The California insurance industry is studying a state appellate court ruling that bars insurers from putting surcharges on uninsured motorists to fund lower rates for insured drivers.
Association of California Insurance Companies voiced "disappointment" with the ruling, which said that a state law that allows insurers to discount auto insurance premiums for drivers who maintained continuous coverage violates Proposition 103, which was passed by the voters in 1988.
The association pointed out that one impact of the decision, if sustained, would be to stop auto insurers from giving discounts to drivers who have no lapses in coverage when they switch to another insurer.
The law overturned by the court allowed insurers to impose a surcharge on customers whose insurance had lapsed in order to fund a discount for insurers with a seamless insurance record, even if they switch to a new company.
The California Court of Appeal, 2nd Division in Los Angeles, an intermediary appellate court, ruled that a law passed by the state Legislature in 2003 violated the state constitution by permitting surcharges for drivers who let their insurance lapse.
The unanimous decision by a three-judge panel upheld a lower court ruling that held that the 2003 law "was a direct violation of the reforms which the voters enacted in Proposition 103," according to Mark Savage, senior attorney with Consumers Union's West Coast office.
Mr. Savage said, "The auto insurance surcharges passed by lawmakers would have made it even more difficult for many Californians to afford the insurance they are legally required to maintain and would have resulted in more uninsured drivers on the road."
But Sam Sorich, president of the California insurance companies' association, said his group is now studying the ruling and will decide whether to appeal to the state Supreme Court at a later date.
"We are concerned that the court ruling will remove the discount and at the same time discourage drivers from shopping around for insurance because they can only receive a discount by remaining with their current insurance company."
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