King v. Nat'l Gen. Ins. Co.

EDD KING, et al., Plaintiffs, v. NATIONAL GENERAL INSURANCE COMPANY, et al., Defendants.

Case No. 15-cv-00313-DMR

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA

February 14, 2017

ORDER STAYING CASE PURSUANT TO PRIMARY JURISDICTION DOCTRINE

Plaintiffs¹ are qualified "Good Drivers"² who purchased car insurance from the Defendant insurance companies. In this putative class action, Plaintiffs allege that Defendants are all members of a common control group under California insurance law, and that Defendants' agents and representatives therefore have a duty to cross-offer a policy with the lowest Good Driver rates for the coverage that is available within the control group, as required by California Insurance Code § 1861.16(b).³ Plaintiffs assert several claims for relief that attack the alleged failure to cross-offer as required by law. Defendants' many counter-attacks include the assertion that two ofthe seven insurer Defendants (NGAC and Personal Express) are entitled to "Super Group" exemptions from the cross-offer requirement, pursuant to section 1861.16(c). Defendants also contend that three Defendants (MIC, NGIC, and Integon National) can only offer policies to consumers who fall into certain "affinity groups" approved by the DOI pursuant to section 1861.12, and therefore are restricted from making a cross-offer to consumers who are not members of those groups. For example, NGIC claims that it can only offer the relevant coverage to enumerated approved groups, such as AAA, AARP organizations, Good Sam and Camping World members, and others. See Defs.' Third Mot. to Dismiss [Docket No. 95] at 19.

The parties currently are in their third round of motions on the pleadings pursuant to Federal Rule of Procedure 12. In the first round, Defendants argued, among other things, that this court did not have jurisdiction over Plaintiffs' claims because they fell within the exclusive jurisdiction of the California Insurance Commissioner. The court examined the question at length, and rejected Defendants' argument. See King v. Nat'l Gen. Ins. Co., 129 F. Supp. 3d 925, 933-936 (N.D. Cal. 2015) ("King I"). In so holding, the court determined that Plaintiffs' challenge to the failure to cross-offer did not implicate the Department of Insurance's ("DOI") exclusive rate-making authority:

Plaintiffs do not challenge the reasonableness of any particular insurance rate, nor do they attack acts done pursuant to the DOI's rate-making authority. Instead, Plaintiffs challenge Defendants' allegedly wrongful application of the approved rates, i.e., the conduct and practices that result in Plaintiffs being offered a policy with a higher DOI-approved rate when they should have been offered a policy with a lower DOI-approved rate. Thus, neither [California Insurance Code] Section 1860.1 nor the filed rate doctrine precludes Plaintiffs from litigating their claims in this court.

Id. at 936.

In the same order, however, the court noted that even though it rejected Defendants' argument that the entire case fell within the exclusive jurisdiction of the DOI, it still had concerns about "whether some aspects of [the] case may fall within the jurisdiction of the DOI - e.g., the determination of whether the Super Group exemption under California Insurance Code § 1891.16(c)(1) applies to any Defendant, or whether aDefendant's approved rates apply only to certain enumerated 'affinity groups.'" King I, 129 F. Supp. 3d at 936, n.6. (emphasis in original). The court declined to reach the issue because the parties failed to raise it or brief it. Id.

In the second round of Rule 12 briefing, the court held that Plaintiffs' pleadings were still defective because the operative complaint placed the cross-offer obligation on the Defendant insurers, even though the plain language of Section 1861.16(b) places the cross-offer requirement on "agents and representatives," and not on insurers:

Under a plain reading of the statute, the duty to cross-offer is placed on "an agent or representative representing one or more insurers having common ownership or operating under common management or control." By contrast, the statute requires the insurer to "sell" the discounted policy that the agent or representative is required to "offer." Here, Plaintiffs do not challenge any agents' or representatives' failure to cross-offer discounted policies. Instead, they bring suit only against the Defendant insurers themselves. . . . This pleading places the cross-offer requirement on the wrong actors.

As currently pleaded, Plaintiffs' allegations avoid important distinctions among relevant potential actors. For example, "agents" and "representatives" act on behalf of insurers. Thus, an "insurance agent" is a person authorized to act on behalf of an insurer. Cal. Ins. Code § 31. Similarly, section 1861.16(b) defines a "representative" as a "person who offers or prepares premium quotations on behalf of either an insurer or any entity acting directly or indirectly on behalf of an insurer." By contrast, an "insurance broker" transacts insurance with, but not on behalf of, an insurer. Cal. Ins. Code § 33. See also Cal. Ins. Code § 1623(a) (insurance broker is "a person who, for compensation and on behalf of another person, transacts insurance other than life insurance with, but not on behalf of, an admitted insurer.") Unlike insurance agents and representatives, an insurance broker is not an agent of, and cannot bind the insurer. Conversely, the insurer is not liable for the broker's acts or omissions. Rios v. Scottsdale Ins. Co., 119 Cal. App. 4th 1020, 1026 (2004); Kurtz, Richards, Wilson & Co. v. Ins. Communicators Marketing Corp., 12 Cal. App. 4th 1249, 1257-1258 (1993).

King v. Nat'l Gen. Ins. Co., 186 F. Supp. 3d 1062, 1072 (N.D. Cal. 2016) ("King II").

In the third and current round of Rule 12 briefing, Plaintiffs have unveiled a new theory. They allege that Defendants exert control over their agents and representatives with respect to the matters relevant to this case, and that "Defendants implemented a secret scheme to circumvent the statutory mandates by concealing and intentionally notdisclosing to their agents, representatives and brokers the applicability of the requirements of Cal. Ins. Code Section 1861.16(b) to their Control Group . . . ." This "secret scheme" allegedly included making "false representations of material facts" in the applications for a Super Group exemption for Defendants NGAC and Personal Express. Third Amended Complaint ("TAC") [Docket No. 93] at ¶¶ 36, 40-44. In other words, Plaintiffs assert that Defendants control the actions of their agents and representatives, and that those agents and representatives failed to cross-offer pursuant to Section 1861.16(b) because Defendants concealed the fact that the agents and representatives were obligated to make the cross-offers.

After oral argument on Defendants' Motion to Dismiss the Third Amended Complaint, the court issued an order for supplemental briefing on the question of whether determination of "Super Group" status is within the exclusive jurisdiction of the DOI. The court also asked for briefing on whether it should exercise its discretion under the primary jurisdiction doctrine to defer determination of Super Group status to the expertise of the DOI, and to stay this case pending the DOI's decision.

As this court previously held, California Insurance Code § 1860.1 gives the DOI exclusive jurisdiction over challenges to the reasonableness of approved rates. However, section 1861.1 immunity must be "narrowly constru[ed]," and "where the plaintiff's claim does not involve a challenge to a rate approved by the DOI or DOI's ratemaking authority, the claim does not fall within the exclusive jurisdiction of the DOI and the plaintiff may bring the claim in court in the first instance." King I, 129 F. Supp. 3d at 935 (citation omitted). Plaintiffs' claims attacking the failure to cross-offer do not amount to a challenge to the reasonableness of DOI-approved rates, and therefore are not precluded by section 1860.1. Id. at 933-36. Embedded within Plaintiffs' claims, however, is the question of whether Defendants NGAC and Personal Express are entitled to a Super Groupexemption from the duty to cross-offer, pursuant to section 1861.16(c). The court now analyzes whether it must leave this determination to the sole authority of the DOI,⁴ or whether it has jurisdiction over the determination of Super Group status.

Section 1861.16(c) sets forth an exemption from the cross-offer obligation for insurers within a control group who satisfy a set of conditions such that they are entitled to so-called Super Group status. The plain language of the statute indicates that it is the Insurance Commissioner who determines whether an insurer has satisfied those conditions:

(c)(1) Notwithstanding subdivision (b), insurers having common ownership and operating in California under common control are not required to sell good driver discount policies issued by other insurers within the common ownership group if the commissioner determines that the insurers satisfy each of the following conditions:

(A) The business operations of the insurers are independently managed and directed.

(B) The insurers do not jointly develop loss or expense statistics or other data used in ratemaking, or in the preparation of rating systems or rate filings.

(C) The insurers do not jointly maintain or share loss or expense statistics, or other data used in ratemaking or in the preparation of rating systems or rate filings. This condition shall not apply if the data is generally available to the industry through a nonaffiliated third party and is obtained from that third party.

(D) The insurers do not utilize each others' marketing, sales, or underwriting data.

(E) The insurers act independently of each other in determining, filing, and applying base rates, factors, class plans, and underwriting rules, and in the making of insurance policy forms.

(F)

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