IN THE SUPREME COURT OF CALIFORNIA

PETITION FOR REVIEW BY
SPANISH SPEAKING CITIZENS' FOUNDATION, CONSUMERS UNION, SOUTHERN CHRISTIAN LEADERSHIP CONFERENCE,
CITY OF LOS ANGELES, CITY OF OAKLAND, AND
CITY AND COUNTY OF SAN FRANCISCO

ISSUE PRESENTED

Where California's voters heeded this Supreme Court's directive in King v. Meese, 43 Cal. 3d 1217 (1987), and, exercising their sovereign legislative powers by initiative, enacted Cal. Ins. Code § 1861.02 requiring that automobile insurance rates and premiums shall be determined, in decreasing order of importance, by driving safety record first, then annual mileage, then years of driving experience, followed by optional rating factors, may the Insurance Commissioner and California's insurers, by subordinate regulation, instead allow optional rating factors such as the driver's ZIP Code, or gender, or marital status, or even the number of years insured by the insurer, to continue to have greater weight and importance than one's driving safety record, annual mileage, or years of driving experience?

INTRODUCTION

This case challenges Respondent and Appellant Insurance Commissioner Quackenbush's(1) refusal to enforce Section 1861.02(a) of the California Insurance Code, which requires that automobile insurance premiums be based primarily upon a driver's safety record, miles driven, and years of driving experience, not where a driver lives and other factors such as gender, marital status, and even the number of years insured by one's insurer. Petitioners and Respondents Spanish Speaking Citizens' Foundation, Consumers Union of U.S., Southern Christian Leadership Conference, City of Oakland, City of Los Angeles, and City and County of San Francisco ("Petitioners"), and Petitioner and Respondent Proposition 103 Enforcement Project, prevailed upon this important public issue before the superior court below. Respondent Quackenbush and Intervenors State Farm and Farmers appealed, and in significant error, the Court of Appeal reversed the superior court's judgment and the voters' legislation.

In 1988, California's voters passed Proposition 103, which added Section 1861.02 to the California Insurance Code. Section 1861.02(a) transformed the determination of automobile insurance rates and premiums into one based primarily upon three mandatory rating factors--driving safety record, miles driven, and years of driving experience.(2) The Insurance Commissioner may adopt other, optional rating factors by regulation; and among the optional factors he has adopted are one's ZIP Code, gender, and marital status. But any optional, regulatory factor must have less importance than each mandatory, statutory factor in determining automobile insurance rates and premiums.

These reforms were significant and clear. Section 1861.02(a) represented the voters' conscious decision to reverse decades of insurance industry practice whereby automobile insurance premiums were based primarily upon the neighborhood in which one lived, not upon whether one was a good or poor driver. Instead, as a matter of public policy and fairness, insurance premiums to cover the risk of causing an accident should be determined primarily by how well or poorly one drives, not where one lives. Just as legislative bodies have lawfully prohibited the use of race, religion, color, gender, and national origin as rating factors, whatever use an actuary or insurer might otherwise wish to make of them, so California's voters here required that ZIP Code, gender, marital status, and other secondary factors each shall have less weight in determining premiums than driving safety record, annual mileage, and years of driving experience. The good driver living in a poor neighborhood or a Latino or Black or Asian American neighborhood should still have his or her premiums determined primarily by the driving record over which he or she had control, not the neighborhood in which she or he was forced to live because of historical socioeconomic patterns. No longer would the first question from the insurer be, "What's your ZIP Code?"

Former Commissioner Quackenbush's regulation undermined this clear directive from the voters. He set forth the weight and importance to be given each of the three mandatory rating factors in accord with Section 1861.02(a), but in direct violation of Section 1861.02(a), he refused to set forth and limit the respective weight of each optional factor in determining automobile premiums. Instead, his regulation directed each insurer to disclose one weight for all individual optional rating factors collectively. This one weight is the average of the individual weights of the insurer's various optional factors. Cal. Regs. Code tit. 10, § 2632.8(a) (hereinafter Regulation § 2632.8); Slip Op. at 8, 24-25. As with any average, the individual weights of the optional rating factors can and do range from far below average to far above average--including above the weights of driving safety record, annual mileage, and years of driving experience. The superior court below rightly held that, contrary to the plain mandate of Section 1861.02(a), the Commissioner's regulation "permits insurers to use individual optional factors that have a greater impact in the determination of rates and premiums than one or more of the three mandatory factors". Order, C.T. at 3064:8-14.

Figure 1 on the following page illustrates Regulation § 2632.8 in operation, using California's largest auto insurer, State Farm, as an example. State Farm uses ten optional rating factors. The average of the ten weights of these ten optional factors is 9.82. But the actual weight of its optional frequency and severity ZIP Code factor is 34.60--far greater than the weights of the three statutory factors, i.e. safety record (20.65), annual mileage (13.64), and years of driving experience (10.51). Likewise, gender and marital status have far greater weight (25.10) in determining premium than each of the three mandatory factors. Even persistency, or years insured with State Farm, has more weight (15.51) and importance in determining premiums than years of driving experience and annual mileage. In violation of Cal. Ins. Code § 1861.02(a), these optional factors have greater weight and importance in determining automobile insurance premiums than do the mandatory factors commanded to have greatest importance.

This petition presents to the Supreme Court one of the last key provisions of Proposition 103 remaining for construction and enforcement--territorial rating in automobile insurance.(3)

In 1987, this Supreme Court reviewed the fundamental inequities of territorial rating in automobile insurance, where "[o]ften a resident of [some] areas with a perfect driving record could obtain private coverage, if at all, only by paying more than a resident of some other areas with a history of accidents and violations." King v. Meese, 43 Cal. 3d 1217, 1237-38 (Broussard, J., concurring). The Court acknowledged the complaints that "those with good driving records, who could possibly afford insurance if they lived in a more affluent area, are unable to obtain insurance in the area where they actually live." Id. at 1235 (opinion of the Court). But the Court concluded that these inequities, as compelling as they are, "are more properly addressed to the Legislature than to the courts". Id. at 1220, 1235.

Accordingly, one year later, California's voters exercised their sovereign legislative powers by initiative and enacted Proposition 103. Among the important reforms they enacted, the voters specifically enacted Cal. Ins. Code § 1861.02(a) and required that one's automobile insurance rates and premium shall be determined primarily by one's driving safety record, not where one lives (ZIP Code). When former Insurance Commissioner Chuck Quackenbush nonetheless promulgated regulations authorizing insurers to continue giving greater weight and importance to ZIP Code, gender, marital status, and other factors, the trial court below carefully and narrowly held that that portion of the regulations conflicted with Cal. Ins. Code § 1861.02(a).(4)

Most extraordinarily, the First District Court of Appeal reversed the judgment. Like the superior court, the appellate court expressly agrees that "section 1861.02's basic mandate, that optional factors are to weigh less than any mandatory factor, is reasonably clear from the statutory language". Slip Op. at 46. It agrees "that the language 'decreasing order of importance' means that optional factors are to have less weight than any mandatory factor". Id. at 46. Like the superior court, it also agrees that "What the regulations do not do is ensure that rates will be determined primarily by driving safety record and mileage driven." Id. at 67; e.g., id. at 25 ("this method allows the weights of individual optional factors to exceed those of individual mandatory factors").

Notwithstanding the fundamental conflict between regulation and statute, the appellate court sustained the regulation and rended the very heart of the statute, because it disagreed with the wisdom of the voters' legislative and policy judgment: "The shared assumption underlying all of these declarations, provisions and representations is that safety record and other mandatory factors are more indicative of the insurance risk drivers pose than where they live. The line between these declarations, provisions and representations marks a conflict because that assumption is false." Id. at 66 (emphasis added).

The court had stated that it "must not lose sight of the proponents' related statement in the ballot pamphlet that the Proposition would 'force[] insurance companies to base your rates on your driving record first, rather than on where you live,' and be mindful of the Proposition's command that 'automobile insurance rates shall be determined primarily by a driver's safety record and mileage driven.'" Slip Op. at 54-55. But that is precisely what the court proceeded to do. The court decided that other provisions of Proposition 103 and the insurance industry's traditional arguments about "cost-based" and "arbitrary" ratemaking trumped and nullified Section 1861.02(a)'s clear directive that driving safety record and the other mandatory factors should each have greatest weight. E.g., id. at 69. This was precisely the construction of Proposition 103 that the Supreme Court expressly rejected in 20th Century Ins. Co., when it ruled that other provisions in Proposition 103 assuredly did not trump the legislative enactment of 20-percent rollbacks. 8 Cal. 4th at 289.

This is an extraordinary approach to statutory construction of the voters' initiative--to countermand the clear language of the enactment and the very policy and judgment invited in King v. Meese because the Court of Appeal thought it based on a false assumption. The Court of Appeal did what courts may not do: Courts should "not look behind the enacted framework to replace the Legislature's social judgment with our own." King v. Meese, 43 Cal. 3d at 1235. This was judicial error, on a question of great public importance, and Petitioners respectfully submit that it warrants this Court's review.

In King v. Meese, this Court recognized the tyranny of territorial rating, and conversely, the public judgment of unfairness when factors over which one often has little or no control (such as one's ZIP Code, or gender, or marital status) matter more than whether one drives safely. The complaints were legion that insurers often forced good drivers in many ZIP Codes to pay more because of their ZIP Code than drivers in other ZIP Codes in the state with a history of accidents and violations. King v. Meese, 43 Cal. 3d 1217, 1235 (1987); id. at 1237-38 (Broussard, J., concurring).(5) And the legislation then in effect "did nothing to correct this problem". Id. at 1238. California's voters took matters into their own hands and proceeded to legislate on just this issue in 1988, and they decided to weight driving record above residence or any other secondary factor. As Justice Broussard, joined by Justice Mosk, observed:

The Commissioner's assumption that an actuarially sound rate is necessarily a fair and reasonable rate is open to challenge. . . . Rates which took affordability into account, and weighted driving record more than residence, would go far to alleviate the problem caused by the financial responsibility laws.
Id. at 1241-42 (footnote omitted).

This the legislature may do. This Court in King v. Meese, and courts across the land, recognize that these are fundamentally policy choices. King v. Meese, 43 Cal. 3d at 1220, 1235. Statutes set the standards which actuarial practices must follow, not vice versa. When statutes set such standards, courts follow the legislative judgment, not the insurer's or actuary's judgment. Accordingly, statutes have prohibited altogether insurers' and actuaries' use of such factors as race, language, color, religion, national origin, ancestry, and location. Even if insurers or actuaries might otherwise contend that such factors have a substantial relationship to the risk of loss, it is within the legislative power to prohibit their use. The California Legislature has had and exercised this power for years to prohibit the use of race, language, color, religion, national origin, ancestry, and location within a geographic areas of 20 square miles as rating factors, notwithstanding any actuarial rationalizations an insurer might otherwise design.(6) California's voters exercised this power to exclude the absence of prior insurance as a rating factor, notwithstanding insurers' longstanding if misplaced reliance on that factor. Cal. Ins. Code § 1861.02(c). California's voters could have outlawed the use of gender, marital status, ZIP Code, and other optional factors altogether.

The legislative judgment in Section 1861.02(a)--to allow optional rating factors but to require that any such factor shall have lesser weight than driving safety record, annual mileage, and years of driving experience--is no different. California's voters said "enough" in 1988, enacting fundamental reform in Proposition 103. The Court of Appeal's decision eviscerated that enactment.

In doing so, the Court of Appeal also construed and struggled to distinguish this Supreme Court's reasoning in 20th Century Insurance Co. v. Garamendi, 8 Cal. 4th 216, 289 (1994), that the ratemaking standards in Proposition 103 are unique and without precedent, and should not instead "be interpreted in accordance with the insurance industry's or the actuarial profession's understanding of its operative terms". Nonetheless, the Court of Appeal imposed the insurance industry's interpretations and practices upon the otherwise clear changes enacted by Section 1861.02(a), identified conflicts between the Section 1861.02(a)'s plain language and the industry's understanding of "arbitrary insurance rates and practices", and deferred to the Commissioner and insurers instead of the statute.

For all of these reasons, review is warranted under Rule 29 of the California Rules of Court to settle these important questions of law and to resolve the appellate court's conflict with the Supreme Court's opinion in 20th Century.

BACKGROUND AND HISTORY OF THE CASE

The critical role of the automobile in today's society is well known. The car serves as a central means of transportation to work, to school, to the hospital, to the store. Section 16020 of the California Vehicle Code requires California's drivers to have proof of financial responsibility. While proof of financial responsibility can be shown through several methods, the statute "effectively requir[es] drivers to carry insurance". King v. Meese, 43 Cal. 3d 1217, 1221, 1231 (1987); id. at 1237 (Broussard, J., concurring); see Cal. Veh. Code §§ 16021, 16054, 16056(a).

Section 1861.02(a) transformed the determination of private passenger automobile insurance rates and premiums into one based upon three mandatory rating factors--drivers' safety records, miles driven, and years of driving experience. Section 1861.02(a) provides:

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 commissioner 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.

Cal. Ins. Code § 1861.02(a). Under Section 1861.02(a), driving safety record shall have the greatest importance in determining an insurer's automobile rates and premiums, followed by the number of miles driven annually, and then the number of years of driving experience. The Commissioner may adopt other rating factors in addition to these three specific factors only if such factors "have a substantial relationship to the risk of loss". Each factor shall have a weight, in the mandated decreasing order of importance. To measure and ensure this decreasing order of importance, Section 1861.02(a) mandates that the Commissioner shall set forth "the respective weight to be given each factor in determining automobile rates and premiums" (emphasis added).

A. THE INSURANCE COMMISSIONER'S REGULATIONS.

The regulations to implement Cal. Ins. Code § 1861.02(a) are found at sections 2632.1-2632.11 of title 10 of the California Code of Regulations. A rating factor is "any factor, including discounts, used by an insurer which establishes or affects the rates, premiums, or charges assessed for a policy of automobile insurance." Regulation § 2632.2(a). A "class plan" is the insurer's "schedule of rating factors and discounts, and their order and manner of analysis . . . in the development of rates and premiums charged for a policy of automobile insurance". Id. § 2632.3(a).

Class plans, and Cal. Ins. Code § 1861.02(a) and the regulations governing them, merely distribute an insurer's overall rate base among policyholders. From the insurance company's perspective, class plans are revenue neutral. Because class plans are revenue neutral, changes to class plans can result in premium increases for some, offset by premium decreases for others, without any change in the overall total. Slip Op. at 2; Impact Analysis, C.T. at 1712.

Regulation § 2632.8 governs the calculation and disclosure of rating factor "weights". The weight of a rating factor is a measurement of its influence on premium. Impact Analysis, C.T. at 1709; Commr's Decision, C.T. at 54:27. The weights are calculated in order to measure whether the rating factors fall in the proper, decreasing order of importance. As the Court of Appeal stated, "the words 'importance' and 'weight' as used in the statute are synonymous, and thus that the language 'decreasing order of importance' means that optional factors are to have less weight than any mandatory factor." Slip Op. at 46. Regulation § 2632.8(c) specifies the method to calculate a rating factor's weight.

Section 1861.02(a) directs the Commissioner to set "the respective weight to be given each factor in determining automobile rates and premiums" (emphasis added). Accordingly, Regulation § 2632.8(a) requires calculation of individual factor weights for each of the three mandatory factors. Regulation § 2632.8(a), (d). However, for optional rating factors, the regulation only requires the calculation of "one [weight] for all the optional factors (from Section 2632.5(d)) taken together as a single factor weight", without disclosure or comparison of the individual weights of each optional factor. Id. § 2632.8(a) (emphasis added).
The fact that the average of the individual weights of the optional factors is less than the actual weight of third mandatory factor does not change at all the fact that the individual optional factors such as ZIP Code, gender, and marital status continue to have greater weight and impact upon premium. As the Court of Appeal acknowledges, those numbers are not comparable. See, e.g., Slip Op. at 8, 47 n.18. That is why, the Court of Appeal agrees, optional factors may have greater weight than mandatory factors, even though the average of the individual weights of the optional factors is a smaller number. Id. at 8, 10, 25.

For the Court's convenience, Petitioners illustrate and summarize the operation of Regulation § 2632.8, with the two tables below, using one insurer's (State Farm's) class plan as an example. Each insurer must use the three mandatory rating factors specified by Section 1861.02, and may choose to use any of the optional rating factors adopted by the Insurance Commissioner at Regulation § 2632.5. The insurer's class plan must set forth each rating factor's weight or importance in determining automobile premiums. State Farm filed and Quackenbush approved a class plan setting forth the following data:

C.T. at 338; see also id. at 121, 165, 325. This insurer uses ten optional factors in addition to the three mandatory factors. Regulation § 2632.8 only compares the "one [weight] for all the optional factors . . . taken together as a single factor weight" (9.82) with the weights of the three mandatory factors above (20.65, 13.65, and 10.51) to determine if they are in the specified decreasing order of importance. It is a false and meaningless comparison, as the Court of Appeal acknowledges.

Among the ten optional rating factors, however, were factors with far greater weight and importance in determining rates and premiums than the three mandatory rating factors that Proposition 103 required to have greatest weight:

C.T. at 121, 131, 165, 325, 338; see also Commr's Decision, C.T. at 51:16-52:1. The figure "9.82" is the average of the ten optional factors' weights above--the sum of those ten weights divided by ten. Yet the weight for cost/frequency ZIP Code bands (34.60) and the weight for gender and marital status (25.10) are far greater than the weights for driving safety record (20.65), annual mileage (13.65) and years of driving experience (10.51). Years insured with State Farm or "persistency" (15.51), and whether one has more than one car insured with State Farm (14.52), have more weight in determining premium than years of driving experience and annual mileage. Similar results occurred with other insurers' class plans. See C.T. at 103 (Allstate).

B. PROCEEDINGS BEFORE THE INSURANCE COMMISSIONER

After the regulations became effective in 1996, Commissioner Quackenbush ordered all insurers offering private passenger automobile insurance to file class plans complying with his regulations. The class plans were due February 18, 1997. C.T. at 77. The Proposition 103 Enforcement Project petitioned for hearings to review the class plans of State Farm, Farmers, and Allstate. C.T. at 50:21-51:3, 81. On July 2, 1997, the Commissioner ordered a hearing on "whether these [automobile class plan] applications comply with the relevant regulatory and statutory provisions". C.T. at 80. Petitioners Southern Christian Leadership Conference and Consumers Union intervened. E.g., C.T. at 94, 132, 172.

The administrative law judge's proposed decision concluded "that the method the Insurers used to calculate the Fourth Weight in their filed Class Plans complied with the statutory and regulatory requirements of Proposition 103." C.T. at 69:24-26; id. at 51:16-52:1. Commissioner Quackenbush adopted the proposed decision without change on January 29, 1998. C.T. at 49. The decision construed Section 1861.02(a) and the regulations as applied to all insurers.

C. PROCEEDINGS BEFORE THE SUPERIOR COURT

On March 26, 1998, Petitioners Spanish Speaking Citizens' Foundation, Consumers Union of U.S., Southern Christian Leadership Conference, City of Oakland, City of Los Angeles, and City and County of San Francisco filed against Respondent Quackenbush a petition for writ of mandate under Cal. Civ. Proc. Code § 1085 in Alameda County Superior Court (Case No. 796071-6). C.T. at 46, 159. Petitioner Proposition 103 Enforcement Project filed a separate petition (Case No. 796082-2). C.T. at 1.

Petitioners requested that the superior court issue a writ of mandate commanding Commissioner Quackenbush to enforce the requirements of Cal. Ins. Code § 1861.02(a), and thus (a) not to approve any automobile class plans, premiums or rates with the weight of any individual optional rating factor being greater than the weight of any statutory factor; and (b) not to utilize, enforce, or attempt to enforce current section 2632.8 of title 10 of the California Code of Regulations to require insurers to calculate only "one [weight] for all the optional factors (from Section 2632.5(d)) taken together as a single factor weight", but instead to require insurers to calculate one weight for each optional factor. C.T. at 331:9-20.

On June 23, 1998, the superior court below held that Regulation § 2632.8(a) violated Cal. Ins. Code § 1861.02(a), and ordered Commissioner Quackenbush not to use or enforce the portion of Section 2632.8(a) that allowed insurers to calculate one average weight for all of the optional factors taken together as a single factor weight. Order, C.T. at 3064. Commissioner Quackenbush and Intervenors State Farm and Farmers appealed. C.T. at 3129, 3133, 3138.

D. THE COURT OF APPEAL'S DECISION

The Court of Appeal reversed. While the opinion is 71 pages in length, most of it is historical background, and the crux of the decision is reserved for five pages at the end. With respect to Section 1861.02(a), the Court of Appeal agreed that "section 1861.02's basic mandate, that optional factors are to weigh less than any mandatory factor, is reasonably clear from the statutory language". Slip Op. at 46. It agreed "that the language 'decreasing order of importance' means that optional factors are to have less weight than any mandatory factor". Id. at 46. With respect to Regulation § 2632.8(a), it also agreed that "What the regulations do not do is ensure that rates will be determined primarily by driving safety record and mileage driven." Id. at 67; see also id. at 8, 10, 25, 62-63. The regulation "allows the weights of individual optional factors to exceed those of individual mandatory factors." Id. at 25.

Notwithstanding the clarity of a statute that explicitly requires driving safety record and other mandatory factors to have greatest weight and importance in determining automobile insurance premiums, the appellate court finds ambiguity in a perceived conflict between Section 1861.02(a)'s requirements and the industry's notions of "arbitrary insurance rates and practices". On the one hand, the Court of Appeal acknowledges that by taking the average of the weights of each optional factor, the regulation allows one or more of those optional factors to have greater importance in determining insurance premiums than the mandatory factors. Id. at 67. On the other hand, the Court of Appeal concludes that following the statute and requiring driving safety record, annual mileage, and years of driving experience to have greater weight and importance in determining premiums will cause "arbitrary" rates that deviate from the industry's methods of measuring cost. Id. at 66-68.

In a conflict between a regulation and a statute, the regulation is void. So the superior court below held. The Court of Appeal justified preserving this conflict between subordinate regulation and superior statute by concluding, "The current regulations constitute a lawful choice among imperfect options." Id. at 67. "The most that could be said for a rule that the weight of each optional factor must be less than that of each mandatory factor is that this may be a permissible interpretation of the statute. Evidence on the consequences of that interpretation could be seen as somewhat equivocal. However, we find no reason to prefer that interpretation to the one reflected in the current regulations." Id. at 68. The reason to prefer and require that rule is because Section 1861.02(a) commands it as a matter of law and policy.

Petitioners filed a petition for rehearing, or in the alternative, modification of the opinion on various misstatements or omissions, under Rules 24 and 27 of the California Rules of Court. The Court of Appeal denied the petition for rehearing but modified the opinion in one respect without changing the judgment, to remove references to stricken testimony upon which the court had relied. A copy of the order modifying the opinion is attached.
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DISCUSSION

I. THE COURT OF APPEAL ERRED ON AN IMPORTANT QUESTION OF LAW, HOLDING IN DIRECT CONFLICT WITH CAL. INS. CODE § 1861.02(A) THAT THE INSURANCE COMMISSIONER MAY AUTHORIZE OPTIONAL RATING FACTORS SUCH AS THE DRIVER'S ZIP CODE, GENDER, AND MARITAL STATUS TO HAVE GREATER WEIGHT AND IMPORTANCE THAN ONE'S DRIVING SAFETY RECORD, ANNUAL MILEAGE, OR YEARS OF DRIVING EXPERIENCE.

On the issues presented here--whether Cal. Ins. Code § 1861.02(a) requires the Commissioner to set forth the respective weights for each optional factor and whether those weights must align in decreasing order of importance, with no optional factor having greater weight than driving safety record, annual mileage, or years of driving experience--Section 1861.02 is clear and unambiguous. While the Court of Appeal finds "no reason to prefer" a regulation that requires the weight of each optional factor to be less than that of each mandatory factor, it ignores the best reason of all--the statute requires just that.

The Court of Appeal's decision, in contrast, needlessly introduces numerous contradictions and ambiguities. Courts--and California's voters--do not presume that the very same words in a statute have different and even contrary meanings. See, e.g., Gruschka v. California Unemployment Ins. Appeals Bd., 169 Cal. App. 3d 789, 792 (1st Dist. 1985) (when the same word or phrase is used in different parts of statute, it should be given the same meaning). Yet the Court of Appeal unfolds a construction of Section 1861.02(a) which often explicitly and at other times implicitly assigns different meanings to the same words in the same statutory section. For example:

(1) For mandatory rating factors, the Court of Appeal reads "weight" to mean the specific weight of each factor individually. But for optional rating factors, "weight" instead means the average weight of all optional factors combined, whatever the nature and number of optional rating factors an insurer selected. But, as the Court of Appeal acknowledges, the individual weights (mandatory factors) and average weight (optional factors) cannot be compared in order to ensure the requisite decreasing order of importance. Slip Op. at 8, 24-25, 47 n.18.
(2) For mandatory factors, the requirement to set forth the respective weight to be given "each factor" means just that, each factor; but for optional factors, "each factor" instead means all optional factors combined.
(3) For mandatory factors, the requisite "decreasing order of importance" applies to each mandatory factor in the order specified, that is, first driving safety record, then annual mileage, followed by years of driving experience. But for optional factors, "decreasing order of importance" suddenly changes meaning, and instead means that the weights of individual optional factors may and do range far above the weights of individual statutory factors. By the appellate court's reasoning, the requirement for "decreasing order of importance" has clear and consistent effect when applied to the mandatory factors, but has opposite effect when applied to optional factors.

Were the appellate court's statutory construction correct, there would be no principled reason that years of driving experience--the third mandatory factor--must have lesser weight and importance than annual mileage (the second) or driving safety record (the first). Under the appellate court's reasoning, the third mandatory factor, like any one or more optional factors, could have greater weight and importance than the second or the first mandatory factor. The clear and critical requirement of "decreasing order of importance" loses all meaning and is read out of the statute.

The Court of Appeal explains this result with a telling passage at page 66, which is worth quoting in full:

A line can be drawn through Proposition 103's declarations of purpose, the provisions of the factor weight ordering statute, and the ballot pamphlet representations about how that statute would operate. On one side: (1) Proposition 103 declares that auto insurance rates are to be determined primarily by a driver's safety record and mileage driven; (2) section 1861.02, subdivision (a) provides that these factors and the other mandatory factor of driving experience are to be more important in determining auto insurance rates than optional factors the Commissioner may adopt; and (3) the ballot pamphlet represents that the law would force rates to be determined by driving safety record "first," rather than the driver's residence. On the other side: (1) Proposition 103 declares that it will protect consumers from arbitrary insurance rates; (2) section 1861.02, subdivision (a) provides that factors used to determine auto insurance rates are to substantially related to the risk of loss; and (3) the ballot pamphlet represents that factor weighting would decrease the auto insurance premiums of good drivers. The shared assumption underlying all of these declarations, provisions and representations is that safety record and other mandatory factors are more indicative of the insurance risk drivers pose than where they live. The line between these declarations, provisions and representations marks a conflict because that assumption is false. [] Unrefuted evidence establishes that territory is a more important determinant of the risk of loss than any other single factor.

Slip Op. at 66 (emphasis added). As Petitioners respectfully suggest above, the appellate court appears to have sustained the regulation in conflict with the statute because it disagreed with the wisdom of the voters' policy choice. This courts may not do. King v. Meese, 43 Cal. 3d at 1235.

On the other hand, the voters' decision as a matter of policy and fairness to require greater weight for driving safety record than for where one lives was not false. Petitioners were able to calculate the effects of the unlawful weight of ZIP Code factors. C.T. at 139-45. All automobile class plans include an Exhibit 11 which sets forth two examples of the insurer's "rating logic" using the rating factors and methods set forth in the regulations. C.T. at 173:19-74:2. The calculations show: (7)

1. When a man driving to school moves from San Luis Obispo (93401) to South Central Los Angeles (90036), his annual premium with one insurer (Farmers) increases from $1,706, to $7,844 for little more than the statutory minimum insurance coverage. For the same driver, with the same driving record, purchasing the same coverage for the same automobile, the change in ZIP Code alone increases his premium approximately $6,000, or 360 percent. C.T. at 140:11-23, 174:10-14.

2. When this man moves from ZIP Code 90045 in Los Angeles to ZIP Code 90044 in Los Angeles, another insurer (State Farm) increases his annual premium from $2,522 to $4,066, an increase of $1,544, or 61 percent, from one ZIP Code to the next, for the same driver with the same driving record. C.T. at 141:12-22, 174:15-17; C.T. at 1849:8-13 (admitting accuracy).

3. When this man drives fifteen miles from the predominantly Latino Fruitvale District in East Oakland (94601) to school in the hills of Oakland's upper middle-class Montclair District (94611), one insurer (Farmers) charges him an annual premium of $4,417. If the ZIP Codes are reversed, however, and the same driver with the same driving record drives the same road from Montclair (94611) to a school in the Fruitvale District (94601), the insurer drops his annual premium over $1,000, or 23 percent, to $3,389. C.T. at 141:23-42:12, 174:18-23.

4. When a single woman, a Good Driver licensed 22 years with no violations, drives twenty miles from predominantly African-American East Oakland (94621) to work in the hills of Montclair (94611), this insurer charges her an annual premium of $2,105. But again, if the ZIP Codes are reversed, and the same Good Driver with the same record, coverage and automobile drives the same road from Montclair (94611) to work in inner-city East Oakland (94621), the insurer drops her annual premium over $530, or 25 percent, to $1,572. C.T. at 175:9-13, 326:12-17.

Not surprisingly, without enforcement of Section 1861.02(a), little changes since this Court's record of similar examples in King v. Meese. The voters exercised their powers to institute reform and to require driving safety record, annual mileage, and years of driving experience to be the most important factors in determining automobile insurance premiums. As this Court stated in King v. Meese, this was a policy choice for the legislative body to make, and courts do "not look behind the enacted framework to replace the Legislature's social judgment with our own." King v. Meese, 43 Cal. 3d at 1235. The Court of Appeal's decision was judicial error, on a question of great public importance, and Petitioners respectfully submit that it requires this Court's review.

The Court of Appeal's approach to statutory construction was extraordinary in other respects as well. The court gave far greater weight to a single sentence from a ballot pamphlet argument than it did to the statute itself and its clear and unambiguous directive. According to the ballot pamphlet,

[Proposition] 103 forces insurance companies to base your [automobile insurance] rates on your driving safety record first, rather than on where you live. That means good drivers throughout the state will pay less than they do now, while bad drivers will pay more.

Slip Op. at 14 (quoting ballot pamphlet). The court completely ignored the first sentence; after agreeing in passing that the court "must not lose sight of proponents' statement" that insurance premiums would be based "on your driving safety record first, rather than on where you live", id. at 54, the court never mentions it again. The court instead restricted its focus to the second sentence and testimony by State Farm that rates would increase for many good drivers--testimony which the court ultimately found "equivocal" and "conflicting".(8)

Similarly, the Court of Appeal concluded that it must harmonize all of the relevant provisions of Proposition 103. Consistent with its view that the voters' legislative judgment was instead a mere "false assumption", the court concluded that failing to give territory greater weight was arbitrary and produced arbitrary premiums. Slip Op. at 53-54, 68-69. Excluded from the harmonizing was the very statute at issue. Id. at 66-69 (not implementing one of Proposition 103's key reforms, that rates be determined primarily by driving safety record and mileage driven, because it would conflict with other provisions).

Under the Court of Appeal's reasoning, there would be no lawful reason to exclude race or religion, either, as rating factors, if insurers and their actuaries could rationalize their use as rating factors. There is no difference between concluding that territory must be allowed to have greater weight because that is what the insurers' data indicate, and concluding that race or religion must be allowed to have greater weight because that is what the insurers' data and practices indicate. But the legislative bodies have prohibited the use of race as a rating factor, and they have the same right to specify that one's ZIP Code cannot have greater weight than one's driving safety record.(9) The Court of Appeal's decision sets dangerous and far-reaching precedent, and it decidedly warrants this Court's review.

II. THE COURT OF APPEAL'S CONSTRUCTION OF PROPOSITION 103 CONFLICTS WITH THIS COURT'S CONSTRUCTION OF PROPOSITION 103 IN 20TH CENTURY INSURANCE COMPANY V. GARAMENDI.

The Court of Appeal concluded that following the statute and requiring driving safety record, annual mileage, and years of driving experience to have greater weight and importance in determining premiums would cause "arbitrary" rates that deviate from the industry's methods of measuring cost. Slip Op. at 66-68. In doing so, the appellate court construed and struggled to distinguish this Supreme Court's reasoning in 20th Century Insurance Co. v. Garamendi, 8 Cal. 4th 216, 289 (1994), that the ratemaking standards in Proposition 103 are unique and without precedent, and should not instead "be interpreted in accordance with the insurance industry's or the actuarial profession's understanding of its operative terms". Slip Op. at 50-51.

In 20th Century, California's insurers similarly argued that Section 1861.05(a)'s "'excessive'/'inadequate' standard as defined in the initiative should be interpreted in accordance with the insurance industry's or the actuarial profession's understanding of its operative terms", and so delimited, that Section 1861.01 on 20-percent rollbacks of automobile and other premiums violated Section 1861.05(a).

The Supreme Court rejected the argument. It held that the legislative body "made numerous fundamental changes in the regulation of automobile and other forms of insurance in California", and specifically that the standards in Section 1861.05(a) are "unique" and "without precedent". 20th Century Ins. Co., 8 Cal. 4th at 240, 289; see also Farmers Ins. Exch. v. Superior Court (People), 2 Cal. 4th 377, 385-86 (1992) (Proposition 103 "significantly augmented and altered" various substantive sections of prior law, including the addition of Section 1861.02). The Court rejected the insurers' argument that Proposition 103 is constrained by and inexorably reduced to the industry's actuarial principles. 20th Century Ins. Co., 8 Cal. 4th at 289

In spite of the Supreme Court's clear reasoning in 20th Century, the appellate court below preferred the insurance industry's traditional notions of "arbitrariness" over the voters' legislative judgment that automobile insurance rates and premiums shall be determined primarily by driving safety record, not one's ZIP Code or other factors. As the Supreme Court held in 20th Century with respect to rollbacks, the industry's notions do not trump and nullify the reforms of Proposition 103. California's legislative body prescribed, as a matter of policy, that driving safety record, annual mileage, and years of driving experience shall have more weight in determining automobile insurance rates and premiums than any other rating factor. This it may do, and it could have gone farther and prohibited use of location altogether. (10)

The very structure of Proposition 103 itself contradicts the Court of Appeal's reasoning. Proposition 103 mandated numerous increases and decreases in rates and premiums in departure from the insurance industry's prior practices. The legislative change did not make them "arbitrary". For example, Proposition 103 required 20-percent rollbacks from 1987 rates in all covered lines. Cal. Ins. Code § 1861.01 (modified by Calfarm Ins. Co. v. Deukmejian, 48 Cal. 3d 805, 818-22 (1989)). This was an explicit and valid rollback irrespective of the "insurance industry's or the actuarial profession's understanding of its [Section 1861.05(a)'s] operative terms." 20th Century Ins. Co., 8 Cal. 4th at 289. The statute required that driving safety record, miles driven annually, and years of driving experience--not ZIP Code and other secondary factors--should have greatest importance in determining automobile rates and premiums. Cal. Ins. Code § 1861.02(a). It provided that the "absence of prior automobile insurance coverage"--a rating factor long used by insurers to uninsured motorists' enduring frustration--"shall not be a criterion for determining . . . automobile rates, premiums, or insurability". Id. § 1861.02(c).(11) Proposition 103 independently required 20 percent discounts for all good drivers--again, irrespective of the insurers' self-interested construction of Section 1861.05. Id. §§ 1861.02(b), 1861.025. In each instance, the plain language of the statute departed considerably from prior law and industry practice, but such reform did not render it "arbitrary" nor "invalid". Review is further warranted under Rule 29 of the California Rules of Court to resolve the appellate court's conflict with the Supreme Court's opinion in 20th Century.

Conclusion

For all of the reasons above, Petitioners Spanish Speaking Citizens' Foundation, Consumers Union of U.S., Southern Christian Leadership Conference, City of Oakland, City of Los Angeles, and City and County of San Francisco respectfully submit that this appeal presents questions of great public importance requiring this Supreme Court's review.

Dated in San Francisco, California, on the 7th of February, 2001.


Respectfully submitted,

PUBLIC ADVOCATES, INC.
MARK SAVAGE, Bar No. 141621
1535 Mission Street
San Francisco, California 94103

Attorney for Petitioners-Respondents
SPANISH SPEAKING CITIZENS'
FOUNDATION
CONSUMERS UNION OF U.S.
SOUTHERN CHRISTIAN LEADERSHIP
CONFERENCE OF GREATER LOS
ANGELES

Dated February 7, 2001

JAMES K. HAHN, Bar No. 66073
City Attorney
DON KASS, Bar No. 103607
Supervising Deputy City Attorney
Consumer Protection Section
Office of the City Attorney
1600 CHE, 200 North Main Street
Los Angeles, California 90012

Attorney for Petitioner and Respondent
CITY OF LOS ANGELES

Dated February 7, 2001
JOHN A. RUSSO, Bar No. 129729
City Attorney
DANIEL ROSSI, Bar No. 142315
Deputy City Attorney
One City Hall Plaza, 6th Floor
Oakland, California 94612

Attorney for Petitioner and Respondent
CITY OF OAKLAND

Dated February 7, 2001
LOUISE H. RENNE, Bar No. 36508
City Attorney
OWEN J. CLEMENTS, Bar No. 141805
Chief of Special Litigation
1390 Market Street, 6th Floor
San Francisco, California 94102-5408

Attorney for Petitioner and Respondent
CITY & COUNTY OF SAN FRANCISCO

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