In the wake of the Covid-19 pandemic lockdown orders, policyholders were driving less and insurance company severities and loss ratios were reduced. This resulted in a temporary increase in insurance company profits. Beginning in April 2020, the California Department of Insurance (“DOI”) issued a series of Bulletins, ordering insurers to provide premium refunds to policyholders. Initially, many insurers complied, providing partial refunds during the early months of the pandemic.
Shortly thereafter, however, a wave of policyholder class action lawsuits were filed across the state, alleging that insurers violated California’s Unfair Competition Law (“UCL”) because additional premium refunds were owed and the ones provided were insufficient. Initially, insurers defended these suits based on the DOI’s “exclusive jurisdiction” over rates and the immunity conferred under Insurance Code section 1861.1, which precludes collaterally challenging filed and approved rates. This defense was rejected by the trial courts and class discovery proceeded against the carriers, primarily in the United States District Court for the Northern District of California.
Recently, the tide has shifted. In October of 2021, the Court of Appeal held in State Farm Gen. Ins. Co. v. Lara, 71 Cal. App. 5th 148, 188-92 (2021) that the DOI had no statutory authority to order retroactive premium refunds. In particular, the Lara court held that such refunds were inconsistent with California Insurance Code sections 1861.01(a) and 1861.01(c) —which are commonly referred to as the “prior approval” statutes. The Lara court held that insurers are required to charge the premium previously approved by the DOI, unless and until a new rate is approved by the DOI.
Building on the Lara decision, federal district court judge Stephen Wilson held that an insured’s UCL claim was barred by the “prior approval” statutes, as interpreted by the Lara court. Torrez v. Infinity Ins. Co., 2022 WL 6819848 (C.D. Cal. Oct. 11, 2022) (granting motion to dismiss with prejudice). Judge Wilson also held that, even if the plaintiff stated a cognizable claim under the UCL, the court would abstain from hearing it, as UCL claims are equitable in nature and courts are free to abstain from hearing them. Judge Wilson specifically held that plaintiff’s UCL claim was contrary to fundamental principles of insurance law–namely: insureds have no right to receive premium refunds in profitable years and insurers are not allowed to levy premium surcharges in unprofitable ones.
Based on Torrez and the “prior approval” statutes, Judge Lawrence Riff of the Los Angeles Superior Court Complex Litigation Department granted Wawanesa’s motion for summary judgment on the same grounds. Shively v. Wawanesa General Ins. Co., 2023 WL 5509069, at *1 (Cal. Super. Aug. 22, 2023). Like Judge Wilson, Judge Riff held that, apart from violating the prior approval statutes, plaintiff’s theory is “not how insurance works.”
Building on the Torrez decision, Judge Evelio Grillo of the Alameda Superior Court Complex Litigation Department granted CSAA’s demurrer without leave to amend on similar grounds. See Early v. CSAA Ins. Exchange, No. 22CV014132, 2023 WL 3995137 (Cal.Super. June 12, 2023) and Early v. CSAA Ins. Exchange, No. 22CV014132, 2023 WL 7326094 (Cal.Super. Nov. 03, 2023). Like Judges Wilson and Riff, Judge Grillo held that plaintiffs’ theory violated California’s prior approval statutes.
Relying largely on Judge Wilson’s abstention holding in Torrez, Judge William Claster of the Orange County Superior Court Complex Litigation Department also elected to abstain from hearing plaintiff’s UCL case, holding that the issue should be handled, if at all, by the DOI. Mercury Ins. Policy Cases, 2023 Cal. Super. LEXIS 54908, *4 (Super. Ct. Orange County Aug. 11, 2023). In a similar vein, two cases from the Eastern District were dismissed under the doctrine of primary jurisdiction. Kurshan v. Safeco Ins. Co. of Am., __ F. Supp. 3d __, 2023 WL 1070614 (E.D. Cal. Jan. 27, 2023); Drawdy v. Nationwide Ins. Co. of Am., 2022 WL 3020050, at *3 (E.D. Cal. July 29, 2022). Primary jurisdiction differs from abstention, in that the former results in a dismissal with prejudice; the latter is dismissed without prejudice should the parties wish to seek the DOI’s input.
Plaintiffs did not appeal Torrez, Shively or Mercury. Nor did the plaintiffs pursue their claim with the DOI in cases that were dismissed on primary jurisdiction grounds.
In sum, some California courts are now rejecting the Covid premium refund cases. Several Covid premium refund cases are still pending in the federal courts, primarily in the Northern District of California. One court has even granted the insured’s motion for class certification. It appears that the remaining federal cases that are still pending will ultimately be decided by the Ninth Circuit.