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ALLSTATE INSURANCE COMPANY and Allstate Indemnity Company, Plaintiffs v. John GARAMENDI, as Insurance Commissioner of the State of California, Defendant and Appellant,
ALLSTATE INSURANCE COMPANY and Allstate Indemnity Company, Plaintiffs and Appellants, v. John GARAMENDI, as Insurance Commissioner of the State of California, Defendant and Appellant.
This appeal is from a preliminary injunction issued in underlying coordinated actions filed by various automobile insurers in response to emergency regulations (Calif.Code of Regulations Ch. 5, Subch. 4.7, §§ 2632.1-2632.18) promulgated by former Insurance Commissioner Roxani Gillespie. These emergency regulations implement the portions of Initiative Proposition 103 (Ins.Code, §§ 1861.01-1861.16) controlling the manner in which insurers may determine premium rates for the purchase of automobile insurance. The actions include claims for injunctive and declaratory relief and writs of mandate. Answers and a complaint in intervention also seek declaratory relief.
On motion of the plaintiff insurance companies, the trial court entered the preliminary injunction at issue on this appeal. This order is in two parts. First, pending trial or further order of court, it enjoins the enforcement of the pertinent emergency regulations. Second, pending trial the injunction restrains the Commissioner from implementing any similar regulations which are not “cost based,” a term of art adopted by the parties to refer to a method of establishing rates espoused by the insurance company plaintiffs.
The emergency regulations are not “cost based” in that they establish a rating methodology which is divorced from the risk/cost of insurance, and require that, despite their relative contribution to this risk/cost, driving safety record account for more of the premium dollar than do miles driven, miles driven account for more than does driving experience, and all other actuarially justified factors approved by the Commissioner account in the aggregate for less than driving experience. (Cal.Code of Regulations, ch. 5, subch. 4.7, § 2632.8.) Thus under these regulations, at the minimum, driving safety record must account for at least about 26.5 percent of the premium dollar attributable to actuarial factors, miles driven for about 25.5 percent, driving experience for about 24.5 percent, and all other actuarial variables combined for about 23.5 percent. The first three factors are not the greatest contributors to the empirically established risk of claims on automobile insurance.
The record before the trial court on the motion for preliminary injunction required the trial court to choose from between the approach adopted in the regulations, denominated “tempered” by the parties and the “cost based” methodology advocated by insurers. As used in the proceedings “cost based” refers to an actuarial sequential analysis of insurance industry selected empirical data with respect to risk which gives priority in order in the sequence to driving record, miles driven and years of driving experience and then considers other actuarially justified variables approved by the Commissioner without lumping these latter variables into a single category. This methodology adjusts the weight of each factor considered to avoid cumulation of effect so that no factor is weighted beyond its singular contribution to the risk/cost. No other approach was placed before the trial court although the record contains substantial evidence that the two polar approaches of the parties were not the only methods of attempting to satisfy the requirements of Proposition 103.
Insurance Commissioner Gillespie adopted the relevant portion of the emergency regulations on the assumption that they were dictated by Insurance Code section 1861.02. (Cal.Code of Regulations, ch. 5, subch. 4.7, August 13, 1990 Department of Insurance Note.) However, she expressly determined that, standing alone, this approach would result in arbitrary and discriminatory rates because these would be excessive for drivers in predominately rural areas of the state and inadequate for drivers in predominately urban areas. (Ibid.). To avoid this perceived result, the emergency regulations also require that automobile insurers issue insurance to insureds at rates which are capped so that the premium payable by the insured must be the lowest of: the rate determined by the “tempered approach” included in the regulations, the rate determined by the “cost-base” approach, or a rate based on prior premiums adjusted for cost of living increases. (Ibid., § 2632.8(e)(f).)
All parties to this appeal now agree that Insurance Commissioner John Garamendi, Commissioner Gillespie's successor in the office, has determined that the “caps” are legally flawed and intends to allow the emergency regulations to lapse, to develop additional actuarial data, and to issue different “tempered” regulations without the caps. All of the parties to this appeal agree with Commission Garamendi that the caps are without legal support. They agree also that the actions of Commissioner Garamendi render the appeal from the first portion of the preliminary injunction moot. Respondents concede that, with the first portion of the preliminary injunction mooted, the second portion of the trial court's preliminary injunction should no longer be in effect. Respondents thus acknowledge that Commissioner Garamendi is free to pursue his contemplated course of action.
Thus by the briefs alone appellants have effectively been afforded the relief which they seek by pursuing this appeal, the elimination of all aspects of the preliminary injunction. One would think that, with mutual acknowledgement that both aspects of the preliminary injunction are out of the way, the parties would have directed their attention and resources to participating in the development of Commissioner Garamendi's new regulations and later, if such proved necessary, to resolution of the underlying action thus resolving the issue without the delay incident to further pursuit of this appeal. But this was not to be.
Appellants now argue that this appeal should be the vehicle for resolution of abstract questions phrased in different forms by the various appellants. The Commissioner phrases the question as whether Proposition 103, and particularly Insurance Code sections 1861.02(a) and 1861.05, requires or permits the Insurance Commissioner, to “temper” factors relevant to the actuarial determination of automobile insurance rates-to establish standards for automobile insurance rating methodology which to some degree depart from traditional actuarial practice. Intervenors Voter Revolt and Consumers' Unions phrase the issue as the validity of the emergency regulations without the caps.
In short appellants ask this court to resolve declaratory relief claims and cross claims now pending in the trial court on a record developed only in relation to a motion for a provisional remedy and never considered in the concrete by the trial court except in connection with a set of emergency regulations now defunct. Some of the respondents argue that this court should order dismissal of the underlying action-in short to about summarily well pleaded and answered claims for injunctive and declaratory relief without a hearing in the trial court on the merits.
We conclude that the mutual concession of mootness of the first portion of the preliminary injunction at issue should be accepted (Jomicra, Inc. v. California Mobile Home Dealers Assn. (1970) 12 Cal.App.3d 396, 400-402, 90 Cal.Rptr. 696) and refer to this portion later in this opinion only as it is relevant to the contentions of the parties. We conclude as to the remainder of the appeal that: (1) In the absence of Commissioner Garamendi's new regulations, and former Commissioner Gillespie's determination that the concededly invalid caps were indispensable to her now defunct regulations, this appeal would require us to resolve abstract questions which are not ripe for decision; and (2) While there are situations where a public interest in quick and definitive resolution of important questions of law requires appellate court attention on the merits despite the absence of a ripe and concrete controversy, this is not one of them.
As we explain below, determination of the abstract issues which appellants argue should be decided on this appeal is too error prone to undertake. Proposition 103 adopts a convoluted statutory scheme in language which is frequently internally contradictory 1 and may incorporate terms of art used in the insurance industry. By acting before Commissioner Garamendi has developed his additional data and issued his new regulations we are denied the benefit of the Commissioner's expertise in interpreting the section and the record developed by him to support his conclusions. While we are afforded the benefit of the Commissioner's brief on this appeal, this advocacy instrument is devoted strictly to questions of law which as we explain below are not at all clear cut and which while based on the identical record developed by the predecessor Insurance Commissioner are contrary to the predecessor's determinations. Respect for the rule of law counsels that the normal deference due by the judiciary to administrative interpretation does not require that the law change with the personality of the Commissioner, but rather that this deference is due to the rationale of the administrative agency and its basis.
Nor is action by this court at this juncture necessary to expedite prompt implementation of Proposition 103. No declaration by this court is required to enable the Commissioner to adopt his proposed new formulation of “tempered” regulations while supported them with an administrative record. As the parties acknowledge the second portion of the preliminary injunction which would otherwise preclude implementation of such regulations must be vacated. While the Commissioner's discretion is limited by the contours of Proposition 103 and its statutory purpose, the Commissioner's new regulations may avoid further litigation. If litigable issues do arise their resolution is best left to consideration after the new regulations are formulated.
In view of the mootness of the first portion of the preliminary injunction and the termination of the second prong of the trial court's order we do not address the correctness of the preliminary injunction. We conclude also that the argument of some of the respondents that the underlying action should be dismissed is misplaced.
Finally to avoid any misconceptions we emphasize the obvious-that our action here cannot be construed as accepting the trial court's statement of decision or findings of fact with respect to the second portion of its order as controlling the future course of the litigation. This statement and these findings concluding that Insurance Code section 1861.05 precludes any adjustment by the Commissioner of the actual weight of factors used to determine insurance rates must be construed as tentative so far as the merits of the case are concerned and relevant only to the issuance of the preliminary injunction. (Continental Baking Co. v. Katz (1968) 68 Cal.2d 512, 528, 67 Cal.Rptr. 716, 439 P.2d 889; State Bd. of Barber Examiners v. Star (1970) 8 Cal.App.3d 736, 739-740, 87 Cal.Rptr. 450.) They are of no significance after the preliminary injunction is terminated before trial.
THE CONTEXT OF THE CASEA. Proposition 103
Prior to November 8, 1988 state regulation of insurance competitive practices and insurance rates was minimal. Nevertheless insurers were exempt from state and federal antitrust laws. Based on such market forces as existed in this milieu, they set their own rates subject only to after-the-fact Insurance Commissioner review upon consumer complaints, a power rarely exercised. (Prop. 103, 1988 Ballot Pamphlet, Analysis by Legislative Analyst, Background.) Effective November 8, 1988, Initiative Proposition 103 dramatically modified state regulation of insurers.
The objectives of the initiative and the purposes of the statutory scheme encompassed in Proposition 103 are contained in Findings and Declarations preceding the statutory language. These declare that: (1) “Enormous increases in the cost of insurance has made it unaffordable and unavailable to millions of Californians;” and (2) “The existing laws inadequately protect consumers and allow insurance companies to charge excessive, unjustified and arbitrary rates.” The Findings and Declaration continue:
“Therefore ․ insurance reform is necessary. First property-casualty insurance rates shall be immediately rolled back ․ and reduced no less than 20% ․ [A]utomobile insurance rates shall be determined primarily by a driver's safety record and mileage driven ․ [I]nsurance rates shall be maintained at fair levels by requiring insurers to justify all future increases.”
The purpose of the reform is declared to be, “to protect consumers from arbitrary insurance rates and practices, to encourage a competitive insurance market place ․ and to ensure that insurance is fair, available, and affordable for all Californians.” (42A West, Annotated Codes, 1991 Cumulative Pocket Parts, pp. 102-103.)
Proponents of Proposition 103 argued that it would decrease insurance rates of good drivers and stop unfair rate increases in the future. (1988 Ballot Pamphlet, p. 100.) The opponents countered that while automobile insurance rates would decline in urban areas, rates would increase on the average of twenty-two percent for two-thirds of California drivers. (Ballot Pamphlet to Proposition 103, pp. 100-101.) In rebuttal the proponents insisted that, “Good drivers throughout the state will pay less than they do now.” (Ibid., at p. 101.)
In its parts significant to this appeal the initiative contains the following provisions. Insurance companies are required to reduce their existing rages for motor vehicle, fire, and liability insurance by at least twenty-percent below the rates prevailing on November 8, 1987. (Ins.Code, § 1861(a).) Insurers can escape some or all of the required reduction only by establishing by November 11, 1989 that they are substantially threatened with insolvency. (Ins.Code, § 1861(b).) Prior approval of the Insurance Commissioner is required before any insurance rates can be raised after November 11, 1989. (Ins.Code, § 1861.05(b).) Rates and premiums for automobile insurance policies are required to 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 commissioner may adopt by regulation that have a substantial relationship to risk of loss.” (Ins.Code, § 1861.02(a).) No rate shall be approved or remain in effect which is excessive, inadequate, unfairly discriminatory, or otherwise in violation of the initiative. (Ins.Code, § 1861.05.) “Good drivers” are entitled to at least a twenty-percent discount “below the rate they would otherwise have been charged for the same coverage.” (Ins.Code, § 1861.02(b).)
In Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805, 258 Cal.Rptr. 161, 771 P.2d 1247 various insurance companies and the Association of California Insurance Companies challenged Proposition 103 as unconstitutional on its face. (48 Cal.3d at p. 812, 258 Cal.Rptr. 161, 771 P.2d 1247.) In an original proceeding, the Supreme Court sustained the challenge to portions of the statutory scheme by invalidating, among other provisions, the twenty-percent from 1987 rates roll-back and substituting in its place a fair rate of return to insurers standard. (48 Cal.3d at 816-821, 258 Cal.Rptr. 161, 771 P.2d 1247.) The Calfarm opinion expressly notes that the provisions of Proposition 103 dealing with premium rates and the good discount were not considered by the Court. (48 Cal.3d at p. 813, n. 4, 258 Cal.Rptr. 161, 771 P.2d 1247.)
The Court, however, found the facially unconstitutional portions of the Proposition 103 scheme to be severable from its remaining provisions. Noting that a severability clause in the initiative was not conclusive so that severability should be tested by completeness of the remainder of the initiative, and whether the remainder would have been enacted if the partial invalidity had been foreseen, (48 Cal.3d at p. 821, 258 Cal.Rptr. 161, 771 P.2d 1247) the Court concluded:
“[T]he remainder of the initiative, after deleting the insolvency standard, would likely have been adopted by the people had they foreseen the invalidity of the insolvency standard. The voters who enacted Proposition 103 would presumably prefer rate setting and regulation under the balance of the initiative to the method of setting insurance rates which existed before the initiative was enacted.” (48 Cal.3d at 822, 258 Cal.Rptr. 161, 771 P.2d 1247.)
C. The Insurance Commissioner's Emergency Regulations
With the hiatus in implementation of Proposition 103 caused by the pendency of Calfarm terminated by resolution of that case in the Supreme Court, Commissioner Gillespie in June through November of 1989 held hearings for the purpose of developing emergency regulations to implement Proposition 103 as modified in Calfarm. The Commissioner impaneled a three member Actuarial Advisory Committee whose members' backgrounds reflected experience representing industry, consumers groups, and the Department of Insurance. (August 13, 1990 Department of Insurance Informative Digest.)
The members of the Actuarial Advisory Committee testified at a November hearing. All members of the Committee agreed on the following:
1. Regulations should be issued which require a sequential analysis of automobile rating factors.
2. The factors of driving safety record, mileage driven, and years of driving experience must be included in the regulations, and the regulations should require that these three factors, which the Committee denominated “Mandatory Factors” should be considered first and in sequence in the sequential analysis.
3. The regulations should provide additional actuarially valid variables denominated by the committee “Optional Factors”, that insurers may use in determining insurance premiums, and that these should be applied after the three Mandatory Factors.
4. The three Mandatory Factors are not necessarily those which would be the three dominant factors if ratings were made purely on a cost-based approach. It is quite possible that one or more of the Optional Factors would, on a cost based approach, warrant greater weight than any one or even all three combined of the three Mandated Factors. Based upon the evidence adduced at the hearings before the Commissioner this is very likely. (Department of Insurance Informative Digest, pp. 5-6.)
However, the Committee divided on the methodology to be employed in the rating system. One view favored the approach called “tempered” eventually adopted by former Commissioner Gillespie. The other favored the approach called “cost-based” to which we have referred in the opening portions of this opinion. (Department of Insurance Informative Digest, at pp. 6-7.) No member of the committee recommended the “caps” employed by former Commissioner Gillespie in her emergency regulations as promulgated, (Ibid.) and we have found no evidence in the record supporting the use of the caps. With respect to the impact of the two approaches presented to the Commissioner the Committee unanimously concluded:
“[I]f the cost-based approach is utilized, even with regression analysis methodology, then optional factors will likely require premium rates in certain urban areas, such as the Los Angeles inner city area, to be higher than those in most non-urban areas․ [I]f the cost-based approach is “tempered” by overriding the weight of the optional factors, then premium rates in non-urban areas will likely increase while rates in certain inner city areas will likely decrease.”
(Department of Insurance Informative Digest, at p. 7.)
Armed with the information developed at the hearings including the Actuarial Advisory Committee Report, Insurance Commissioner Gillespie adopted the emergency regulations.
PROCEEDINGS IN THE TRIAL COURTA. The Underlying Actions
Plaintiffs filed, or later joined in filing, complaints attacking the emergency regulations to the extent these deal with automobile insurance rates. So far as is pertinent here, the complaints include causes of action seeking declaratory relief on the grounds that the emergency regulations are arbitrary and capricious and violate Insurance Code sections 1861.02 and 1861.05. The complaints also seek injunctive relief against enforcement of the emergency regulations and writs of mandate to compel the Commissioner to issue lawful regulations. Intervenor Consumers' Union filed a First Amended Complaint in Intervention seeking declaratory relief to the effect that the emergency regulations, but not the “caps” contained in subsection (e) of section 2632.8 of the emergency regulations, are valid. Voter Revolt intervened supporting the emergency regulations.
B. The Preliminary Injunction
The insurance company plaintiffs then filed their motion for preliminary injunction thus triggering the proceedings which result in this appeal. The trial court was faced with only two possible formulations of regulation advocated by the contesting parties, one of which had been rejected by the Insurance Commissioner and the other determined by the Commissioner to be discriminatory and to fail to meet the purpose of Proposition 103 absent caps now conceded to be unlawful. In this posture of the case the trial court indicated its intention to preserve the status quo pending trial be issuing a preliminary injunction staying enforcement and implementation of the pertinent portions of the emergency regulations but subject to further order of the court. This decision found its way into the first portion of the preliminary injunction, that which the parties all agree is now moot.
However, despite correctly observing that it could not pass on what was not before it, the trial court was persuaded by argument of counsel for then Commissioner Gillespie that new regulations could not be written without quick appellant action to resolve the question of the relative impact of Insurance Code sections 1861.02 and 1861.05 on the power and duty of the Insurance Commissioner to require that automobile insurers deviate from establishing insurance rates based upon the companies' proposed methodology of determining the cost/risk of issuing insurance. Accordingly the trial court suggested that the parties prepare an order which would sharpen the issue for appeal. The second portion of the preliminary injunction and language in the trial court's statement of decision supporting this portion of the order are the result.
The second portion of the preliminary injunction reads:
“This order shall, pending trial, further enjoin the enforcement or implementation of regulations that prohibit the consideration of rating factors (such as age, gender and marital status) that may have a substantial relationship to risk of loss, and shall likewise enjoin the enforcement or implementation of regulations that artificially weight or “temper” any of the rating factors specified in section 1861.02, subdivision (a), so as to result in rates and premiums that are not cost-based. This order is based upon the Court's finding that a requirement to deviate from cost-based pricing would violate the mandate of Insurance Code section 1861.05 that “[n]o rate [be] excessive, inadequate, [or] unfairly discriminatory․”
Significantly, nothing precludes the Commissioner from taking further action to develop new regulations and presenting them to the court as a concrete foundation supporting a motion to modify or vacate the preliminary injunction. (6 Witkin, California Procedure Provisional Remedies, p. 273).
The statement of decision includes the following language:
“[O]nly a cost-based approach will afford consumers the relief they sought when they voted for Proposition 103․ Artificial weighting of rating factors is invalid; it is not actuarially sound and its results in unfairly discriminatory, inadequate and excessive rates․”
APPELLATE REVIEWA. Mootness
We agree with the mutual concession of the parties that the first portion of the preliminary injunction at issue here-that which restrains enforcement of former Commissioner Gillespie's emergency regulations-is moot. Her successor, Commissioner Garamendi, proposes to allow these regulations to expire and to issue new regulations. Hence no substantial rights can be affected by affirming or reversing this portion of the trial court's order, and to the extent the appeals refer to the first portion of the preliminary injunction they must be dismissed. (Consol. etc. Corp. v. United A. etc. Workers (1946) 27 Cal.2d 859, 863, 167 P.2d 725; Keefer v. Keefer (1939) 31 Cal.App.2d 335, 337, 87 P.2d 856.)
The second portion of the preliminary injunction-that which deals with enforcement and implementation of new regulations which are not “cost based”- presents a closer question. Appellants correctly argue that a matter is not moot where the situation which precipitated the litigation will remain a continuing controversy.” (DiGiorgio Fruit Corp. v. Dept. of Employment (1961) 56 Cal.2d 54, 58, 13 Cal.Rptr. 663, 362 P.2d 487.) But the inherent nature of preliminary injunctions is that they are modifiable for changed circumstances. (See 6 Witkin, California Procedure, Provisional Remedies, § 322, pp. 272-273.) The development by the present Insurance Commissioner of new regulations based on new actuarial data supplanting the emergency regulations of his predecessor, when the predecessor had argued to the trial court that development of new regulations was not possible without appellate guidance, is such a significant change in circumstances as to compel that the second portion of the preliminary injunction be vacated.
Neither the proceeding leading to the preliminary injunction nor the appeal from it affects the underlying action. (See Witkin, Ibid., §§ 248, 323; cf. Camp v. Board of Supervisors (1981) 123 Cal.App.3d 334, 358, 176 Cal.Rptr. 620 distinguishing the situations where, unlike in the case at bench where the Commissioner's new regulations will be relevant to the underlying action, nothing relevant to the underlying action beyond a legal issue dispositive of both the preliminary injunction and the merits of the case is involved.) To this extent the situation of the appeals closely approximates mootness in the sense that vacation of the existing order will remove from controversy the only effective portion of the injunction, and the cause remains to be litigated unimpacted by the statement of decision in the proceedings with respect to the interlocutory order.
In view of the tenor of oral argument and to avoid any misconception that might flow from our dismissing the appeal from the second portion of the preliminary injunction as moot we remand the matter to the trial court with directions to vacate it. We emphasize that nothing in the vacated order and the statement of decision supporting it is of continued vitality.
B. Appellants' Further Contentions
Citing Common Cause v. Board of Supervisors (1989) 49 Cal.3d 432, 447-448, 261 Cal.Rptr. 574, 777 P.2d 610, Intervenor/Appellant, Voter Revolt argues that an appellate court's role requires reversal on the merits where a preliminary injunction is based upon an erroneous legal premise. Voter Revolt misreads Common Cause. It is true that there the Supreme Court reversed a preliminary injunction because of its interpretation of the law, but mootness and ripeness were not involved, and the pertinent legal issue was dispositive of the merits with no need for further proceedings.
Appellants correctly state that mootness and ripeness may yield to require definitive appellate court action where speedy resolution of legal questions of wide and continuing public importance are involved. (See, In Re M. (1970), 3 Cal.3d 16, 23, 89 Cal.Rptr. 33, 473 P.2d 737; 9 Witkin, California Procedure, Appeal, § 526, at pp. 510-513.) The question here, however, are whether resolution of this appeal on the merits will contribute to speedy implementation of Proposition 103 and whether the question which appellants seek to be resolved is sufficiently ripe for resolution. We have already noted that in the particular circumstances of this case both questions must be answered in the negative.
We have no indication of what form Commissioner Garamendi's new regulations will take or what his new actuarial data and other facts adduced in support of them will be. Perhaps because no party or intervenor directly represented the interest of people whose insurance rates would increase if Commissioner Gillespie's regulations were implemented without the caps,2 the trial court in considering the motion for preliminary injunction was left to choose from between two extreme positions. One was Insurance Commissioner Gillespie's approach giving absolute weight by percentages to what the regulations call the Mandatory Factors, an approach expressly determined by Insurance Commissioner Gillespie to be discriminatory and contrary to the purposes of Proposition 103 without the caps. The other was that of the insurers giving priority in consideration to the same three factors in a process of sequential analysis.
Forced to choose between these alternatives the trial court chose the latter. On the record before the court that decision may have or may not have been correct. But on another record disclosing the new regulations and the new actuarial data which Commissioner Garamendi is developing and possibly also additional factual background the situation will be quite different. The Commissioner argues in this appeal that the very concept of “cost-based pricing” as the term has been employed in this case “is at best only a rough approximation to neutral, scientific process, if not a complete fiction.” The additional data developed by Commissioner Garamendi may bear this out convincingly, and if so the “cost based” method advocated by respondents may be found to be so arbitrary and discriminatory in itself as to dispel arguments of arbitrariness and discrimination made by the respondents against artificial tempering. Harvey Rosenfeld, Chair of Voter Revolt and a principal proponent of Proposition 103, argued to the trial court that the system advocated by the insurers was not truly cost based while that of the emergency regulations was equally, or perhaps more, cost based. This argument, while rejected in the face of contrary evidence by the trial court, may find additional support in this new evidence.
With these possibilities in mind there is only one answer to the abstract questions on which appellants ask us rule: deviation from a “cost-based system”, as the parties define the phrase, will not be precluded by Insurance Code section 1861.05 if further hearings before the Commissioner and the trial court support this conclusion. Even on the present record, deviation in some as yet to be defined fashion not found to be discriminatory and contrary to the purposes of Proposition 103 may be permissible. But with the force of the preliminary injunction terminated these possibilities are open without further action by this court.
The only meaningful relief that we can visualize would go to the extent of the Commissioner's authority to require that automobile insurers deviate from pricing of automobile insurance for various classes of insureds on the basis of actuarially determined risk/cost. Intelligent determination of this question cannot occur in the abstract; it must await the concrete foundation of the Commissioner's new regulation and his support for them.
Appellants argue that Insurance Code section 1861.02 demands a methodology for setting insurance rates similar to that in the emergency regulations without the caps. This argument focuses on the reference to “premiums” in section 1861.02 and treats section 1861.05's prohibition on “rates” as distinguished from “premiums” which are inadequate, excessive or unfairly discriminatory as applicable only to the overall fair return to insurers guaranteed by Calfarm. Alternatively, appellants argue that “unfairly discriminatory” as used in section 1861.05 merely incorporates Insurance Code section 11628 which prohibits insurers from discriminating against applicants for insurance on the basis of race, color, religion, national origin, ancestry, fluency in the English language or territory of less than twenty square miles.
Appellants find a voter intent reinforcing their construction of the initiative by the statement from the ballot pamphlet that, after Proposition 103, automobile insurance rates will be determined by how the insured drives and not by where the insured lives. From this the appellants argue that the intent of the voters who enacted Proposition 103 is expressed by the form of tempering incorporated in the emergency regulations. Appellants extend this argument by reference to statements of the opponents to the initiative that its effect will be to raise the rates of nonurban area drivers.
The issue is not nearly as clear cut as this argument implies. First, the fair inference is that the voters in favor of the initiative rejected the arguments in opposition and accepted the rebuttal to these arguments to the effect that automobile insurance rates would be reduced for all good drivers. Second, Proposition 103 is not the same statutory scheme that it was before Calfarm; a major promise of roll back of rates which would reduce the insurance cost to all drivers by twenty percent has been found to be significantly empty. What may have been a reduction in the rates of all California “good drivers” with the roll back is not a similar reduction in its absence.
Voter intent is a construct. While the Supreme Court was able to construct an intent in favor of regulation in Calfarm, construction of intent involves a different calculus where rates are concerned, and one very significant aspect of rating has been declared invalid. As disclosed at oral argument, the significant modification of Proposition 103 by Calfarm raises the question of the intended beneficiaries of the initiative's restrictions on rating methodology. Should the section be interpreted to maximize the reduction to a class consisting only of urban drivers or to maximize the number of “good drivers” who benefit from a lesser reduction per driver? This is a question best left to determination after Commissioner Garamendi has developed the predicate for his new regulations and promulgated them.
Nor is the face of section 1861.02(a) read in conjunction with section 1861.05 nearly as clear as appellants argue. A fair reading of Proposition 103 and Calfarm shows that the terms “rates” and “premiums” are used interchangeably. Appellants' argument for a restrictive meaning of “unfairly discriminatory” is based upon a case which has been decertified from publication3 and is hence of no precedential affect.
The interpretation which appellants advocate is but one of several possibilities as is that of the respondents to the effect that sequential analysis does give the requisite increased importance to the so called “Mandatory Factors.” The pertinent portions of Proposition 103 are ambiguous to an extent which demands reasoned construction by the Commissioner beyond that contained in the record compiled by former Commissioner Gillespie as a prelude to intelligent judicial action. (See Mudd v. McColgan (1947) 30 Cal.2d 463, 470, 183 P.2d 10.) By way of illustration only we mention one possible interpretation in addition to these espoused by the parties.
In subparagraphs (1), (2) and (3) Insurance Code section 1861.02(a) refers to driving safety record, number of miles driven, and years of driving experience as “factors.” Subparagraph (4) of this section follows its statement of the permissible use of additional factors with a new sentence. This sentence reads, “The regulations shall set forth the respective weights to be given each factor in determining rates and premiums,” (emphasis added) thus leaving open the question whether the last sentence of subparagraph (4) is applicable to subparagraphs (1), (2) and (3) as well as to the so called “optional factors.”
One possible construction is that this sentence grants the Commissioner discretion to assign weights to all factors including those in subparagraphs (1), (2) and (3), as well as those included in subparagraph (4), so that what have come to be called the “Mandatory Factors” account for some reasonable excess over their actuarial significance as determined by insurance industry practice. In this construction the “decreasing order of importance” language of Section 1861.02 is treated as decreasing relative importance as opposed to the absolute importance assigned by the emergency regulations. With this construction, the prohibition on inadequate, excessive or unfairly discriminatory rates contained in section 1861.05 sets the boundaries of this discretion.
We cannot, and do not, in the present posture of the case suggest that the construction noted in the preceding paragraphs is the correct one or it is necessarily preferable to the position advocated by appellants or that espoused by the respondents or to some as yet undisclosed approach. The present Commissioner's eventual interpretation of the relevant statutory provisions will be entitled to great deference by this court if it is supported by the record and is compatible with the wording and purpose of Proposition 103. (7 Witkin, Summary of California Law, Constitutional Law, § 99.) We note these additional possible constructions only to demonstrate that this is not a case which can be intelligently decided until after the Commissioner has acted.
In addition the argument that Insurance Code section 1861.02 mandates what the Insurance Commissioner found on the record before us to be intentionally discriminatory rates, excessive for some and inadequate for others, such as those contained in the emergency regulations without their caps poses the potential of substantial issues not litigated in relation to the preliminary injunction and not briefed on this appeal. Without intimating how these questions should be decided, suggesting that they are in fact present, or that there are not further significant as yet unlitigated issues, two potential questions come immediately to mind, one of the unsevered contours of Proposition 103 and other related to the purpose of the initiative which in turn may be of constitutional dimension.
Unlike the situation in King v. Meese (1987) 43 Cal.3d 1217, 1229, 240 Cal.Rptr. 829, 743 P.2d 889,87132102 where no state action was involved in the private conduct of insurers refusing to write policies, or in pricing the policies they did write, the portions of the Insurance Code relevant here are state action. It is possible that this action which denies to some classes of insureds the right to purchase insurance at a lower price they otherwise would have paid in order to subsidize purchases of insurance by other insureds must be justified by some rational state interest. (See Allegheny Pittsburg Coal Co. v. Commission of Webster County (1989) 488 U.S. 336, 109 S.Ct. 633, 102 L.Ed.2d 688; City of Rancho Cucamonga v. Mackzum (1991) 228 Cal.App.3d 929, 947, 279 Cal.Rptr. 220; Northwest Financial, Inc. v. State Bd. of Equalization (1991) 229 Cal.App.3d 198, 202, 280 Cal.Rptr. 24.) Appellants find this governmental interest in what they argue is the purpose of Proposition 103-a public response to King v. Meese, supra, which makes automobile insurance which the law requires them to purchase available and affordable to financially poor drivers, particularly those in the inner city, by transferring some of the financial burden these drivers would otherwise bear to all other insureds.
This expression of purpose and governmental interest rekindles the severability question previously addressed in Calfarm. In finding that the unconstitutional roll back of premiums provisions of Proposition 103 were severable, the Supreme Court reasoned: “[T]he remainder of the initiative would likely have been adopted by the people had they foreseen the invalidity of the insolvency standard. The voters who enacted Proposition 103 would presumably prefer rate setting and regulation under the balance of the initiative to the method of setting insurance rates which existed before the initiative was enacted.” (Calfarm, supra, 48 Cal.3d at 822, 258 Cal.Rptr. 161, 771 P.2d 1247.)
If the purpose in enacting the emergency regulations is transferring to other purchasers of automobile insurance some of the burden to the poor of acquiring mandatory automobile insurance, particularly the poor in the inner city whose plight was noted in King v. Meese, a new question of voters intent is present. Whatever we believe the voters should have intended the Calfarm approach requires that consideration be given to whether a sufficient number of the small majority voting in favor of Proposition 103 presumably would have preferred regulation which transferred to them some of the cost previously borne by the disadvantaged in King v. Meese-in short a question of whether Insurance Code section 1861.02(a) falls along with the roll back. Such a result retains a remainder of Proposition 103 complete in itself. Regulation would be controlled by section 1861.05, a result compatible with Calfarm.
In addition, this stated governmental interest may raise questions of under and over inclusiveness in the context of the constitutional guarantee of equal protection. Section 1861.02(a) as interpreted by appellants does not benefit substantially all, or necessarily most, of financially poor Californians who are required to purchase automobile liability insurance. The record discloses that with this interpretation, the cost of insurance will increase for the poor farm worker in the central valley, the underemployed logger in Humbolt County, and other similarly situated disadvantaged people in nonurban areas.
In addition the largesse of the emergency regulations is not limited to the poor. The urban superaffluent, most notably in Beverly Hills, where claims frequency is over twice that in Monterey County and claims amounts bear a similar ratio, will receive a similar benefit.
By no means do we suggest how these questions should be decided or even that they are in fact present. Our point is that these questions are potentially present and have not yet been litigated and that deferring judicial action at this time is preferable to our requesting that the unlitigated issues be briefed on appeal. There appear to be four broad possibilities. First, based on the information he is developing Commissioner Garamendi may adopt regulations similar to those of former Commissioner Gillespie. If so the issues, if they are present, will be ripe and fully briefed on a new and concrete record. Second, Commissioner Garamendi may develop information of an as yet unexpressed purpose of Proposition 103 supporting his methodology which does not raise the potential severability and equal protection problems. If so, the issues will be narrowed. Third, the Commissioner may adopt a methodology very much different from the emergency regulations. If so, the questions we have noted may not arise. Fourth, the new actuarial data developed by Commissioner Garamendi may disclose conclusively that the questions are not present. In any of these events the future speedy implementation of Proposition 103 is not enhanced by a precipitous decision on the merits of the trial court's preliminary injunction.
TWO PRECATORY SUGGESTIONSA. Intervention On Behalf Of Unrepresented Nonurban Drivers
As we read the extensive record presented to us here and the vigorous arguments presented by both sides of the matter in the trial court and on appeal, we are struck by the absence of representation of the people whose insurance rates will be increased if appellants' position eventually prevails. The intervenors have taken positions directly adverse to these people, and these positions have been accepted to a substantial degree by Commissioner Garamendi for the purposes of this appeal. The insurer plaintiffs, while arguing the issue of discrimination against those who may be adversely impacted, nevertheless have their own interests which in view of the agreed revenue neutral aspect of the regulations may to one degree or another be adverse.
It is an inherent characteristic of what has come to be known as “public law litigation”-lawsuits such as the case at bench which determine issues which will impact directly and broadly upon the rights of people who are not parties-that counsel for the actual parties are the primary influence on the contours of the remedy awarded. (Chayes, The Role of the Judge in Public Law Litigation (1976) 89 Harv.L.Rev. 1281.) It follows that the judicial role in such litigation requires that courts not be entirely passive in litigation of this type-that they be sensitive to the rights of those who are unrepresented but who may be adversely impacted. Here informed advocacy on behalf of nonurban drivers seems necessary to account for the possibility that insurer self interest and a natural proprietary interest in their personal interpretation possessed by the sponsors of Proposition 103 may in some fashion mask as yet undisclosed methodologies of rating auto insurance premiums compatible with the initiative which merit serious consideration.
We hence suggest, but do not order, that the trial court seek intervention on behalf of those whose insurance rates will rise substantially if the position of appellants expressed in their briefs and at oral argument prevails. Insurance Code section 1861.09 supports this suggestion by providing for the payment of witness and attorney's fees to a person who represents the interest of consumers who makes a substantial contribution to the adoption of any order, regulation or decision by a court.
We suggest also that the litigation here involved cries out for mediation, preferably after the intervention we suggest. The implementation of Proposition 103 has already been delayed for far too long by the promise of a roll back of premiums it could not deliver and its scope, detail, and lack of clarity which have triggered what threatens to be a flood of litigation. Voter Revolt and Consumers' Union have made a major contribution to California by their successful effort to eliminate a business climate in which insurance companies were both essentially unregulated and free of antitrust laws so as to be able to manipulate the market. The intervenors have an interest that this major thrust of their effort be put in place quickly by the adoption of new regulations. The Insurance Commissioner has an interest in turning his talent and resources to regulation rather than litigation. The insurance company plaintiffs possess a need to refurbish their reputations after a series of defeats at the polls, and an obvious way to do so is their cooperation in quick formulation of regulations agreed to be valid. With this community of interest emphasized, and lawyer and party egos subordinated to cooperation in seeking shared goals as occurs in mediation, there seems hope of successful agreed resolution. Given the time and resources that future litigation seems likely to entail and the distinct public interest in prompt implementation of Proposition 103, even a small hope is enough. Given the acknowledged difficulty of judges in dealing with the esoterics of statistical analysis (See The Evolving Role of Statistical Evidence in the Courts 15 (S. Feinberg ed.1989) mediation calling upon the expertise of the parties will, if successful, likely lead to the best solution.
A motion of respondent State Farm Insurance Companies to take evidence on appeal is denied. The appeal from the portion of the preliminary injunction restraining enforcement of former Insurance Commissioner Gillespie's emergency regulations is dismissed as moot. Consideration of the remaining portion of the preliminary injunction is remanded to the Superior Court with directions to vacate it because of the material change in circumstances occasioned by Insurance Commissioner Garamendi's action developing further actuarial data and his intention to adopt new regulations. The implicit motion by some of the respondents that the underlying actions be dismissed is denied.
Each of the parties is to bear its own costs on appeal.
ORDER MODIFYING OPINION; DENYING REHEARING AND DECERTIFYING OPINION
It is ordered that the opinion filed herein on January 22, 1992, be modified in the following particulars:
[Editor's Note-These modifications have been incorporated into the opinion.]
20. The Court on its own motion has reconsidered its determination to certify the subject opinion for publication. It now concludes that the opinion does not satisfy the criteria of Rule 976(b). Accordingly, the opinion is further modified to provide that it is not certified for publication.
FOOTNOTE. Retired Justice of the Court of Appeal assigned by the Chairperson of the Judicial Council.
1. In adopting the emergency regulations Commissioner Gillespie found:“The ․ applicable provisions of Proposition 103 conflict with one another in several respects. Proposition 103 was voted on as a measure to lower insurance rates, not to raise them. Proposition 103 was intended to avoid arbitrary rates, not to impose them. Proposition 103 was intended to encourage competition, not to discourage it. Proposition 103 was supposed to avoid excessive rates, not to impose them.“Proposition 103 was intended to avoid unfair discrimination, not to encourage it. Proposition 103 was intended to make insurance more available, not less available.“Proposition 103 forbids rates which are ‘excessive, inadequate, unfairly discriminatory or otherwise in violation of this chapter.’ It would follow that any rate which raises rates, creates arbitrary rates, discourages competition, allows excessive or inadequate rates, makes insurance less available or allows unfair discrimination would fall within this statutory prohibition.“Despite the various statutory conflicts, the Commissioner has no power to declare any provision of Proposition 103 to be ineffective, and she views it as being her duty to implement Proposition 103 in accordance with its terms and to harmonize conflicting provisions to the extent possible․”(Cal.Code of Regulations, ch. 5, subch. 4.7, August 13, 1990 Department of Insurance Note.)
2. All the parties agree that the regulations in question are revenue neutral. Because of the dictates of Calfarm, supra, the regulations go only to allocation among various classes of policy holders of a gross amount necessary for a fair return to the insurers. Thus while the insurance company plaintiffs may have some interest in the regulations as they affect the plaintiffs' marketing and administrative practices, they have no financial interest in the outcome. The principal concern of Intervenor, Voter Revolt, seems to be with insureds in inner city areas whose rates will be substantially reduced if Voter Revolt's arguments prevail. Consumers' Union attacks “territorial rating,” an attack which parallels the thrust of the Commissioner and Voter Revolt.
3. Allstate Insurance Company v. Gillespie (1990), 225 Cal.App.3d 798, 275 Cal.Rptr. 525. Appellants do not argue that this decertified case has res judicata or collateral estoppel consequences in the case at bench.
THOMPSON, Associate Justice.*
LILLIE, P.J., and JOHNSON, J., concur.
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Docket No: No. 8050439
Decided: January 22, 1992
Court: Court of Appeal, Second District, Division 7, California.
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