcing California laws regulating the business of insurance including the adoption and enforcement of regulations necessary to carry out those laws. Specifically, the Commissioner is charged with the duty to adopt and enforce regulations to carry out the provisions of state law controlling insurance rates, (Ins.Code, §§ 1861.01, 1861.02, 1861.05) and to adopt and enforce regulations to carry out the provisions of the California Automobile Assigned Risk Plan (CAARP).1 (Ins.Code § 11620, et seq.)2

B. Background of the Assigned Risk Rate Dispute

The following background information on Proposition 103 and CAARP will aid in understanding the issues in this appeal.

If Proposition 13 was the “taxpayers' revolt” (see Board of Supervisors v. Lonergan (1980) 27 Cal.3d 855, 864, 167 Cal.Rptr. 820, 616 P.2d 802), then Proposition 103 was the insurance-payers' revolt. Prior to the adoption of Proposition 103, California had less regulation of insurance than any other state and automobile liability insurance was less regulated than most other forms of insurance. Essentially, California provided the minimal amount of regulation necessary to exempt the insurance industry from federal antitrust laws. (King v. Meese (1987) 43 Cal.3d 1217, 1240, 240 Cal.Rptr. 829, 743 P.2d 889 (Broussard, J., conc.); and see Allen, Insurance Rate Regulation and the Courts: North Carolina's “Battleground” Becomes a “Hornbook” (1982) 61 N.C.L.Rev. 97, 98.) Insurance rates did not require the Commissioner's approval. Indeed, the Commissioner was forbidden to fix rates. (§ 1850.)

California's benign neglect of insurance rates ended with the adoption of Proposition 103 in November 1988. The initiative's stated purpose was to ensure “insurance is fair, available, and affordable for all Californians.” (Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 813, 258 Cal.Rptr. 161, 771 P.2d 1247.) To that end, insurance rates were to be immediately reduced to “at least 20 percent less” than the rates in effect in November 1987 (§ 1861.01, subd. (a)); automobile insurance rates must be based on driving record, number of miles driven, years of driving experience, and other factors approved by the Commissioner (§ 1861.02, subd. (a)); and, future rate increases must be approved by the Commissioner, who may not approve rates which are “excessive, inadequate, [or] unfairly discriminatory” (§ 1861.05, subd. (a).)3

In Calfarm Ins. Co. v. Deukmejian, supra, the court held the 20 percent rollback in insurance rates must be subject to the right of an insurer to demonstrate that a particular rate is, as applied to it, a confiscatory rate. (48 Cal.3d at p. 826, 258 Cal.Rptr. 161, 771 P.2d 1247.) At the time of the judgment in the present case the Commissioner was conducting rulemaking proceedings to determine the methodology for judging whether an insurance rate was fair and reasonable, i.e., not confiscatory, and a methodology for setting rates in accordance with the factors required by section 1861.02. Once these foundational decisions are made the Commissioner intends to hear requests from individual insurance companies for relief from the 20 percent rollback and/or for rate increases.

Superimposed on the Proposition 103 rulemaking proceedings was a request filed by Allstate for a 112 percent increase in its rates for assigned risk policies. As explained in King v. Meese, supra, “In California, in addition to the regular and customary sources for the purchase of insurance coverage which most are familiar with, drivers may be insured through the California Automobile Assigned Risk plan (CAARP). (§ 11620, et seq.) By statute this plan is available to any driver otherwise entitled to insurance but who has been unable in good faith to obtain it within the past 60 days. (§ 11620; Cal.Admin.Code, title 10, ch. 5, subch. 3, art. 8, § 2439.) All insurers are required to participate in the program. (§ 11620.) CAARP offers the statutorily required minimum insurance plus optional medical and uninsured motorist coverage․ [¶] The CAARP rates are set by the Commissioner after public hearings, and are based on a number of classifications (including geographical area).” (43 Cal.3d at pp. 1222–1223, 240 Cal.Rptr. 829, 743 P.2d 889, fn. omitted.)

Unlike other insurance rates, the Commissioner did have the authority to approve or disapprove CAARP rates prior to the adoption of Proposition 103. As discussed more fully below, new policies affecting the mission of CAARP and its rates were under review by the Commissioner at the time the judgment in the present case was entered. CAARP rates cannot be divorced from automobile insurance rates in general because assigned risk policies are but a sub-line of private-passenger automobile insurance and subject to the overall requirement of section 1861.05 that “[n]o rate shall be approved or remain in effect which is excessive, inadequate, [or] unfairly discriminatory.”

C. Allstate's Contentions

Allstate's petition alleged the following facts. Allstate is required by law to provide automobile insurance to individuals assigned to it under CAARP. (§ 11620.) The current rates, approved by the Commissioner, caused Allstate an operating loss of $1,200,000 per week on these policies during the first nine months of 1989. Allstate projected this loss would increase to roughly $1,325,000 per week for assigned risk policies written during the year commencing November 1989. As a result, continuation of Allstate's obligation to provide insurance to individuals assigned under CAARP while denying any increase in either CAARP or voluntary market rates4 would result in an operating loss to Allstate of $14,663,000 for all California private-passenger motor vehicle policies issued or renewed by Allstate in the year commencing November 1989.

Allstate's petition further alleged a request for an increase in assigned risk rates had been pending before the Commissioner for over nine months but the request had not been acted upon. However, as the trial court noted in its statement of decision, by the time Allstate's petition was heard in the trial court the Commissioner had refused the requested 112 percent increase and remanded the issue of a rate increase to CAARP, the organization, for further consideration along with other issues specified by the Commissioner.

Allstate alleged it had unsuccessfully pursued other administrative avenues for relief. For example, it requested CAARP, the organization, to suspend Allstate's participation in the assigned risk pool. This request was denied. It petitioned the Commissioner for interim rate relief or, in the alternative, for suspension of CAARP assignments. These requests were also denied.

Allstate alleged the Commissioner has a mandatory duty to allow Allstate to earn a fair and reasonable return on its assigned risk policies, or in the alternative, on its California automobile insurance business as a whole. The Commissioner breached this duty by imposing insurance rates on Allstate which are confiscatory and by failing to exercise her discretion to select one or more appropriate actions to avoid confiscation of Allstate's property in violation of the due process clause of the Fourteenth Amendment. Allstate suggested several actions which the Commissioner might take in order to cease the unconstitutional confiscation of its property: (1) grant rate relief, either interim or permanent, as to assigned risk policies; (2) grant rate relief, either interim or permanent, as to regular automobile insurance policies; and (3) suspend CAARP assignments until adequate rate relief is granted.

Finally, Allstate alleged the current insurance rates imposed by the Commissioner were causing it irreparable harm because it will not be able to recover in the future the present loss of a fair and reasonable return on its policies. On the other hand, an immediate rate increase will not harm policyholders because Allstate agrees to refund, with interest, any amount ultimately determined to be in excess of a fair and reasonable return.

In its prayer for relief, Allstate requested the trial court issue a peremptory writ of mandate under Code of Civil Procedure section 1085 directing the Commissioner to grant Allstate such rate relief as is necessary to render the rates Allstate is permitted to charge for private-passenger automobile insurance non-confiscatory or to relieve Allstate of the obligations to undertake additional assigned risk policies and to renew assigned risk policies until rate relief is provided. In the alternative, Allstate requested the Commissioner and CAARP, the organization, be enjoined from requiring it to accept or renew any assigned risk policies until such time as Allstate is accorded the rate relief necessary to permit a fair and reasonable return.

D. Commissioner's Response

The Commissioner opposed Allstate's request for mandamus and injunctive relief on two grounds: (1) until the rate setting procedures have been completed it is impossible to determine whether a particular rate is fair and reasonable or, conversely, whether it is confiscatory; and (2) Allstate is not suffering irreparable injury because a temporary loss during the pendency of ratemaking proceedings is not a confiscation of property and, in any case, the Commissioner will permit Allstate to recoup any losses resulting from the rates now in effect through future rate increases. Emergency regulations imposing a cap on automobile insurance rates and allowing for recoupment for losses were issued in October 1989 and reissued while this case was pending before the trial court. The recoupment regulation provides:

“If any insurer is able to demonstrate that the rates, premiums and other charges [frozen] in accordance with Subsection (a) were confiscatory as applied, then, either in the new rating plan submitted by the insurer ․ or at a later time as determined by the Commissioner on application of the insurer, the insurer shall be permitted to recoup the shortfall, if any, between the rates so utilized and the lowest rate for the insurer that is not confiscatory.” (Cal.Admin.Code, tit.10, § 2632.9.)

The trial court conceded it was in no position to determine whether the CAARP rates or Allstate's overall rates were confiscatory. However, the trial court agreed with Allstate the Commissioner's recoupment solution was illegal and that if an interim rate increase was not allowed and it later turned out the CAARP rates were inadequate, Allstate's losses could never be recovered. Therefore, finding there was at least a “possibility” the rates imposed on Allstate were confiscatory the trial court concluded it was better to allow Allstate the increased CAARP rates now, subject to a refund with interest, than to risk permanently depriving Allstate of a fair and reasonable return on its policies.

The trial court awarded Allstate limited, conditional relief. The court ordered the Commissioner to allow Allstate to increase its assigned risk rate by 40 percent. This increase is applicable to policies issued or renewed on or after January 2, 1990. However, the increase is limited to “bad drivers” defined by the court as those policyholders who do not qualify as “good drivers” under the provisions of section 1861.02, subdivision (b). The increase is further conditioned on a refund to policyholders, with interest, if it is ultimately determined to be unfair and unreasonable. The court ordered Allstate to continue to accept all applications assigned to it under CAARP without regard to whether the applicants are “good” or “bad” drivers.5

SUMMARY OF DECISION

The principal issue in this case is whether Allstate was entitled to an order compelling the Commissioner to permit a 40 percent interim rate increase in assigned risk policies. Allstate contends the rate for assigned risk policies in effect when it filed this action denied it a fair and reasonable return and the losses it was experiencing could not legally be recouped through future rate increases. The Commissioner contends even if Allstate was suffering losses on its assigned risk policies a fair and reasonable rate of return must be judged on Allstate's business as a whole not just on one sub-line of insurance. Furthermore, such a determination cannot be made until the Commissioner completes the ratesetting proceedings that are currently under way. The Commissioner argues if it is ultimately determined the current rates were confiscatory Allstate can recoup its losses through future rate increases.

For the reasons explained below, we have concluded the trial court erred in granting relief to Allstate because Allstate failed to exhaust its available administrative remedies. Exhaustion of those remedies would not result in irreparable harm to Allstate because if the existing automobile insurance rates are proven to have been inadequate as to Allstate, Allstate may recoup its losses through future rate increases.6

DISCUSSION

I. ALLSTATE FAILED TO EXHAUST ITS AVAILABLE ADMINISTRATIVE REMEDIES.

It is well settled that “[b]efore seeking judicial review of an administrative action or decision, a petitioner must fully use and exhaust all available administrative remedies. Compliance with this basic requirement is a prerequisite to the right to seek review of the action or decision in proceedings for ordinary mandamus [Code Civ.Proc., § 1085].” (2 Ogden, Cal.Public Agency Practice (1990 ed.) § 51.02[1], p. 51–10, fns. omitted.) Numerous cases express this view including Abelleira v. District Court of Appeal (1941) 17 Cal.2d 280, 292, 109 P.2d 942; Hittle v. Santa Barbara County Employees Retirement Assn. (1985) 39 Cal.3d 374, 384, 216 Cal.Rptr. 733, 703 P.2d 73 and Temescal Water Co. v. Dept. of Public Works (1955) 44 Cal.2d 90, 106, 280 P.2d 1.

Application of the exhaustion rule is jurisdictional; it is not a matter for trial court discretion.7 Thus, unless a recognized exception to the rule applies, see discussion, infra, page 537 ff., the court lacks jurisdiction over a proceeding in which the petitioner has failed to exhaust available administrative remedies. (Abelleira v. District Court of Appeal, supra, 17 Cal.2d at p. 293, 109 P.2d 942; Hittle v. Santa Barbara County Employees Retirement Assn., supra, 39 Cal.3d at p. 384, 216 Cal.Rptr. 733, 703 P.2d 73; City of Coachella v. Riverside County Airport Land Use Com. (1989) 210 Cal.App.3d 1277, 1287, 258 Cal.Rptr. 795.)

The seminal case on exhaustion of administrative remedies is Abelleira v. District Court of Appeal, supra, a case relevant both factually and legally to the proceeding before us. Abelleira involved a dispute over payment of unemployment insurance benefits. The local administrative office found the employees eligible and the employers filed an appeal. A hearing officer sustained the finding of eligibility. The law afforded the employers a further appeal to the Employment Commission but provided benefits would be paid to the employees pending the commission's decision on the appeal.

Without first appealing to the commission, the employers in Abelleira applied to the Court of Appeal for a writ of mandate ordering the commission not to pay benefits to the employees. The employers alleged they planned to appeal to the commission but that they were entitled to immediate judicial relief because the employees were not eligible for benefits and the employers would be irreparably harmed if benefits were paid.

The Court of Appeal issued an alternative writ of mandate and a temporary restraining order directing the commission to withhold payment of unemployment benefits or to show cause why it had not done so. The restraining order was issued to prevent payment of benefits pending a hearing on the alternative writ.

One of the employees then applied to the California Supreme Court for a writ of prohibition on the ground the Court of Appeal had no jurisdiction to issue the writ of mandate prior to completion of the administrative appeal process. The Supreme Court granted the writ. Before explaining its reasons for granting the writ, the court made some observations about the procedural context of the case which are applicable to the case before us:

“It must be understood at the outset that the merits of the controversy between the original parties, involving the interpretation of the ‘labor dispute’ proviso in the Unemployment Insurance Act, are not before us. The important question is not what should be the decision on that point, but rather how the decision should be made. [Emphasis in original.] In the normal course the commissioner would make it, and thereafter judicial review, if appropriate, might be sought by either employers or employees. The employers, in departing from this normal procedure, and asking for a judicial review before completion of the administrative proceeding, rely upon assumptions of fact not supported by any record in this court. They seek to justify their action by charging that the determination in favor of petitioners is in violation of the law. But there has not, as yet, been any such final determination by the commission. That body has power to review the evidence previously presented before the referee, and also to take new evidence and make new findings, approving or disapproving those of the referee. It has not yet determined the facts upon which the right to benefits depends, and until it does so, it is improper for a reviewing court to consider the claims on their merits. The issue actually before us does not concern the rights of petitioners or their employers, nor the scope of the Unemployment Insurance Act․ The question here is whether boards and commissions, charged with the administration of a statute, may carry on their administrative proceedings to completion before being subjected to judicial review. The importance of that issue can hardly be overestimated, since a curtailment of administrative jurisdiction usually means an enlargement of the duties of the courts in a field in which the courts traditionally are reluctant to enter.” (Id. at p. 286, 109 P.2d 942, italics added.)

The merits of the controversy between the Insurance Commissioner and Allstate were not before the trial court. The Commissioner had made no determination as to whether the law required an increase in automobile insurance rates. Such a decision required determination of factual disputes which had not yet been determined by the Commissioner. The question before us, like the question before the Supreme Court in Abelleira, is whether the Insurance Commissioner or the judiciary is going to make the initial factual and policy determinations called for by Proposition 103. Abelleira makes it clear the job belongs to the Commissioner.

The Supreme Court in Abelleira next considered the meaning of the term “jurisdiction” because only if the Court of Appeal lacked jurisdiction would a writ of prohibition lie. After considering the meaning of “jurisdiction” in various contexts, the court concluded:

“Speaking generally, any acts which exceed the defined power of a court in any instance, whether that power be defined by constitutional provision, express statutory declaration, or rules developed by the courts and followed under the doctrine of stare decisis, are in excess of jurisdiction, in so far as that term is used to indicate that those acts may be restrained by prohibition or annulled on certiorari.

“Lack of jurisdiction in the District Court of Appeal to issue its writ of mandate is clearly established when the foregoing principles are considered in connection with a settled doctrine of administrative law. The Unemployment Insurance Act, summarized above, contains a complete administrative procedure, with provision for one original determination and two appeals, fulfilling every requisite of due process of law. Until that administrative procedure has been invoked and completed, there is nothing that the District Court of Appeal or any other court may review; it cannot interfere in the intermediate stages of the proceeding. The employers have no standing to ask for judicial relief because they have not yet exhausted the remedies given them by the statute. They still have their appeal to the commission, which appeal has not yet been decided adversely to them, and prior to the prosecution of this appeal they have no right to demand an extraordinary writ from a court.” (Id. at pp. 291–293, 109 P.2d 942.)

After reviewing decisions from California and other jurisdictions, the court declared:

“The rule [requiring exhaustion of administrative remedies] is settled with scarcely any conflict. It is not a matter of judicial discretion, but is a fundamental rule of procedure laid down by courts of last resort, followed under the doctrine of stare decisis, and binding upon all courts. We are here asked to sanction its violation, either on the ground that a valid exception to the rule is applicable, or that despite the uniformity with which the rule has been applied, it may be disregarded by lower tribunals without fear of prevention by the higher courts. This last point cannot be too strongly emphasized, for the rule will disappear unless this court is prepared to enforce it. To review such action of a lower court only on appeal or petition for hearing would permit interference with the administrative proceeding pending the appeal or hearing, with the effect of completely destroying the effectiveness of the administrative body.” (Id. at p. 293, 109 P.2d 942, italics added.)

The court went on to find the employers had an administrative remedy and pursuing that remedy would not result in irreparable injury. (Id. at pp. 296–300, 109 P.2d 942.) The court then issued a peremptory writ of prohibition restraining the Court of Appeal from enforcing its writ of mandate. (Id. at p. 306, 109 P .2d 942.)

It is clear from what was said in Abelleira, exhaustion of administrative remedies is a “fundamental rule of procedure” intended to prohibit judicial “interference with the administrative proceeding pending the appeal or hearing, with the effect of completely destroying the effectiveness of the administrative body.” (Abelleira, supra, 17 Cal.2d at p. 293, 109 P.2d 942.)

The exhaustion requirement accomplishes at least three important purposes relevant to the issue of setting rates for assigned risk policies.

(1) Requiring exhaustion of administrative remedies assures the issue is ripe for adjudication in the courts. Traditional or ordinary mandamus, the relief sought by Allstate, will lie only “to compel the performance of an act which the law specifically enjoins.” (Code Civ.Proc., § 1085.) Thus, Allstate's action is ripe for adjudication only if the Commissioner owed Allstate a ministerial duty at the time this action was commenced, see Lungren v. Deukmejian (1988) 45 Cal.3d 727, 731–732, 248 Cal.Rptr. 115, 755 P.2d 299, and the Commissioner actually refused to perform that duty, or expressed an intention to refuse to perform. (Imperial Mut. L. Ins. Co. v. Caminetti (1943) 59 Cal.App.2d 494, 497–498, 139 P.2d 693.)

[5] In the case before us Allstate alleged the Commissioner was under a present, mandatory duty to refrain from taking Allstate's property without due process of law by denying it the opportunity to earn a fair and reasonable return on its assigned risk business or on its motor vehicle business in general. Under these circumstances, Allstate alleged, the Commissioner owed Allstate a duty to exercise her discretion to take appropriate actions to discontinue confiscation of Allstate's property. The Commissioner, it was alleged, failed and refused to exercise such discretion.

Allstate's first contention is undoubtedly correct. Allstate is entitled to rates which are not “confiscatory” but which permit it a “fair and reasonable return.” (Calfarm Ins. Co. v. Deukmejian, supra, 48 Cal.3d 805, 816 and fn. 5, 258 Cal.Rptr. 161, 771 P.2d 1247.) However, Allstate's contention the rates it was allowed to charge for automobile insurance were confiscatory cannot be determined from the record which was before the trial court. Allstate's contention involves questions of fact and policy which were before the Commissioner in several administrative hearings, all of which will ultimately be reviewable by the courts after the Commissioner makes her final decisions.8

Thus, while the Commissioner is under a clear duty not to impose rates that are confiscatory, what constitutes a “confiscatory” rate is not at all clear at this stage of the administrative proceedings to implement Proposition 103. For example, what is a fair and reasonable rate of return? How is it calculated? Does the fair rate of return requirement apply to each sub-line of insurance, e.g., assigned risk policies, or each line, e.g., private-passenger motor vehicles or, at the other extreme, Allstate's entire book of business? If Allstate is not earning a fair rate of return on its assigned risk policies is that because the rates are inadequate or is it because Allstate is inefficient or is it because of some other reason? All of these “generic” questions will be resolved in due course of the administrative proceedings currently in progress, as the trial court recognized. Once these questions are settled the Commissioner will act on rate requests from individual insurers, including Allstate. Attempting to determine if a rate is confiscatory when there is no existing definition of the term or methodology for determining one is like trying to hang a door when there is no frame: it won't stand up.

(2) Requiring exhaustion of administrative remedies allows administrative agencies the opportunity to exercise their expertise. A second important function of the exhaustion requirement is that it “afford[s] administrative tribunals the opportunity to decide in a final way matters within their area of expertise prior to judicial review.” (San Bernardino Valley Audubon Society, Inc. v. County of San Bernardino (1984) 155 Cal.App.3d 738, 748, 202 Cal.Rptr. 423.) Here, Allstate turns this doctrine on its head by seeking judicial intervention prior to giving the Commissioner the opportunity to make final decisions within her area of expertise.

The Commissioner faces a daunting task in creating from scratch a system for determining automobile insurance rates, (see § 1861.01), for determining what constitutes a fair and reasonable return, (see § 1861.05), and applying those rules to requests for rate increases by the scores of insurance companies doing business in California.9 Accordingly, as the court, in Cal farm pointed out, Proposition 103 contains a number of provisions intended to enable the Commissioner to take “whatever steps are necessary to reduce the job to manageable size.” (48 Cal.3d at p. 824, 258 Cal.Rptr. 161, 771 P.2d 1247.) Among these, the Commissioner “has broad discretion to adopt rules and regulations as necessary to promote the public welfare.” (Ibid., citations omitted.) Moreover, “[h]er powers are not limited to those expressly conferred by statute: rather, “ ‘[i]t is well settled in this state that [administrative] officials may exercise such additional powers as are necessary for the due and efficient administration of powers expressly granted by statute, or as may fairly be implied from the statute granting the powers.” ” ’ (Ibid., citations omitted; emphasis by the court.)

States with histories of insurance ratemaking have allowed the insurance commissioner broad discretion in setting or approving rates subject to judicial review, rather than have the courts intervene in the ratemaking process to decide issues piecemeal. For example, in a case brought by several insurers challenging automobile insurance rates set by the Massachusetts Insurance Commissioner, the Massachusetts Supreme Court explained its role as follows:

“Since fixing the rates is not a judicial function, ․ we do not substitute our judgment for that made by the Commissioner as to the adequacy or reasonableness of the premium charges ultimately set․ However, we review the evidence and findings based on the established standards and give due weight to the Commissioner's experience, technical competency, and specialized knowledge, as well as the discretionary authority vested in the Commissioner by the legislature.” (Mass. Auto. Rating & Acc. v. Com'r of Ins. (1983) 389 Mass. 824, 453 N.E.2d 381, 385.)

A similar view was expressed in Insurance Department v. City of Philadelphia (1961) 196 Pa.Super. 221, 173 A.2d 811, 819:

“Insurance rate making is a technical, complicated and involved procedure carried on by trained men. It is not an exact science. Judgment based upon a thorough knowledge of the problem must be applied. Courts cannot abdicate their duty to examine the evidence and the adjudication, and to interpret and apply the law, but they must recognize the value of the judgment of an Insurance Commissioner who is specializing in the field of insurance and the efficacy of an adjudication supported by evidence of experts who devoted a lifetime of service to rate making.” (Citation omitted.)

In the present case, Allstate is attempting an end run around the administrative procedures necessary to implement the provisions of Proposition 103 and which are specifically provided for in that legislation. Allstate seeks, in effect, a judicial determination the existing assigned risk rates are confiscatory notwithstanding the fact adequacy of those rates and the very issue of how one is to determine whether rates are confiscatory are the subject of on-going administrative proceedings which, when final, will be subject to judicial review. (See Calfarm Ins. Co. v. Deukmejian, supra, 48 Cal.3d at p. 825, fn. 18, 258 Cal.Rptr. 161, 771 P.2d 1247; King v.. Meese, supra, 43 Cal.3d 1217, 1222, 240 Cal.Rptr. 829, 743 P.2d 889.)

When a court intervenes in on-going administrative proceedings it deprives the executive branch of the opportunity to exercise its expertise. (County of Los Angeles v. Farmers Ins. Exchange (1982) 132 Cal.App.3d 77, 87, 182 Cal.Rptr. 879.) ” 'Courts should let administrative boards and officers work out their problems with as little judicial interference as possible ․,” intervening only when abuse appears “very clearly.” ' (Lindell Co. v. Board of Permit Appeals (1943) 23 Cal.2d 303, 315, 144 P.2d 4, quoting from Maxwell v. Civil Service Commission (1915) 169 Cal. 336, 339, 146 P. 869.) In the present case there could be no showing of a clear abuse of discretion because discretion had yet to be finally applied to the rate making issues.

(3) Requiring exhaustion of administrative remedies promotes judicial efficiency. The third reason for requiring exhaustion of administrative remedies is that it promotes judicial efficiency “by unearthing the relevant evidence and by providing a record which the court may review.” (Westlake Community Hosp. v. Superior Court (1976) 17 Cal.3d 465, 476, 131 Cal.Rptr. 90, 551 P.2d 410.) The ratemaking hearings allow the Commissioner to take evidence from all concerned parties and make decisions based on that evidence, subject to judicial review. On the other hand, allowing Allstate to circumvent the system of administrative hearing followed by judicial review undermines the authority and integrity of the administrative agency and renders its administrative hearings “nothing more than perfunctory gestures.” (Eureka Teachers Assn. v. Board of Education (1988) 199 Cal.App.3d 353, 360, 244 Cal.Rptr. 240.)

Again, the present case serves as an excellent example of why the requirement of exhaustion of administrative remedies should be enforced. The trial court's judgment was not based on the administrative record of the hearings on CAARP's recommended increase in assigned risk rates. The trial court stated it was considering the findings of the administrative law judge who had conducted the CAARP hearings only because “his findings are nevertheless evidence of the status of the administrative proceedings.” One of those findings was that the 112 percent increase in assigned risk rates sought by CAARP was justified. After noting the actuarial computations supporting this finding were challenged at the hearing, the court repeated its statement it was not ruling on the correctness of the administrative law judge's decision.

Thus, from the trial court's statement of decision we can only conclude the trial court found the existing assigned risk rates to be confiscatory on the basis of the administrative law judge's proposed decision; a decision which, the court acknowledged, had been rejected by the Commissioner. This is clearly not the kind of record our Supreme Court contemplated as the basis for judicial decisions about the fairness of rates set by the Commissioner. The court, in Calfarm, stated:

“Proposition 103 contemplates that any rate set by the commissioner will be subject to judicial review. (See § 1861.09.) At the time of any such review, the court will have before it an administrative record that will undoubtedly contain vital ratemaking information and the commissioner's evaluation of the impact of that rate on the insurer and the insureds. That record will make possible a more informed analysis of any claim that the rate set by proposition 103 is confiscatory as to a particular insurer and line of insurance.” (48 Cal.3d at p. 825, fn. 18, 258 Cal.Rptr. 161, 771 P.2d 1247.)

In summary, the law affords Allstate two administrative safeguards from allegedly confiscatory rates. The principal remedy is to apply to the Commissioner for a rate increase under sections 1861.01, subdivision (c) and 1861.05, subdivision (b). If the application is denied, the next step is to request an administrative hearing.10 If the denial of a rate increase is upheld by a final administrative decision, Allstate may seek review by way of administrative mandamus. (§§ 1858.6, 1861.09; Code Civ.Proc., § 1094 .5.) The second remedy is to apply to the Commissioner for interim relief while the petition for a rate increase is pending. As the court held in Calfarm, “the commissioner has the power to grant interim relief from plainly invalid rates․ The power to grant interim relief is necessary for the due and efficient administration of Proposition 103, and may fairly be implied from its command that ‘[n]o rate shall ․ remain in effect which is excessive, inadequate, unfairly discriminatory or otherwise in violation of this chapter.’ (§ 1861.05, subd. (a).)” (48 Cal.3d at pp. 824–825, 258 Cal.Rptr. 161, 771 P.2d 1247.) (Emphasis in original.)

It was on the basis of these “safeguards” that the court, in Calfarm, found insurers “will have an adequate remedy for relief from confiscatory rates.” (48 Cal.3d at pp. 817, 823–826, 258 Cal.Rptr. 161, 771 P.2d 1247.) “In summary,” the court stated, “we have concluded ․ that the procedures for adjustment of insurance rates—including application to the commissioner, the opportunity to seek interim relief, a hearing in accordance with the Administrative Procedure Act, and judicial review—meet constitutional standards․” (Id. at p. 826, 258 Cal.Rptr. 161, 771 P.2d 1247.) Allstate did not take advantage of these administrative safeguards.11 Without a final administrative decision or even an administrative record, Allstate went to the superior court demanding relief committed to the expertise of the Commissioner in the first instance.

Allstate's failure to exhaust administrative remedies bars it from seeking a writ of mandate unless one of the recognized exceptions to the exhaustion requirement applies.

II. REQUIRING ALLSTATE TO PURSUE ITS ADMINISTRATIVE REMEDIES WOULD NOT RESULT IN IRREPARABLE INJURY.

Allstate's sole basis for failing to exhaust its administrative remedies is its claim its current losses on assigned risk policies cannot be recouped in the future regardless of how the administrative ratemaking procedures turn out. Therefore, Allstate claims, it will suffer irreparable injury if it is required to exhaust the ratemaking proceedings in order to obtain a rate increase.

The courts have recognized an exception to the rule requiring exhaustion of administrative remedies when exhaustion will result in irreparable injury to the litigant. (See, e.g., Abelleira v. District Court of Appeal, supra, 17 Cal.2d at p. 296, 109 P.2d 942; United States v. Superior Court (1941) 19 Cal.2d 189, 196, 120 P.2d 26.) In deciding whether to apply this exception in a particular case the courts have considered: (1) the nature of the injury that will be suffered (In re Serna (1978) 76 Cal.App.3d 1010, 1014, 143 Cal.Rptr. 350; Greenblatt v. Munro (1958) 161 Cal.App.2d 596, 606–607, 326 P.2d 929); (2) the effect of judicial intervention on the administrative proceedings (United States v. Superior Court, supra, 19 Cal.2d at pp. 196–197, 120 P.2d 26; Eye Dog Foundation v. State Board of Guide Dogs for the Blind (1967) 67 Cal.2d 536, 543–544, 63 Cal.Rptr. 21, 432 P.2d 717); and (3) whether the injury is, in fact, irreparable (Abelleira v. District Court of Appeal, supra, 17 Cal.2d at pp. 297–298, 109 P.2d 942.)

Applying these considerations to the case before us, we conclude that even assuming Allstate is suffering a loss on its assigned risk policies Allstate is not entitled to judicial intervention at this point given the nature of the loss, the current status of the administrative proceedings and the availability of recoupment of any current losses from future premiums.

The Commissioner concedes Allstate is suffering a loss on its assigned risk policies. The Commissioner argues, however, this loss is irrelevant because an insurer's fair rate of return must be assessed on its business as a whole, not on the basis of one sub-line of its business. (See B. & O.R. Co. v. United States (1953) 345 U.S. 146, 147–148, 73 S.Ct. 592, 593–594, 97 L.Ed. 912; Calfarm Ins. Co. v. Deukmejian, supra, 48 Cal.3d at p. 818, fn. 9, 258 Cal.Rptr. 161, 771 P.2d 1247; Aetna Insurance Co. v. Travis (1927) 124 Kan. 350, 259 P. 1068, 1071–1077; Jordan v. American Eagle Fire Insurance Co. (D.C.Cir.1948) 169 F.2d 281, 289, 293.) Allstate maintains that for CAARP to be constitutional its rates must independently allow the insurer a fair and reasonable return. (See California Auto. Assn. v. Maloney (1951) 341 U.S. 105, 108, 71 S.Ct. 601, 603, 95 L.Ed. 788.) We leave this question aside for the moment.12 Even assuming Allstate is entitled, ultimately, to a fair and reasonable return on its assigned risk policies standing alone, it does not follow Allstate is entitled to interim relief in the form of higher rates pending the Commissioner's final determination on CAARP rates and policies.13

A. A Temporary Freeze on Existing Assigned Risk Rates Pending Administrative Ratemaking Decisions Is Not a Legally Cognizable Injury.

Although no California case addresses this precise issue, ample authority from other jurisdictions supports a holding that where the existing rates were lawfully set, the regulated business has no legal entitlement to an interim rate increase pending a final administrative determination of its request for a higher rate. And this is so even if it is suffering a loss during the administrative review period. (Hope Natural Gas Co. v. Federal Power Comm. (4th Cir.1952) 196 F.2d 803, 808–809; New Rochelle Water Co. v. Public Service Com'n (1972) 31 N.Y.2d 397, 340 N.Y.S.2d 617, 626, 292 N.E.2d 767, 773; Trustees of Saratoga Springs v. Saratoga Gas, E.L. & P. Co. (1908) 191 N.Y. 123, 83 N.E. 693, 701; Columbia Gas of W.Va. v. Public Serv. Com'n (W.Va.1983) 311 S.E.2d 137, 142; N.J. Land Title Ins. Rating Bur. v. Sheeran (1977) 151 N.J.Super. 45, 376 A.2d 550, 553–554.) This rule applies whether the existing rate was set by a regulatory agency as in Columbia Gas or by the regulated business itself as in N.J. Land Title.

In Hope Natural Gas Co. v. Federal Power Comm., supra, the circuit court rejected a gas utility's argument the rates which it was required to maintain in effect during a five-month suspension period provided by the Federal Natural Gas Act were confiscatory because the Federal Power Commission ultimately authorized higher permanent rates. In substance, the utility in Hope argued that due process required that the higher final rates be applied retroactively to the date that its proposed rate increases would have become effective but for the suspension.

The court explained its reasons for rejecting the utility's argument as follows:

“It is argued that the constitutional guaranty against the enforcement of rates that are confiscatory requires that rates found reasonable be applied to the period of suspension. We do not think so. It has never been so held with respect to railroad rates, and there is no reason why any different principle should apply in the case of gas rates. The holding that certain rates may be allowed as reasonable does not mean that lower rates must be condemned as unreasonable and confiscatory, especially where they are continued in preservation of the status quo during a reasonable period of rate investigation. With changes in economic conditions rates must be changed from time to time, and the lag which necessarily accompanies the making of changes may result to the benefit of the utility as well as to its detriment * * * Rate making is not an exact science and losses of one period must be counterbalanced against gains of another in any fair consideration of the reasonableness of the rate making procedure. [¶] It is true, of course, that a utility is entitled to rates that are just and reasonable; but this is not to say that rates must fluctuate automatically with every change in economic conditions or that a reasonable time may not be allowed for determining the reasonableness of a proposed increase in rates before it is allowed to go into effect. Any loss sustained by a maintenance of the status quo while such determination is being made is properly considered, not as a violation of constitutional right, but as a necessary incident of rate regulation so long as the period of suspension does not ‘overpass the bounds of reason.” ’ (196 F.2d, at pp. 808–809; citations omitted, italics added.)

Other courts have expressed similar views. In New Rochelle Water Co. v. Public Serv. Com'n, supra, the court upheld the Commission's refusal to apply permanent rate increases retroactively.

“[The] utilities ․ contend that the Commission's refusal to allow them reparation, representing the difference between the revenue produced by the temporary rates and the revenue produced by the higher final rates, for the period the temporary rates were in effect, constituted confiscation of their property and denied them due process of law. NRW makes the further constitutional argument that the Commission also confiscated its property for the period between the time that the proposed rates were suspended and the date that the increased temporary rates were granted. * * * [¶] There is a valid distinction between the temporary reduction of existing rates, which results in confiscation of the utility's property unless some provision is made to enable the utility to recoup its losses if it is ultimately determined that the reduced rate was too low, and the suspension of a proposed rate increase which merely preserves the status quo for a reasonably brief period of time while the Commission determines the reasonableness of the proposed rate increases.” (340 N.Y.S.2d at pp. 625–626, 292 N.E.2d at pp. 772–773; emphasis in original.)

In Trustees of Saratoga Springs v. Saratoga Gas, E.L. & P. Co., supra, the court upheld a three-year moratorium on increases in gas and electricity rates. It was urged in that case, “circumstances might so alter that before the expiration of three years a rate which was reasonable at the time it was established would become unreasonable.” The court responded, “This is possible. Nevertheless we think the Legislature was justified in enacting some period of repose during which the rate should remain stable.” (83 N.E. at p. 701.)

Of particular relevance is N.J. Land Title Ins. Rating Bur. v. Sheeran, supra, in which the court was confronted with a statute and a fact situation remarkably similar to those in the case before us. In 1974, the New Jersey Legislature enacted the Title Insurance Act which the court described as representing “the first comprehensive regulation of title insurance companies doing business in this State and which requires, among other things, that rates charged by such insurers comport with filed rate schedules which have been first approved by the Commissioner of Insurance.” (376 A.2d at p. 551.)14 Pursuant to this statute, title insurance companies filed for rate increases. The Commissioner ordered that pending final determination of the requested rate increases the companies' existing rates would remain in effect. The companies appealed that order claiming they were entitled to put their filed rates into effect immediately.

The court upheld the Commissioner's “freeze” on rates at their existing level, reasoning: “Since prior approval of rates is thus central to the entire statutory scheme, to permit an unapproved filing to take effect, particularly so critical a filing as the initial rate structure, would clearly be tantamount to a sanctioning of the very same unilateral action which the act was intended to proscribe.” (376 A.2d at p. 553.) The court also reasoned that where the ratemaking process was taking longer than the legislature had contemplated the Commissioner's broad administrative powers included freezing existing rates in order to carry out the purposes of the legislation. “What is here involved is only an emergent and transitional measure of limited duration devised to serve the purpose of the act until effectuation of statutorily prescribed rate structures. We perceive neither an ultra vires action nor an abuse of discretion on the part of the Commissioner.” (Id. at p. 554.)15

We recognize CAARP is not a new program. But, as we explained above, CAARP rates and policies cannot be divorced from the overall ratemaking provisions of Proposition 103. Therefore, we find the reasoning in N.J. Land Title particularly persuasive in the present case. Although the New Jersey court was not faced with a constitutional challenge to the rate freeze, as we are in the present case, such a challenge was presented and rejected in Hope Natural Gas and New Rochelle Water Co., supra, where, like the present case, the level of reasonable rates had been previously determined in a lawful manner and were being maintained on a temporary basis pending a determination of the reasonableness of rate increases.

This does not mean Allstate is required to wait indefinitely for the Commissioner's ratemaking decisions. “Property may be as effectively taken by long-continued and unreasonable delay in putting an end to confiscatory rates as by an express affirmance of them[.]” (Smith v. Illinois Bell Telephone Co. (1926) 270 U.S. 587, 591, 46 S.Ct. 408, 410, 70 L.Ed. 747.) But, again, we are faced with the problem that it is impossible to say what constitutes a “confiscatory” rate. (See discussion, supra, p. 534.) And, in any event, Allstate does not allege the Commissioner is “dragging her feet” in the ratemaking process, nor does the record before us suggest the ratemaking procedure has been unreasonably delayed by the Commissioner. If the blame for delay in the ratemaking procedure lies anywhere, it lies with the insurance industry which has deluged the Commissioner with lawsuits challenging virtually every step she has taken toward the implementation of Proposition 103.16

Allstate cites Calfarm Ins. Co. v. Deukmejian, supra, as authority for a court-ordered rate increase pending the Commissioner's final ratemaking decision. Calfarm notes the Commissioner's authority to grant interim rate increases pending her final rate decision. (48 Cal.3d at pp. 824–825, 258 Cal.Rptr. 161, 771 P.2d 1247.) Nothing in Calfarm suggests the Commissioner has a mandatory duty to grant interim rate increases. Moreover, the opinion suggests the proper exercise of the Commissioner's power is to grant interim relief “from plainly invalid rates.” (Id. at p. 824, 258 Cal.Rptr. 161, 771 P.2d 1247 (italics added).) As we explained above, it is not possible to determine at this stage what constitutes a plainly invalid rate.

The fact the current CAARP rates are not “plainly invalid” distinguishes this case from California Trout, Inc. v. Superior Court (1990) 218 Cal.App.3d 187, 266 Cal.Rptr. 788 in which the Court of Appeal ordered the trial court to determine for itself the amount of water that needed to be released into Mono Lake and to impose those interim release rates pending a final determination by the Water Resources Control Board. (Id. at pp. 212–213, 266 Cal.Rptr. 788.) The appellate court found setting interim release rates did not involve questions of public policy within the board's discretion nor “ ‘the intricacies of water law” ’ within the board's expertise. Any expertise the trial court needed was available from the Department of Fish and Game. Furthermore, the board informed the Court of Appeal it had no objection to the trial court granting interim release rates. (Id. at p. 213, 266 Cal.Rptr. 788.) In contrast to the situation in California Trout, the case before us involves not only the expertise of the Commissioner and her staff but important policy choices which Proposition 103 left to her judgment. (See discussion, supra, pp. 534–536.)

The other cases cited by Allstate in support of a judicially ordered interim rate increase are also distinguishable on their facts from the case before us. In Prendergast v. N.Y. Tel. Co. (1923) 262 U.S. 43, 43 S.Ct. 466, 67 L.Ed. 853; Love v. Atchison, T. & S.F. Ry. Co. (8th Cir.1911) 185 F. 321 and State Farm v. Insurance Dept. (1990) 133 Pa.Cmwlth. 644, 577 A.2d 951 the courts enjoined enforcement of orders reducing rates pending final ratemaking decisions. Moreover, the courts' injunctive relief was heavily influenced by two factors not present in the case before us: unreasonable, unexplained delay in the administrative process and the lack of any method for recouping the utilities' losses should the rates they were allowed to charge ultimately prove inadequate. (Prendergast v. N.Y. Tel. Co., supra, 262 U.S. at pp. 49–51, 43 S.Ct. at pp. 468–469; State Farm v. Insurance Dept., supra, 577 A.2d at p. 954; and see Banton v. Belt Line Ry. (1925) 268 U.S. 413, 415–416, 45 S.Ct. 534, 535, 69 L.Ed. 1020; Smith v. Ill. Bell Tel. Co., supra, 270 U.S. at p. 591, 46 S.Ct. at p. 409; Okla. Gas Co. v. Russell (1923) 261 U.S. 290, 293, 43 S.Ct. 353, 354, 67 L.Ed. 659.)

The only case we have found ordering an interim increase in insurance rates is Blue Cross & Blue Shield of Del. v. Elliott (Del.Super.1982) 449 A.2d 267. That case, too, is distinguishable. Delaware follows a particularly cumbersome ratesetting procedure under which the insurer's new rates are effective immediately, subject to disapproval by the Commissioner within 30 days of their filing. If the Commissioner disapproves the rate filed he is to set a “reasonable time” after which the filed rates will no longer be effective. In this case the court found the Commissioner's order giving Blue Cross only five days to restore its previous rates was not a reasonable time. Therefore, the court ordered the filed rates remain in effect pending administrative review. The court also considered evidence Blue Cross is a non-profit corporation whose operations would be seriously threatened by inadequate rates and Blue Cross could not recoup its losses should the current rates prove inadequate. (Id. at pp. 270–271.)

In our view, the present case is, factually, similar to cases which have allowed moratoria on rate increases, or temporary freezes on current rates, while administrative ratemaking procedures are set up to handle new circumstances. (See, e.g., Permian Basin Area Rate Cases (1968) 390 U.S. 747, 777, 88 S.Ct. 1344, 1365, 20 L.Ed.2d 312, approving a moratorium which exceeded two years on filing requests for increased gas prices.) As the court noted in Calfarm, such moratoria or temporary freezes are commonly approved where the frozen rates were those set by the seller in a competitive market. (48 Cal.3d at pp. 819–820, 258 Cal.Rptr. 161, 771 P.2d 1247 and cases cited.) CAARP rates are set by the Commissioner, not by the insurance companies. But this fact does not accurately convey the total picture. As we have pointed out, CAARP rates cannot be divorced from automobile insurance rates in general which were set by the insurance companies in a competitive market. Assigned risk policies are but one sub-line of Allstate's automobile insurance and it is an undisputed fact that for years assigned risk rates have been subsidized by the general automobile insurance market. It necessarily follows the current rates for automobile insurance were set taking the assigned risk experience into account. Furthermore, if insurance companies were dissatisfied with the assigned risk rates set by the Commissioner they could have challenged those rates in a proceeding for administrative mandamus. They did not do so. Therefore, we are entitled to assume the insurance companies accepted the rates as adequate.

B. Even Assuming Allstate Is Suffering an Injury in Being Required to Maintain the Current Assigned Risk Rates, the Injury Is Not Irreparable

As a separate and independent ground for reversing the judgment in this case, we conclude the recoupment solution proposed by the Commissioner is constitutionally and statutorily valid and, therefore, Allstate is not suffering an irreparable injury by reason of the temporary freeze on its assigned risk rates.

The Commissioner advised the trial court she will permit Allstate to recoup losses from current rates ultimately found to be inadequate by factoring those losses into future rates. The Commissioner has issued a regulation to that effect. Allstate concedes it would not suffer irreparable injury if it could recoup current losses from future rate increases. Allstate contends, however, such recoupment would be illegal and impracticable. We disagree.

Again, there are no California cases on point but there is ample precedent from other jurisdictions to support the Commissioner's action freezing current rates subject to recoupment of losses caused thereby.

In Bronx Gas & Electric Co. v. Maltbie (1936) 271 N.Y. 364, 3 N.E.2d 512, the court reviewed the constitutionality of a statute allowing the Public Service Commission to set temporary gas and electric rates “pending the final determination of [the] rate proceeding.” The statute went on to provide,

“Temporary rates so fixed, determined and prescribed under this section shall be effective until the rates to be charged, received and collected by said utility company shall finally have been fixed, determined and prescribed. The commission is hereby authorized in any proceeding in which temporary rates are fixed, determined and prescribed under this section, to consider the effect of such rates in fixing, determining and prescribing rates to be thereafter charged and collected by said public utility company on final determination of the rate proceeding.” (Id. 3 N.E.2d at pp. 514–515.)

In upholding the statute the court reasoned if a utility can be ordered to pay back to its customers the overcharges it has exacted pending a determination on its rate request, it is “just as feasible and legal to turn the remedy about and provide that the consumers or the public should make good to the company the loss which it may have sustained in temporarily exacting too little.” (Id. 3 N.E.2d at p. 515.) The procedure followed under the New York statute has many similarities to the procedure the Commissioner is following to set rates under Proposition 103. As described by the court in Bronx Gas & Electric:

“The commission fixes a temporary rate pending the hearing. It is based upon the elements stated, which are not all of those required to fix a permanent rate. As before stated, this would be impossible, if we must consider in fixing a temporary rate all the elements required for the final rate: no temporary rate could ever be fixed. This also is self-evident. Therefore, to meet these conditions the temporary rate is fixed, within reasonable limits, upon figures which can be with some exactness obtained from the books of the company, showing original cost or investment; and if finally, when the proceeding ends, the temporary rate is proved to have been too low, the utility must be permitted and authorized to charge enough for its service to make up the loss. The consumer must pay what he should have paid, and the only way to do it is to fix a rate high enough to make up this loss.” (Ibid.)

In the case before us the Commissioner has chosen the rates set by the insurance companies themselves as the temporary rates and has provided by regulation the insurance companies will be allowed to set rates high enough to make up for any resulting loss. Similar recoupment provisions were upheld in Bronx Gas, supra; Beaver Valley Water Co. v. Driscoll (W.D.Pa.1939) 28 F.Supp. 722, 725–726 and Mass. Medical Soc. v. Com'r of Ins. (1988) 402 Mass. 44, 520 N.E.2d 1288, 1295–1296.

Allstate argues the cases allowing recoupment are contrary to the general rule which precludes a regulated business from charging higher rates in the future to recoup past losses. (See, e.g., Payne v. Washington Metropolitan Area Transit Com'n (D.D.C.1968) 415 F.2d 901, 910; City of Los Angeles v. Public Utilities Commission (1972) 7 Cal.3d 331, 356–357, 102 Cal.Rptr. 313, 497 P.2d 785.) This rule has no application in the present case where we are dealing with temporary, not final rates.17 This distinction was recognized in United Gas v. Callery Properties (1965) 382 U.S. 223, 86 S.Ct. 360, 15 L.Ed.2d 284 upholding an order requiring gas producers to refund to their customers the amounts in excess of rates initially approved pending final determination. The court stated:

“We reject, as did the Court of Appeals below, the suggestion that the Commission lacked authority to order any refund. While the Commission ‘has no power to make reparation orders,’ its power to fix rates under [Section 5] being prospective only, it is not so restricted where its order, which never became final, has been overturned by a reviewing court. Here the original certificate orders were subject to judicial review; and judicial review at times results in the return of benefits received under the upset administrative order. An agency, like a court, can undo what is wrongfully done by virtue of its order.” (Id. at p. 229, 86 S.Ct. at p. 364, citations omitted.)

We find this rationale is as applicable to recoupment as to refunds.

Allstate attempts to distinguish the cases authorizing recoupment on the ground that in those cases recoupment was authorized by statute while here recoupment is authorized by administrative regulation. We find no logic in this distinction. If a statute can constitutionally provide for recoupment, then so can a regulation. It is well-settled, “[v]alid administrative regulations have the force and effect of law.” (Mission Ins. Group, Inc. v. Merco Construction Engineers, Inc. (1983) 147 Cal.App.3d 1059, 1069, 195 Cal.Rptr. 781, and cases cited.) Earlier in this opinion we examined the powers of the Commissioner in general and specifically in reference to Proposition 103. (See, supra, pp. 534–535.) We have no doubt the Commissioner's statutory powers are broad enough to cover the recoupment regulation at issue here.

Allstate argues, however, the recoupment regulation is invalid because it conflicts with sections 1861.05 (prohibiting rates that are “excessive” or “unfairly discriminatory”) and 1861.02 (requiring automobile insurance rates bear “a substantial relationship to the risk of loss.”) Clearly, a regulation which conflicts with its enabling statute is void. (California Welfare Rights Organization v. Carleson (1971) 4 Cal.3d 445, 455, 93 Cal.Rptr. 758, 482 P.2d 670.) On the other hand, “It is a settled principle of statutory interpretation that ‘[t]he contemporaneous administrative construction of a statute by an administrative agency charged with its enforcement and interpretation is entitled to great weight unless it is clearly erroneous or unauthorized.” ’ (Wilkinson v. Workers' Comp. Appeals Bd. (1977) 19 Cal.3d 491, 501, 138 Cal.Rptr. 696, 564 P.2d 848, citations omitted.)

In the present case we cannot say the Commissioner's choice of the recoupment method to protect insurance companies from confiscatory rates is “clearly erroneous or unauthorized” by sections 1861.02 and 1861.05.

Plainly, the higher rates which might result from recoupment are not “excessive” because they are based on the difference between the interim rates “and the lowest rate for the insurer that is not confiscatory.” (Cal.Admin.Code, tit.10, § 2632.9.)18

Allstate contends, however, recoupment would result in rates which are both excessive and unfairly discriminatory as to future policyholders who may end up paying for the lower rates enjoyed by today's policyholders. As authority for this argument, Allstate relies on dictum in State Farm v. Insurance Dept., supra, a rate rollback case, in which the court expressed the view,

“If the Commissioner were to authorize an increase in premiums ․ so that State Farm could recoup from new policyholders losses it sustained when the rollback was applied to its previous policyholders those rates would clearly be excessive as to the new policyholders ․” (577 A.2d at p. 954.)

Leaving aside the question whether Allstate has standing to sue on behalf of a class that presently does not exist, may never exist and whose future members are unknown and unknowable and probably consists largely of today's policyholders, there are a number of substantive reasons for rejecting this argument.

The prohibition against rates that are “unfairly discriminatory” is carried over from former Insurance Code section 1852, repealed by Proposition 103. Although the term “unfairly discriminatory” has never been legislatively defined, section 1852 was interpreted by our Supreme Court, in King v. Meese, supra, as prohibiting “discrimination by an insurer with regard to issuance of policies, or the terms of such policies, on the basis of race, language, color, religion, national origin, ancestry, or location within the same geographic area.” (43 Cal.3d at p. 1222, 240 Cal.Rptr. 829, 743 P.2d 889.) Judged from this prospective, the recoupment provision is not discriminatory. It does not single out any class of policyholders to pay a higher rate on the basis of race, religion, color, creed or the like.

Even if we treat the term more broadly, implying in effect an equal protection standard, we find the recoupment regulation has a reasonable basis.

Because insurance rates fall within the areas of economics and social welfare, the reasonable basis test applies in judging whether the disparity between “old” and “new” policyholders violates equal protection.

”In the area of economics and social welfare, a State does not violate the Equal Protection Clause merely because the classifications made by its laws are imperfect. If the classification has some ‘reasonable basis,’ it does not offend the Constitution simply because the classification ‘is not made with mathematical nicety or because in practice it results in some inequality. The problems of government are practical ones and may justify, if they do not require, rough accommodations—illogical, it may be, and unscientific. A statutory discrimination will not be set aside if any state of facts reasonably may be conceived to justify it.” ’ (Dandridge v. Williams (1970) 397 U.S. 471, 485, 90 S.Ct. 1153, 1161, 25 L.Ed.2d 491, citations omitted.)

In our view, the recoupment regulation is a reasonable response to the need for a rate freeze on the one hand and the Commissioner's desire to allow the insurers a minimally adequate return on the other. The drafters of Proposition 103 contemplated the administrative machinery necessary to implement its provisions would be up and running by November 8, 1989, a year after its enactment. (See §§ 1861.01, subd. (c); 1861.02, subd. (e) (originally subd. (d) .) When it became apparent the final administrative determinations would not be made by the contemplated date, the Commissioner, on October 3, 1989, issued emergency regulations capping automobile insurance rates at the level that existed on that date and providing that any capped rate that later proved confiscatory could be recouped through a future rate increase.

This rate freeze carried out the purposes of Proposition 103 “to ensure that insurance is fair, available, and affordable for all Californians.” (Prop. 103, § 2 [uncodified].) In adopting Proposition 103 the People of California found, “Enormous increases in the cost of insurance have made it both unaffordable and unavailable to millions of Californians” and “existing laws inadequately protect consumers and allow insurance companies to charge excessive, unjustified and arbitrary rates.” (Prop. 103, § 1 [uncodified].) As if to validate the distrust and dissatisfaction expressed in the preamble to Proposition 103, just three months after its passage Allstate sought to impose a 112 percent increase in its assigned risk rates. As the trial court acknowledged, “it does not take a crystal ball to see that a dramatic increase in CAARP rates will leave a substantial number of its insureds with the choice of turning to the voluntary market in search of lower rates or driving without insurance, in violation of the Financial Responsibility Law.” To allow an unapproved rate increase of 112 percent to take effect just months after the adoption of Proposition 103 would be to sanction the very same unilateral action the initiative was intended to prohibit. (Cf. N.J. Land Title Ins. Rating Bur. v. Sheeran, supra, 376 A.2d at p. 553.)

The recoupment provision accompanying the rate freeze carries out the state's duty to see to it insurers are not forced to accept confiscatory rates. (Calfarm Ins. Co. v. Deukmejian, supra, 48 Cal.3d at p. 825, 258 Cal.Rptr. 161, 771 P.2d 1247.)

Together, the rate freeze and recoupment provision represent a rational solution to a temporary, but emergent, need. Our conclusion is supported by the decision in Bronx Gas & Electric Co. v. Maltbie, supra, in which the court addressed the same argument Allstate raises in the case before us. The court responded:

“True it is that all customers paying the final rate, including the take-up, may not be the same as those who paid the temporary rate. A few consumers may be new customers paying what the old consumer should have paid. Such instances are of minor importance; the percentage must be very small. We can never work our institutions of government if we refine matters to such an extent that we have to consider all these little details. The Constitution expresses fundamental principles, and if in the main these have been observed, this is all that can be required. Besides, when we speak of the consumer—the customer—we mean the public, not individuals.” (3 N.E.2d at p. 516.)

Allstate next argues the recoupment provision violates section 1861.01, subdivision (a)(4) which requires the factors used to set automobile insurance premiums must “have a substantial relationship to the risk of loss.” Rating factors under section 1861.02, are factors which pertain to the characteristics or experience of the individual insured, such as the insured's driving safety record, number of miles driven annually and years of driving experience. (§ 1861.02, subd. (a); Cal.Admin.Code, tit. 10, § 2632.2.) The rate freeze and recoupment provisions pertain not to an insured's driving record but rather to the fair and reasonable return requirements of section 1861.05, subdivision (a). (See Calfarm Ins. Co. v. Deukmejian, supra, 48 Cal.3d at pp. 822–823, 258 Cal.Rptr. 161, 771 P.2d 1247.) Even if section 1861.02 does apply to the recoupment regulation, the section leaves it to the Commissioner to determine the factors “that have a substantial relationship to the risk of loss.” (§ 1861.02, subd. (a)(4).) These factors could include past as well as future risks among factors necessary to permit a constitutional rate of return.

Finally, Allstate argues the requirement CAARP be self-sustaining prohibits passing through Allstate's CAARP losses to policyholders in the voluntary market. Even if this proposition was correct, it would not invalidate the recoupment provision but merely limit it to persons holding assigned risk policies. However, we find no support for the proposition CAARP must be self-sustaining.

The argument CAARP must be self-sustaining is based entirely on dictum in California Auto Assn. v. Maloney, supra, 341 U.S. at page 108, 71 S.Ct. at page 603 in which the court remarked: “We were advised on the argument that the premiums chargeable can be commensurate with the greater risks of the new business. Confiscation is therefore not a factor in the case.” (Italics added.) This statement is a long way from a holding that, as a matter of constitutional law, assigned risk rates must be sufficient to produce a fair rate of return on assigned risk policies. We note the court used the phrase “can be;” not “will be” or “must be.” Furthermore, since “[c]onfiscation is ․ not a factor in the case” we fail to see how the case can be cited as holding assigned risk policies must be self-sustaining or they will be deemed confiscatory. Cases are not authority for propositions they do not consider. (People v. Ceballos (1974) 12 Cal.3d 470, 481, 116 Cal.Rptr. 233, 526 P.2d 241.) It makes just as much sense to read the quoted language to mean that as long as the rates set for assigned risk policies do not drag the insurer's overall rate of return below the fair and reasonable level, confiscation is not an issue. This interpretation is supported by the court's concluding comment: “Appellant's business may of course be less prosperous as a result of the regulation. That diminution in value, however, has never mounted to the dignity of a taking in the constitutional sense .” (California Auto Assn. v. Maloney, supra, 341 U.S. at p. 111, 71 S.Ct. at p. 604.)

Contrary to Allstate's argument, the Supreme Court has rejected the contention a rate set for one line of the plaintiff's business violates due process “merely because it is noncompensatory.” “So long as [the plaintiff] is not caused by such regulations to lose money on its over-all business, it is hard to think that it could successfully charge that its property was being taken for public use ‘without just compensation.” ’ (B. & O.R. Co. v. United States, supra, 345 U.S. at pp. 147–148, 73 S.Ct. at p. 593.)

Finally, in response to Allstate's argument the recoupment provision is impractical, we suggest this argument be addressed to the Commissioner. The Commissioner could have chosen the procedure urged by Allstate—to allow an immediate rate increase conditioned upon a refund of any excessive amount.19 However, the Commissioner, in the exercise of her discretion, chose a different procedure—to freeze current rates subject to recoupment if the current rates prove to have been inadequate.

It is not our role to judge the wisdom of the Commissioner's decision. Our role in this matter was aptly defined in Pitts v. Perluss (1962) 58 Cal.2d 824, 834–835, 27 Cal.Rptr. 19, 377 P.2d 83:

“This court does not inquire whether, if it had power to draft the regulation, it would have adopted some method or formula other than that promulgated by the director. The court does not substitute its judgment for that of the administrative body. The rendition of this regulation involved ‘highly technical matters requiring the assistance of skilled and trained experts and economists and the gathering and study of large amounts of statistical data and information.’ Under such circumstances, ‘courts should let administrative boards and officers work out their problems with as little judicial interference as possible.’ The substitution of the judgment of a court for that of the administrator in quasi-legislative matters would effectuate neither the legislative mandate nor sound social policy.” (Citations and fn. omitted.)

Our task is limited to determining whether the Commissioner's decision is consistent with applicable constitutional and statutory provisions. We have determined it is.

DISPOSITION

The judgment is reversed with directions to dismiss the action. Appellant is awarded costs on appeal.

I respectfully dissent.

For the reasons hereafter discussed I find this appeal to be moot and would dismiss the appeal accordingly.

At oral argument on August 9, 1990, we directed counsel to file letter briefs apprising the court of the status of the considerable statewide litigation and administrative proceedings pending pertaining to the initiative commonly referred to as Proposition 103. Letter briefs having been filed, the matter was ordered submitted on August 24, 1990.

Following submission of the matter, counsel filed further letter briefs apprising the court of the “Interim Order Setting Rates; Findings of Fact and Conclusions of Law”1 of Insurance Commissioner, Roxani M. Gillespie, dated September 18, 1990. The interim order was issued in a proceeding before the Insurance Commissioner of the State of California entitled “In the Matter of the Rates of the California Automobile Assigned Risk Plan.” A copy of the Commissioner's interim order is appended to this dissent.

The Commissioner's interim order provided for an interim rate increase for California Automobile Assigned Risk Plan (CAARP) participants (which includes Allstate Insurance Company). The allowable interim rate increase is in effect a 70 percent rate increase which, as counsel point out in their letter briefs, exceeds the permanent rates now in effect under CAARP and which exceeds the 40 percent interim increase allowed by the trial court in this instance.

The interim rate increase allowable by the Commissioner under her September 18, 1990, interim order, is conditioned upon a mandatory refund with interest should the interim rates provided in the order be determined to be excessive.

In the letter brief of counsel for the Commissioner to this court dated October 2, 1990, and filed with this court on October 3, 1990, counsel anticipates (correctly) a forthcoming letter brief argument from counsel for CAARP and from counsel for Allstate, that this appeal is now moot. Counsel for the Commissioner contends that the 70 percent interim rate increase does not moot this appeal (although the interim order of the trial court in the instant case allowed an interim rate increase of only 40 percent) since other unaffected issues remain pending on this appeal.2

By letter brief dated and filed with this court on October 9, 1990, counsel for Allstate Insurance Company and Allstate Indemnity Company urge that the present appeal is indeed mooted by the Commissioner's Interim Order dated September 18, 1990, since the superior court's order would not afford any additional relief to Allstate not acquired by it under the Commissioner's order of September 18, 1990.

By letter brief dated and filed with this court on October 16, 1990, counsel for CAARP likewise maintains that this appeal cannot result in any relief to CAARP or Allstate greater than it has already received through the Commissioner's own administrative actions in the form of the Commissioner's order dated September 18, 1990 and CAARP accordingly joins in Allstate's contention that this appeal has been rendered moot.

I find persuasive the arguments of Allstate and CAARP. I would dismiss the present appeal on grounds of mootness.

Aside from the mootness issue, I find particularly disturbing and unpersuasive the expansive treatment given by the majority on the question of exhaustion of administrative remedies under the facts of this case. The tenor of the majority opinion is to sound a clarion call3 that judicial interference with the Commissioner's duties would not be tolerated in the future with respect to implementation of the provisions of Proposition 103. Such a clarion call in my view is misplaced and evades the central question in this appeal, namely the appropriateness of recourse to the courts by citizens who interface a slow moving and dilatory state agency, while they continue to suffer considerable damage and confiscation of their property. In a situation such as this, recourse to the courts is not to be discouraged but rather encouraged.

Dismissal of this appeal would have the affect of an affirmance of Judge Miriam Vogel's order providing for an interim rate increase of 40 percent which I find to be correct and free of error under the facts as they existed at the time of her order.

APPENDIX

BEFORE THE INSURANCE COMMISSIONER OF THE STATE OF CALIFORNIA

In the Matter of the Rates of the CALIFORNIA AUTOMOBILE ASSIGNED RISK PLAN INTERIM ORDER SETTING RATES

FINDINGS OF FACT AND CONCLUSIONS OF LAW

1. The proper functioning of the California Automobile Assigned Risk Plan (“CAARP”) is a matter involving the vital public interest of the State of California.

2. Pursuant to the powers expressly and impliedly conferred upon the Insurance Commissioner under provisions of the California Insurance Code including, but not limited to, those provided for in Sections 12921 and in 11620,1 et seq. and in California Code of Regulations, Title 10, Chapter Five, Subchapter Three, Article Eight, Sections 2400, et seq., the Commissioner has the authority to issue amendments to CAARP.

3. On February 7, 1989, the Governing Committee of CAARP filed a rate increase application with the Commissioner (the “1989 CAARP Application”). The 1989 CAARP Application contained a schedule of proposed private passenger rates and various matters were set out in support of those rates.

4. The 1989 CAARP Application requested an overall average rate increase of approximately 112.3% for all coverages including the minimum, mandatory bodily injury and property damage liability coverages as well as the optional medical payments coverage and uninsured motorist protection coverage. The 1989 CAARP Application also requested modification of the current class relativities, and an expanded number of rating bands.

5. On August 21 and 22, 1989, hearings were held on the 1989 CAARP Application in San Francisco, on August 24 and 25, 1989, in Los Angeles, on October 6 and 12, 1989, in San Francisco and on October 16, 1989, in Oakland. Thereafter the Administrative Law Judge presiding over the hearings issued a Proposed Decision which was rejected by the Commissioner on December 18, 1989, in her Decision and Order Upon Rejection of Proposed Decision. The basis, rationale and grounds for the Commissioner's Decision are as set forth in that document to which reference is hereby made for further detail.

6. In November 1989 an action was filed by Allstate Insurance Company against the Commissioner and CAARP, Allstate v. Gillespie, CAARP, Los Angeles Superior Court Case No. 744670, in which Allstate sought either a 112% rate increase in the premiums charged on its CAARP-assigned policies, or a stay of all CAARP assignments. On December 18, 1989 the Superior Court entered a Preliminary Injunction/Preemptory Writ in which Allstate was permitted a rate increase of 40% on its CAARP-assigned “bad drivers.” That order was stayed at the Commissioner's request by the appellate court in Allstate v. Gillespie, Second District Court of Appeal, Division Seven, Case No. B047071.

7. On March 20, 1990, CAARP filed an action in the Los Angeles County Superior Court entitled California Automobile Assigned Risk Plan v. Gillespie, Case No. 755745. On April 20, 1990 the Superior Court issued an order which purported to reverse the Commissioner's Decision. The Commissioner promptly appealed the court's order to the California Court of Appeal, Second Appellate District and the court order is stayed pending such appeal.

8. On April 12, 1990, CAARP filed with the Commissioner an application to increase its private passenger automobile rates by an average of 165.5% for all coverages including the minimum, mandatory bodily injury and property damage liability coverages and the optional medical payments coverage and uninsured motorists protection coverage (the “1990 CAARP Application”). The 1990 CAARP Application also requested modification of the class relativities, and an expanded number of rating bands. The Commissioner has noticed hearings to consider CAARP's 1990 Application. Certain pre-hearing hearings have been held in connection with the 1990 CAARP Application and the hearing itself began on September 10, 1990.

9. In addition to the CAARP matters set out hereinabove, a number of administrative actions have been taken by the Commissioner in connection with the implementation of Proposition 103. Various insurers have filed litigation in Superior Court in connection with the implementation process.

10. Prior to October 1989 certain insurers had begun to raise their premium charges and rates in this State and many other insurers threatened to follow suit. This created a threat to the ability of the Commissioner to implement Proposition 103 and to deal with the task. Among other things this threatened to create a chaotic insurance market as well as an impossible administrative burden upon the Department of Insurance. In order to avoid the resulting threat to the public welfare, the Commissioner determined that it was in the public interest to establish interim rates for all insurers pending the Proposition 103 implementation process. After determining that it was fair and reasonable to set these interim rates at the rates that then existed in the open and competitive market, the Commissioner set these interim rates at the level that existed as of October 2, 1989. This setting of interim rates has been popularly referred to as the “Rate Freeze.” Certain insurers contested the Rate Freeze in the Los Angeles Superior Court, but that court found that it was fair, reasonable and necessary and upheld the action of the Commissioner in such regard. The Rate Freeze has been in force since October 1989.

11. The 1989 CAARP Application, the 1990 CAARP Application, the Rate Freeze and the Proposition 103 implementation process are inextricably intertwined due to the fact that all have an impact upon the individual insurers' total rates of return to their equityholders. Under the decision of the California Supreme Court in Calfarm Ins. Co. v. Deukmejian, 48 Cal.3d 805, 258 Cal.Rptr. 161 (1989) the ultimate test of the appropriateness and constitutional permissibility of the regulation of the insurers by the Commissioner is whether the acts of the Commissioner permit the insurers' equityholders an opportunity to earn a fair rate of return commensurate with the rates of return experienced by enterprises of comparable risk. Pursuant to related administrative hearings, the Commissioner has determined that insurers must be permitted an opportunity to earn a rate of return of at least 11.2% total rate of return to the equityholder.2 Thus, the ultimate test of the Commissioner's actions regarding the above-referenced matters is whether the individual insurers affected thereby are permitted an opportunity to earn such a total rate of return.

12. CAARP was created in 1947 in order to provide insurance for those otherwise unable to obtain insurance. This addressed a serious public problem in this State which arose when certain classes of drivers were unable to obtain insurance in the voluntary market. The constitutionality of this enactment was upheld by the United States Supreme Court in California State Automobile Ass'n Inter–Insurance Bureau v. Maloney, 341 U.S. 105, 71 S.Ct. 601 (1951), in which that court noted, “Highway accidents with their train of property and personal injuries are notoriously important problems in every community. Clearing the highways of irresponsible drivers, devising ways and means for making sure that compensation is awarded to the innocent victims, and yet managing a scheme which leaves the highways open for the livelihood of the deserving are problems that have taxed the ingenuity of law makers and administrators.” These words remain true today. The urgent public need for CAARP was also recognized in the 1987 decision of the California Supreme Court in King v. Meese, 43 Cal.3d 1217, 743 P.2d 889 (1987).

13. Because CAARP is merely a plan for the equitable apportionment of assigned risks and is not itself an underwriter or risk bearer, CAARP experiences no rate of return one way or the other from the rates and charges made upon the policies issued as a result of CAARP. CAARP provides for the equitable apportionment to individual insurance companies of applicants who, in good faith, have been unable to obtain coverage in the voluntary market. While the actual charges to be made to these applicants for these policies is determined as a part of the CAARP plan, the funds collected are collected by the individual insurers and the resulting underwriting experience is had by the individual insurers and not by CAARP. As a result, it is necessary for the Commissioner to assess the impact of CAARP rates upon the individual insurers and not upon the CAARP itself.

14. Because it is necessary for the Commissioner to assess the impact of CAARP rates upon the individual insurers, and because the underwriting results of the policies assigned to an individual insurer through CAARP form only a part of the total rate of return of the insurer, it is necessary that the results of CAARP be included in the insurer's underwriting experience from all of its automobile lines as well as to its total rate of return from all insurance lines to which Proposition 103 applies.

15. It is inherent in the insurance business that there is a certain amount of cross-subsidization between policyholders within the same line and sometimes as between different lines. The CAARP-assigned policies produce a certain underwriting result which is felt within the entire automobile line of the insurer. Thus, the experience of the insurer as to CAARP-assigned policies is a part of its net underwriting experience on its entire automobile line. Its net underwriting experience on its automobile line, in turn, impacts its net underwriting experience on all of its insurance lines. This underwriting experience, combined with its returns from investing the funds available to it, forms a part of the insurer's total rate of return. In this manner the underwriting results from CAARP-assigned policies impact the insurer's total rate of return.

16. Under Proposition 103 insurers are required to “take all comers” as Section 1861.02(b) requires all insurers to provide a Good Driver Discount policy to any person who meets the requisite standards. While some insurers are complying with this requirement, others are not. As a result, many good drivers find that they can only obtain insurance through CAARP. In April 1990 the Governing Committee of CAARP announced that it would no longer accept applications from good drivers, but CAARP has since retracted this position. Even so, it does not appear to the Commissioner that the legal processes are being completely complied with and the Commissioner will further inquire as to this. There are related investigations by the Commissioner which are also ongoing.

17. One of the crucial needs in the State is to make insurance available in the inner city areas, particularly inner-city Los Angeles. While the “take all comers” provisions of Proposition 103 should provide a remedy as to availability in these areas, the failure of the insurers to aggressively pursue making their products available in these areas has detracted from the effectiveness of the statute. The Commissioner has urged various insurers to take immediate steps to make their products more available in these areas and has received assurances from various industry leaders that they will do so. These assurances are a major inducement to the Commissioner in entering this Interim Order.3

18. As a result of the various litigations the CAARP has not had a rate increase since December 1987. This fact, coupled with the Commissioner's Rate Freeze, has had an impact upon the rates of return being achieved by the insurers. While the Commissioner believes that the combined impact of the current CAARP rates and the Rate Freeze nevertheless permit the insurers an opportunity to earn a rate of return which exceeds the constitutional minimum, the Commissioner also recognizes that the experience resulting from the CAARP is such that it is appropriate to permit some interim rate increases for CAARP-assigned policies, pending the outcome of the various litigations and the pending hearings. This is particularly the case given the Commissioner's intent to maintain the Rate Freeze at least through 1990.

19. Considering all circumstances, the Commissioner has determined that it is in the best interest of the public and that it would promote the public welfare to establish the interim CAARP rates as set out hereinbelow.

INTERIM ORDER

1. Pursuant to the foregoing and the provisions of this Interim Order, the annual premiums for Bodily Injury and Property Damage coverage as well as Medical Payment coverage and Uninsured Motorist coverage for all private passenger automobile risks insured as a result of assignments through CAARP shall be as set forth in Exhibit A hereto which is hereby incorporated herein by this reference.

2. The rates authorized by this Interim Order shall apply to all new and renewal policies issued due to CAARP assignments from and after September 28, 1990 or at such later date as CAARP shall find practicable, subject, however, to the further order of the Commissioner. Further orders of the Commissioner may be interim in nature or may follow the ultimate resolution of the various administrative hearings and judicial matters set out hereinabove.

3. Nothing in this order shall affect the respective rights of any party in connection with the various administrative hearings or judicial proceedings or appeals now pending whether the same are expressly mentioned hereinabove or not.

4. In the event that it shall be determined as a result of the pending hearing upon the 1990 CAARP Application that the interim rates established by the provisions of this Interim Order are excessive, then all insurers who have charged and collected such rates shall refund to the affected policyholders the amount, if any, of the excess of the amount charged and collected over the amount of the rates ultimately approved. Such refund amounts, plus interest thereon at 8.5%, shall be paid within ninety (90) days of the final determination of the CAARP rates.

5. Insurers who are required to make such a refund shall provide the Commissioner with evidence satisfactory to her to demonstrate their compliance.

CALIFORNIA AUTOMOBILE ASSIGNED RISK PLAN PRIVATE PASSENGER AUTOMOBILE NON–FLEET

CALIFORNIA AUTOMOBILE ASSIGNED RISK PLAN PRIVATE PASSENGER AUTOMOBILE NON–FLEET

2460.3 (g) Merit/Demerit Rating Plan—Premium ModificationsPenalty Point Values and Premium Modifications

CALIFORNIA AUTOMOBILE ASSIGNED RISK PLAN PRIVATE PASSENGER AUTOMOBILE NON–FLEET

FOOTNOTES

1.  Pursuant to Insurance Code section 11623, insurance companies required to participate in CAARP have formed their own organization to administer and operate the assigned risk plan, subject to review by the Commissioner. This organization is also called the California Automobile Assigned Risk Plan or “CAARP.” The organization known as CAARP was named as a defendant in this action because one form of relief Allstate sought was to be excused from further participation in the assigned risk plan. In this opinion we use the acronym CAARP to refer to the statutory assigned risk plan unless the context shows otherwise.

2.  All future references are to the Insurance Code unless otherwise noted.

3.  Section 1861.01 provides:“(a) For any coverage for a policy for automobile and any other form of insurance subject to this chapter issued or renewed on or after November 8, 1988, every insurer shall reduce its charges to levels which are at least 20% less than the charges for the same coverage which were in effect on November 8, 1987.[¶] (b) Between November 8, 1988, and November 8, 1989, rates and premiums reduced pursuant to subdivision (a) may be only increased if the commissioner finds, after a hearing, that an insurer is substantially threatened with insolvency. [¶] (c) Commencing November 8, 1989, insurance rates subject to this chapter must be approved by the commissioner prior to their use. [¶] (d) For those who apply for an automobile insurance policy for the first time on or after November 8, 1988, the rate shall be 20% less than the rate which was in effect on November 8, 1987, for similarly situated risks. [¶] (e) Any separate affiliate of an insurer, established on or after November 8, 1987, shall be subject to the provisions of this section and shall reduce its charges to levels which are at least 20% less than the insurer's charges in effect on that date.”Section 1861.02 provides in relevant part:“(a) Rates and premiums for an automobile insurance policy, as described in subdivision (a) of Section 660, shall be determined by application of the following factors in decreasing order of importance: [¶] (1) The insured's driving safety record. [¶] (2) The number of miles he or she drives annually. [¶] (3) The number of years of driving experience the insured has had. (4) Such other factors as the commission may adopt by regulation that have a substantial relationship to the risk of loss. The regulations shall set forth the respective weight to be given each factor in determining automobile rates and premiums. Notwithstanding any other provision of law, the use of any criterion without such approval shall constitute unfair discrimination.”Section 1861.05 provides:“(a) No rate shall be approved or remain in effect which is excessive, inadequate, unfairly discriminatory or otherwise in violation of this chapter. In considering whether a rate is excessive, inadequate or unfairly discriminatory, no consideration shall be given to the degree of competition and the commissioner shall consider whether the rate mathematically reflects the insurance company's investment income. [¶] (b) Every insurer which desires to change any rate shall file a complete rate application with the commissioner. A complete rate application shall include all data referred to in Sections 1857.7, 1857.9, 1857.15, and 1864 and such other information as the commissioner may require. The applicant shall have the burden of proving that the requested rate change is justified and meets the requirements of this article. [¶] (c) The commissioner shall notify the public of any application by an insurer for a rate change. The application shall be deemed approved sixty days after public notice unless (1) a consumer or his or her representative requests a hearing within forty-five days of public notice and the commissioner grants the hearing, or determines not to grant the hearing and issues written findings in support of that decision, or (2) the commissioner on his or her own motion determines to hold a hearing, or (3) the proposed rate adjustment exceeds 7% of the then applicable rate for personal lines or 15% for commercial lines, in which case the commissioner must hold a hearing upon a timely request.”

4.  Pursuant to a rate freeze promulgated by the Commissioner and a stipulation entered into in other litigation, Allstate was forbidden to raise existing rates on its regular automobile insurance without the Commissioner's prior approval.

5.  After this appeal was argued and submitted, the Commissioner issued an order granting all insurers a 70 percent interim rate increase on their assigned risk policies issued or renewed after October 1, 1990. The order provides any interim increase is conditioned upon a mandatory refund with interest if the interim rates authorized in the order are later determined excessive. The order also provides nothing contained therein shall affect the rights of any party in connection with pending administrative or judicial proceedings.Allstate submitted a letter brief arguing the Commissioner's order moots this appeal. We disagree. The superior court's order granted an interim rate increase of 40 percent effective January 2, 1990. The Commissioner's order granted an interim rate increase of 70 percent effective October 1, 1990. The superior court's order and the Commissioner's order provide for different rates and cover different time periods. Furthermore, the Commissioner's interim rate increase may be reduced or withdrawn at any time. In addition, this case is not moot because it involves issues of continuing public interest which are bound to recur yet evade appellate scrutiny in the process of implementing Proposition 103. (See Motown Record Corp. v. Brockert (1984) 160 Cal.App.3d 123, 128, 207 Cal.Rptr. 574.)

6.  Our holding makes it unnecessary to reach other issues raised by the trial court's order including: (1) whether the court exceeded its jurisdiction in directing a specific rate increase; (2) whether the 40 percent figure was arbitrary, capricious and unsupported by substantial evidence; and (3) whether the order adequately protects the current policyholders' right to a refund, with interest, if any portion of the rate increase subsequently be found to be excessive.

7.  Some appellate courts have taken the view failure to exhaust administrative remedies does not deprive the court of subject matter jurisdiction, i.e., that the defect is waived if not objected to in the trial court. (See Green v. City of Oceanside (1987) 194 Cal.App.3d 212, 219–222, 239 Cal.Rptr. 470; Doster v. County of San Diego (1988) 203 Cal.App.3d 257, 260, 251 Cal.Rptr. 507; Wallis v. Farmers Group, Inc. (1990) 220 Cal.App.3d 718, 735, 269 Cal.Rptr. 299.) None of these cases, however, dispute Abelleira's central holding that exhaustion of administrative remedies is “not a matter of judicial discretion, but is a fundamental rule of procedure ․ binding upon all courts.” (Abelleira v. District Court of Appeal, supra, 17 Cal.2d at p. 293, 109 P.2d 942.) See Green v. City of Oceanside, supra, 194 Cal.App.3d at page 221, 239 Cal.Rptr. 470; Doster v. County of San Diego, supra, 203 Cal.App.3d at page 260, 251 Cal.Rptr. 507; Wallis v. Farmers Group, Inc., supra, 220 Cal.App.3d at page 735, 269 Cal.Rptr. 299. We are not concerned with waiver in the present case because the Commissioner vigorously argued in the trial court Allstate had failed to exhaust its administrative remedies.

8.  While this case was pending in the trial court, the Commissioner was in the process of conducting hearings on the rating factors prescribed by section 1861.02 and the fair rate of return prescribed by sections 1861.01 and 1861.05.

9.  This task is not made any easier by having to defend lawsuits by insurance companies challenging virtually every move she makes. According to letter briefs filed by the parties there are currently 17 lawsuits pending on issues related to the Commissioner's ratemaking proceedings, including the case at bar. (Where several suits have been ordered co-ordinated we have counted them as one suit.)As should be obvious from this rather lengthy essay on the importance of the exhaustion of remedies doctrine, we intend this opinion to send a message to all interested parties—insurers, consumers and the Commissioner—as well as the trial courts—that this doctrine will be strictly enforced, at least by this appellate court, to the end that the administrative decisions necessary to implement Proposition 103 can be made expeditiously. Once those decisions are made, and the courts have administrative records before them, it will be possible to make an “informed analysis” of any claim the regulations are confiscatory on their face or as applied. (See Calfarm Ins. Co. v. Deukmejian, supra, 48 Cal.3d at p. 825, fn. 18, 258 Cal.Rptr. 161, 771 P.2d 1247.) Attempting to resolve the innumerable issues that can arise under Proposition 103 on an ad hoc basis undermines the efficiency of the administrative and judicial process, wastes time and public money and unnecessarily delays the proposition's goal “to make insurance more available and affordable.” (Id. at p. 840, 258 Cal.Rptr. 161, 771 P.2d 1247.)

10.  See Calfarm Ins. Co. v. Deukmejian, supra, 48 Cal.3d at page 825, footnote 18, 258 Cal.Rptr. 161, 771 P.2d 1247.

11.  Allstate joined in a request by CAARP, the organization, for an increase in assigned risk rates and petitioned the Commissioner for a permanent and interim increase in its regular and assigned risk rates. However, it did not exhaust either remedy. (See McHugh v. County of Santa Cruz (1973) 33 Cal.App.3d 533, 538–539, 109 Cal .Rptr. 149 [party must not only raise the issue but must pursue it to a final administrative conclusion].) As the trial court noted, the Commissioner rejected the proposed decision granting a 112 percent rate increase, but did not reject a rate increase per se. Further hearings on the assigned risk plan were pending at the time the trial court issued its writ of mandate. Thus, assuming the CAARP request for a rate increase satisfied Allstate's duty to first request a rate increase from the Commissioner, (see § 1861.05, subd. (b)), it is clear Allstate has not exhausted this remedy. As to Allstate's individual requests for interim and permanent increases in its regular and assigned risk rates, these requests too were pending before the Commissioner at the time the trial court issued its writ of mandate. If the Commissioner had failed to act on these requests for interim relief in a timely manner, a writ of mandate directing her to decide the matters might have been an appropriate remedy but, as far as we can determine, Allstate never pursued this remedy. (Cf. Ballard v. Anderson (1971) 4 Cal.3d 873, 884, 95 Cal.Rptr. 1, 484 P.2d 1345.) Even assuming the requests for interim relief have been denied, at least de facto, a writ directing the Commissioner to grant interim relief would not be appropriate for the reasons explained in Part II below.

12.  See discussion infra, pages 546–547.

13.  See footnote 8 and accompanying text, supra, page 534.

14.  (Cf. §§ 1861.02, subd. (c), 1861.05; Calfarm v. Deukmejian, supra, 48 Cal.3d at pp. 812–813, 258 Cal.Rptr. 161, 771 P.2d 1247.)

15.  It cannot be disputed California's Insurance Commissioner has similar power. Section 12921 provides, “The commissioner shall perform all duties imposed upon [her] by provisions of this code ․ and shall enforce the execution of such provisions and laws.” Section 8, subdivision (a) of Proposition 103 (uncodified) states, “This act shall be liberally construed and applied in order to fully promote its underlying purposes.” Among those purposes is “to ensure that insurance is fair, available and affordable for all Californians.” (Prop. 103, § 2 [uncodified].) Moreover, the Commissioner's powers are not confined to those expressly conferred by statute; “ ‘rather, “[i]t is well settled in this state that [administrative] officials may exercise such additional powers as are necessary for the due and efficient administration of powers expressly granted by statute, or as may fairly be implied from the statute granting the powers.” ” ’ (Calfarm Ins. Co. v. Deukmejian, supra, 48 Cal.3d at pp. 824–825, 258 Cal.Rptr. 161, 771 P.2d 1247, citations omitted, emphasis by the court.)

16.  See footnote 9, supra, pages 534–535. As the trial court recognized in the present case, granting insurers an immediate 112 percent increase in assigned risk rates would give them further incentive to attempt to delay and disrupt the ratemaking process. Therefore the court ordered, as a condition to the interim rate increase, Allstate is “to fully cooperate in the administrative hearings and to refrain from causing unnecessary delays.”

17.  The genesis for the rule cited in Payne and the other cases relied upon by Allstate was an attempt by regulated utilities to capitalize past losses upon which a fair return in the future would be based. (See Galveston Elec. Co. v. Galveston (1922) 258 U.S. 388, 399, 42 S.Ct. 351, 356, 66 L.Ed. 678.) Here, as we have repeatedly stressed, we are not dealing with permanent rates but with an interim rate structure intended to bridge the gap from a wholly unregulated ratemaking procedure to a very complex one. Furthermore, if we applied the rule that retroactive ratemaking is prohibited, as urged by Allstate, then the refund provision the trial court ordered would also be unlawful. If rates must always look to the future, then the Commissioner lacks authority to compensate either the insurance companies or the policyholders for inequities that existed in the past. (See In re Cent. Vermont Public Service Corp. (1984) 144 Vt. 46, 473 A.2d 1155, 1159.)

18.  As the Commissioner points out, there was no evidence before the trial court that the ultimate rates approved by the Commissioner would be higher as a result of the recoupment regulation. When matters finally settle, it may turn out Allstate has not suffered a confiscatory loss at all. (See ratemaking discussion, supra, p. 534.)

19.  In fact the Commissioner did just that in a subsequent order granting interim rate increases in assigned risk policies. See, footnote 5, page 530, supra.

1.  Judicial notice of this interim order is proper under Evidence Code sections 452, subdivisions (b) and (c), and 459. All counsel brought the Commissioner's interim order to the attention of this court and submitted written briefs pertaining to the affect of the order.Relevant portions of section 452 are as follows: “ § 452. Matters which may be judicially noticed“Judicial notice may be taken of the following matters to the extent that they are not embraced with Section 451:[¶] ․“(b) Regulations and legislative enactments issued by or under the authority of the United States or any public entity in the United States.“(c) Official acts of the legislative, executive, and judicial departments of the United States and of any state of the United States․”Relevant portions of section 459 are as follows: “ § 459. Judicial notice by reviewing court“(a) ․ The reviewing court may take judicial notice of any matter specified in Section 452․”

2.  I find tenuous the position of the majority in footnote 5, page 530 of the lead opinion in which a lean reference is made to purportedly unmooted remaining issues on this appeal. To the contrary, the gravamen of this appeal is the issue of the correctness of a 40 percent interim rate increase allowed by order of the trial court which has now been mooted by the 70 percent interim rate increase allowed by the Commissioner.

3.  The offending language in the majority opinion, in my view sounds more like a clarion call for courts to prejudge future cases in favor of the Commissioner in cases involving exhaustion of administrative remedies. A reasonable assumption is that the majority wishes to relegate any issues involving the diligence of the Commissioner or involving continuing damages, to positions of unimportance. That offending language is found on page 534, footnote 9, of the majority opinion as follows:“․ [¶] As should be obvious from this rather lengthy essay on the importance of the exhaustion of remedies doctrine, we intend this opinion to send a message to all interested parties—insurers, consumers and the Commissioner—as well as the trial courts—that this doctrine will be STRICTLY ENFORCED, at least by this appellate court, to the end that the administrative decisions necessary to implement Proposition 103 can be made expeditiously. Once those decisions are made, and the courts have administrative records before them, it will be possible to make an “informed analysis” of any claim the regulations are confiscatory on their face or as applied. (See Calfarm Ins. Co. v. Deukmejian, supra, 48 Cal.3d at p. 825, fn. 18, 258 Cal.Rptr. 161, 771 P.2d 1247.) Attempting to resolve the innumerable issues that can arise under Proposition 103 on an ad hoc basis undermines the efficiency of the administrative and judicial process, wastes time and public money and unnecessarily delays the proposition's goal “to make insurance more available and affordable.” (Id. at p. 840, 258 Cal.Rptr. 161, 771 P.2d 1247.) (Emphasis added.)

1.  All references herein are to the California Insurance Code, unless otherwise specifically noted.

2.  This has also been expressed as a 3.4% Operating Return in the Commissioner's administrative adjudication and regulations to which reference is hereby made for further detail.

3.  A related issue is the issue of affordability of insurance and the Commissioner has previously taken steps to provide a two-tiered CAARP plan which included a program called the Insurance Affordability Methodology (the “IAM”). The Los Angeles Superior Court declared that the Commissioner would not be permitted to create a two-tiered CAARP plan and the Commissioner has appealed. That appeal is now pending in the Court of Appeal, Second Appellate District.

FRED WOODS, J., dissented and filed opinion.