No. ______
IN THE
SUPREME COURT OF CALIFORNIA
FARMERS INSURANCE EXCHANGE and
SAFECO INSURANCE COMPANY OF AMERICA, et al.,
Petitioners,
vs.
THE SUPERIOR COURT OF LOS ANGELES COUNTY,
Respondent,
DOUGLAS RYAN and
THE PROPOSITION 103 ENFORCEMENT PROJECT,
Real Parties in Interest.
Court of Appeal Nos. B184618 and B184610
Second Appellate District – Division Three
Case Nos. BC297437 and BC266219
Los Angeles Superior Court
The Honorable Anthony J. Mohr
PETITION FOR REVIEW
LERACH COUGHLIN STOIA GELLERRUDMAN & ROBBINS LLP
JOHN J. STOIA, JR. (141757)
THEODORE J. PINTAR (131372)
KEVIN K. GREEN (180919)
655 West Broadway, Suite 1900
San Diego, CA 92101
Telephone: 619/231-1058
619/231-7423 (fax) / THE FOUNDATION FOR TAXPAYER
AND CONSUMER RIGHTS
HARVEY ROSENFIELD (123082)
PAMELA M. PRESSLEY (180362)
1750 Ocean Park Blvd., Suite 200
Santa Monica, CA 90405
Telephone: 310/392-0522
310/392-8874 (fax)
Attorneys for Real Party in Interest Proposition 103 Enforcement Project
Service on Attorney General and District Attorney
Required by Bus. & Prof. Code § 17209
(Cal. Rules of Court, rule 44.5(c))
Page
I.ISSUES PRESENTED FOR REVIEW......
A.Does “clause three” of Insurance Code section 1861.10, subdivision(a) authorize a direct action in superior court to enforce provisions of Proposition 103?
B.May the courts accord no deference to the consistently maintained and well-considered views of an administrative agency on the statutes it enforces, when the agency’s views are submitted in the form of an amicus brief?
C.When construing a voter-approved statute that provides for the concurrent jurisdiction of an administrative agency and the courts to redress violations of the initiative’s provisions, may courts require that voters employ something more than “plain language” to establish a right of action for direct enforcement of the statute?
II.INTRODUCTION AND SUMMARY OF ARGUMENT......
III.FACTUAL AND PROCEDURAL BACKGROUND......
A.The Proposition 103 Enforcement Project......
B.The Project’s Complaint Against Safeco......
C.The Insurance Commissioner’s Role in This Litigation......
IV.WHY REVIEW SHOULD BE GRANTED......
A.Review Is Warranted Because the Court of Appeal Fundamentally Misconstrued Proposition 103’s Plain Language, Thereby Undermining the Enforcement Power that Voters Reserved for Themselves
1.“And” Means “And”: The Text of Section 1861.10, Subdivision (a) Permits a Direct Action in Court
2.A Direct Action Is Consistent with the Purposes and Intent of Proposition 103
3.The Recent Donabedian Decision Also Compels the Conclusion that a Direct Action Is Proper
4.The Court of Appeal’s “Additional Considerations” Do Not Support Its Erroneous Interpretation
B.Review Is Warranted Because the Court of Appeal Inappropriately Gave “No Deference” to the Insurance Commissioner’s Interpretation of Proposition 103, Setting a Dangerous Precedent for Future Cases
C.Review Is Warranted Because the Court of Appeal Misapplied Moradi-Shalal to Create a Presumption Against Private Rights of Action in Statutes
V.CONCLUSION......
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Page
CASES
20th Century Ins. Co. v. Garamendi
(1994) 8 Cal.4th 216...... 13
American Ins. Assn. v. Garamendi
(Oct. 12, 2005, S132820)
2005 Cal. LEXIS 11188...... 5
Amwest Surety Ins. Co. v. Wilson
(1995) 11 Cal.4th 1243...... 5, 13
Bell v. Blue Cross of California
(2005) 131 Cal.App.4th 211...... 24
Brosnahan v. Brown
(1982) 32 Cal.3d 236...... 5
Calfarm Ins. Co. v. Deukmejian
(1989) 48 Cal.3d 805...... 5, 14
California Teachers Assn. v.
Governing Bd. of Rialto Unified School Dist.
(1997) 14 Cal.4th 627...... 12, 17
City of Huntington Beach v.
Board of Admin. of the Public Employees' Retirement System
(1992) 4 Cal.4th 462...... 11
Crusader Ins. Co. v. Scottsdale Ins. Co.
(1997) 54 Cal.App.4th 121...... 28
Donabedian v. Mercury Ins. Co.
(2004) 116 Cal.App.4th 968...... passim
Economic Empowerment Foundation v. Quackenbush
(1997) 57 Cal.App.4th 677...... 15
Farmers Ins. Exchange v. Superior Court
(1992) 2 Cal.4th 377...... passim
Foundation for Taxpayer & Consumer Rights v.
Garamendi
(2005) 132 Cal.App.4th 1354...... 5, 10, 12, 24
Foundation for Taxpayer & Consumer Rights v.
Garamendi
(2005) 132 Cal.App.4th 1375...... 10
In re Mehdizadeh
(2004) 105 Cal.App.4th 995...... 28
Jarrow Formulas, Inc. v. LaMarche
(2003) 31 Cal.4th 728...... 11
Karlin v. Zalta
(1984) 154 Cal.App.3d 953...... 13
Krumme v. Mercury Ins. Co.
(2004) 123 Cal.App.4th 924...... 5, 24
Manufacturers Life Ins. Co. v. Superior Court
(1995) 10 Cal.4th 257...... 13, 27, 28
Moradi-Shalal v. Fireman's Fund Insurance Cos.
(1988) 46 Cal.3d 287...... 2, 6, 27, 28
People v. Farell
(2002) 28 Cal.4th 381...... 20
Santisas v. Goodin
(1998) 17 Cal.4th 599...... 21
Southern California Edison Co. v. Peevey
(2003) 31 Cal.4th 781...... 24
Spanish Speaking Citizens' Foundation v. Low
(2000) 85 Cal.App.4th 1179...... 10
State Comp. Ins. Fund v. Superior Court
(2001) 24 Cal.4th 930...... 24
State Farm Fire & Casualty Co. v. Superior Court
(1996) 45 Cal.App.4th 1093...... 27
State Farm Mutual Auto. Ins. Co. v. Garamendi
(2004) 32 Cal.4th 1029...... 5, 10, 11, 13
Trope v. Katz
(1995) 11 Cal.4th 274...... 21
Vikco Ins. Services, Inc. v. Ohio Indemnity Co.
(1999) 70 Cal.App.4th 55...... 28
Woo v. Superior Court
(2000) 83 Cal.App.4th 967...... 13
Yamaha Corp. v. State Bd. of Equalization
(1998) 19 Cal.4th 1...... 23, 24
STATUTES, RULES AND REGULATIONS
California Business and Professions Code
§ 17203...... 16
§ 17204...... 16
§ 17209...... 1
California Code of Civil Procedure
§ 1858...... 11
California Insurance Code
§ 1861.01...... 14
§ 1861.02...... 14
§ 1861.03...... 14, 20
§ 1861.04...... 14
§ 1861.05...... 14
§ 1861.06...... 14
§ 1861.07...... 14
§ 1861.08...... 14
§ 1861.09...... 14
§ 1861.10...... passim
§ 1861.12...... 14
§ 12900...... 14
California Rules of Court
Rule 28(b)...... 3
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I.ISSUES PRESENTED FOR REVIEW
This petition concerns a critical provision of Proposition 103, the 1988 voter initiative that fundamentally restructured California’s insurance law. The Insurance Rate Reduction and Reform Act– Proposition 103– enacted Insurance Code section 1861.10.[1] Subdivision (a) of that section reads:
Any person may initiate or intervene in any proceeding permitted or established pursuant to this chapter, challenge any action of the commissioner under this article, and enforce any provision of this article.
The principal issue raised by the Court of Appeal opinion is one of enormous importance to California consumers and the Insurance Commissioner:
A.Does “clause three” of Insurance Code section 1861.10, subdivision(a) authorize a direct action in superior court to enforce provisions of Proposition 103?
The Court of Appeal, in a published opinion, held that it does not. The opinion also presents two other distinct issues:
B.May the courts accord no deference to the consistently maintained and well-considered views of an administrative agency on the statutes it enforces, when the agency’s views are submitted in the form of an amicus brief?
The Court of Appeal held that the views of the Insurance Commissioner, as expressed in an extensive amicus brief, were entitled to no deference at all.
C.When construing a voter-approved statute that provides for the concurrent jurisdiction of an administrative agency and the courts to redress violations of the initiative’s provisions, may courts require that voters employ something more than “plain language” to establish a right of action for direct enforcement of the statute?
The Court of Appeal held that Moradi-Shalal v. Fireman’s Fund Insurance Cos. (1988) 46 Cal.3d 287 (Moradi-Shalal) establishes a presumption against such a right of action, to the extent that voters must employ something more than “plain language” to establish such a right.
All three holdings are wrong and must be reviewed by this Court.
II.INTRODUCTION AND SUMMARY OF ARGUMENT
Supreme Court review is appropriate when “necessary to secure uniformity of decision or to settle an important question of law.” (Cal. Rules of Court, rule 28(b)(1).) In this case, review is required for both reasons.
Overruling the trial court, the Court of Appeal has badly misconstrued a statute at the heart of the enforcement regime that the Proposition 103 voters established. Again, section 1861.10, subdivision (a) provides, with the three clauses numbered this time to assist the reader:
Any person may [1]initiate or intervene in any proceeding permitted or established pursuant to this chapter, [2]challenge any action of the commissioner under this article, and [3]enforce any provision of this article.
(Emphasis added.) This “article” refers to article 10 within chapter9 (of part2 of division1) of the Insurance Code. Article 10 contains Proposition 103’s provisions. The phrase “enforce any provision of this article,” known colloquially among practitioners as “clause three,” is specifically at issue here.
Contrary to the express statutory language, the Court of Appeal held that clause three does not give “any person” the right to go to court to “enforce any provision” of Proposition 103. (§ 1861.10, subd. (a).) Rather, declaring clause three grammatically “subordinate” to clause one, the panel restricted enforcement of Proposition 103 to the administrative and other avenues referenced in clause one, thus rendering clause three mere surplusage. (Opn. 16.) In effect, the Court of Appeal rewrote section 1861.10(a) to read:
Any person may initiate or intervene in any proceeding permitted or established pursuant to this chapter, to challenge any action of the commissioner under this article, and to enforce any provision of this article.
But that is not what subdivision (a) says. By effectively inserting a preposition (“to”), the Court of Appeal judicially amended a critical provision of Proposition 103 whose meaning is readily apparent from its language, historical context and numerous court decisions.
Finding that “[t]he existing laws inadequately protect consumers and allow insurance companies to charge excessive, unjustified and arbitrary rates” (2 Appendix in Support of Petition for Writ of Mandate [App.] 562), the voters in 1988 explicitly repealed the prior regulatory framework, in which the Insurance Commissioner had exclusive jurisdiction to regulate insurers but no real authority to police their conduct and practices. The voters gave the Commissioner tools to regulate the industry, but also established a “consumer watchdog system” to “champion the interests of insurance consumers.” (2 App. 563.) Put concisely, the voters reserved for themselves an inalienable power to enforce Proposition 103 not only in the administrative process, but also in the courts, through the three independent clauses of section 1861.10(a). Unless the Court of Appeal’s judicial revision of section 1861.10(a) is reversed– or depublished[2]– the consequences for California consumers will be immediate and long lasting. As the Commissioner explained in his emphatic amicus brief, nullifying the right to bring a direct action under clause three will open a breach in the enforcement of Proposition 103’s provisions. The Court of Appeal’s skewed and internally inconsistent rewrite of that section undermines the “carefully-crafted system that furthers both the specific purposes and objectives of the voters and the Commissioner’s own responsibilities under Proposition 103.” (Amicus Curiae Brief of California Department of Insurance [CDI Brief] 2.)
Beyond its serious practical consequences for California consumers and the Commissioner’s ability to do his job, the opinion also disregards this Court’s Proposition 103 jurisprudence in particular, and its long-standing protection of the initiative process in general. For 18 years, this Court has “jealously guarded” the 1988 voters’ exercise of the “sovereign” initiative power, “‘it being one of the most precious rights of our democratic process.’” (Brosnahan v. Brown (1982) 32 Cal.3d 236, 241.) From Calfarm Ins. Co. v. Deukmejian (1989) 48 Cal.3d 805 (Calfarm), where this Court first reviewed Proposition 103, to Farmers Ins. Exchange v. Superior Court (1992) 2Cal.4th 377 (Farmers), affirming that Proposition 103 authorizes an Unfair Competition Law (UCL) action for violation of a provision of Proposition 103, to Amwest Surety Ins. Co. v. Wilson (1995) 11 Cal.4th 1243 (Amwest), protecting Proposition 103 against an invalid legislative amendment, to State Farm Mutual Auto. Ins. Co. v. Garamendi (2004) 32 Cal.4th 1029, where the Court held that the word “all” means “all,” and most recently, in depublishing a decision restricting the Commissioner’s authority to regulate homeowners insurance, American Ins. Assn. v. Garamendi (Oct.12, 2005, S132820) 2005 Cal. Lexis 11188, this Court has consistently given force to the plain language of Proposition 103, stepping in to protect the rights of the public and the authority of the Commissioner against efforts by insurers to roll back the 1988 reforms. In the last three years, amidst an apparent “second wave” of insurer challenges to Proposition 103, the lower courts have largely (but, as this case demonstrates, not always) followed this Court’s lead. (See Donabedian v. Mercury Ins. Co. (2004) 116 Cal.App.4th 968 (Donabedian); Krumme v. Mercury Ins. Co. (2004) 123 Cal.App.4th 924 (Krumme); Foundation for Taxpayer & Consumer Rights v. Garamendi (2005) 132 Cal.App.4th 1354.) The opinion here contravenes the principles of each of these decisions, introducing uncertainty and instability into the law, and thus necessitating review.
One of the most confounding aspects of the opinion below is its treatment of an extensive brief filed by the Department of Insurance agreeing with the trial court and the real parties in interest that section 1861.10, subdivision (a) authorizes a direct action. The Court of Appeal proclaimed that the Commissioner was entitled to “no deference” because, among other things, “there is no indication that senior agency officials carefully considered the interpretation asserted by the department in this proceeding....” (Opn. 23-24.) The Commissioner is surely entitled to more respect than this panel gave him. The case law is overwhelming that the Commissioner’s view of the Insurance Code matters. Indeed, the opinion flies in the face of Donabedian, which relied heavily on the Commissioner’s amicus brief construing the parameters of the private right of action afforded by Proposition 103. There is certainly no basis in California law for creating a presumption that an amicus brief is a frolic by junior attorneys unless the agency filing it affirmatively shows otherwise. The deference long accorded agency interpretations of statutes goes out the window under the panel’s opinion.
The opinion below also invents a new rule of statutory construction that conflicts with established precedents. The panel erroneously read Moradi-Shalal as a license to disregard the plain language enacted by the voters, in the interest of judicially restricting private rights of action. Moradi-Shalal, however, did not announce a presumption against private rights of action in statutes where there is an administrative agency with regulatory responsibilities. (Opn. 8-9.) Moradi-Shalal merely established that statutes should be applied according to their terms, with no presumption operating one way or the other. Transforming Moradi-Shalal into an exception to the bedrock “plain language” rule, as the Court of Appeal did, will invite wholesale challenges to settled law regarding initiatives and regulatory agencies.
For all these reasons, this Court should grant review.
III.FACTUAL AND PROCEDURAL BACKGROUND
The Court of Appeal’s overview of the factual and procedural history is correct as far as it goes. (Opn. 3-7.) For the present purposes, a few points require greater elaboration.
A.The Proposition 103 Enforcement Project
Review is sought by petitioner Proposition 103 Enforcement Project (Project), plaintiff below in Los Angeles Superior Court No. BC266219 and one of the real parties in the Court of Appeal. The Project is an undertaking of the Foundation for Taxpayer and Consumer Rights, a non-profit, public benefit corporation whose principal focus is ensuring proper implementation of Proposition 103. (1 App. 6.) The Foundation has participated as a party or through counsel in every significant proceeding involving Proposition 103.
B.The Project’s Complaint Against Safeco
Filed in January 2002, this action challenges use by respondents Safeco Insurance Company of America and First National Insurance Company of America (collectively Safeco) of an unlawful “rating factor,” the absence of prior insurance, when issuing auto insurance policies to consumers. Safeco’s practice violates express prohibitions in section 1861.02, a provision of Proposition 103. (1 App. 2-4.) Thus, as set forth in the Project’s complaint, this suit challenges conduct expressly forbidden by statute and that the Commissioner, moreover, has never approved in his regulation of Safeco’s insurance practices.
From the litigation’s outset, the complaint included three causes of action– two direct claims authorized by section 1861.10, at issue here, and also a UCL claim. (1 App. 1-11.) The viability of the Project’s two direct claims became paramount when Proposition 64 amended the UCL in 2004, thus leading to the consolidated writ proceeding now on review.
C.The Insurance Commissioner’s Role in This Litigation
The Insurance Commissioner took two steps in this case that are particularly noteworthy.
First, shortly after suit was filed, Safeco sought a referral of this matter to the Department of Insurance under the “primary jurisdiction” doctrine. (See Farmers, supra, 2 Cal.4th 377.) Granting Safeco’s request, the trial court ordered the suit referred to the Department, thereby halting the litigation in superior court. (1 App. 63-66.) After studying the Project’s allegations, however, then-Commissioner Low declined to exercise primary jurisdiction. His order made plain that this action, seeking enforcement of Proposition 103 directly in court, does not intrude on the Commissioner’s authority: “The Commissioner declines to hold hearings on the matter because the factual questions presented by the litigation do not require any actuarial or rate making expertise, matters which the California Department of Insurance regularly handles, and matters in which the Commissioner is vested with unique authority. The particular facts necessary to resolve the dispute will best be obtained through the discovery processes available to the Superior Court.” (1 App. 68.)
Second, the Department of Insurance reiterated this view in its amicus submission in the Court of Appeal. Commissioner Garamendi filed a thoughtful brief forcefully rejecting Safeco’s arguments that direct actions under Proposition 103 somehow step on his toes. The Commissioner also explained at length why the trial court’s interpretation of section 1861.10, subdivision (a) was correct. (CDI Brief 10-19.) As discussed in more detail later, the Court of Appeal brushed aside the Commissioner’s considered opinion.
IV.WHY REVIEW SHOULD BE GRANTED
A.Review Is Warranted Because the Court of Appeal Fundamentally Misconstrued Proposition 103’s Plain Language, Thereby Undermining the Enforcement Power that Voters Reserved for Themselves
1.“And” Means “And”: The Text of Section 1861.10, Subdivision (a) Permits a Direct Action in Court
Ultimately at issue here is the proper reading of a single statutory provision. As the Court of Appeal itself noted, the task of interpretation begins with the text itself. (Opn. 10.) On this threshold point, however, the panel failed to grapple with what the statute actually says.
To ensure compliance with Proposition 103, voters enacted a section titled “Consumer Participation.” Again, it consists of three clauses, separated by commas: “Any person may initiate or intervene in any proceeding permitted or established pursuant to this chapter, challenge any action of the commissioner under this article, and enforce any provision of this article.” (§ 1861.10, subd. (a).) By its plain language, clause three– “[a]ny person may... enforce any provision of this article”– authorizes a direct action enforcing Proposition 103 in superior court.
The Court of Appeal made no effort to contend with clause three until page 16 of its opinion. Then, the panel’s explanation for its textual reading consisted of just two sentences: “In our view, the plain language of the provision, liberally construed, does not justify such an expansive reading. A more reasonable construction of the express language of the statute is that both the second and third clauses are subordinate to the first clause and are limited to the proceedings referenced in the initial clause.” (Opn. 16.) On this entirely conclusory basis, the panel restricted the forum in which a person may “enforce any provision” of Proposition 103 to “a proceeding otherwise authorized by law and referenced in the initial clause.” (Ibid.)