Lawsuit Against Auto Club Alleges Unfair Use of Coverage History

A class-action lawsuit brought against Auto Club of Southern California by one of its former agents alleges that the insurer engaged in practices meant to dodge state regulations barring insurers from using prior coverage history to help determine the price of a policy or whether a driver is insurable.

The suit alleges the Auto Club provided disincentives for agents to issue policies to previously uninsured drivers, awarding agents who sold to these customers much lower commissions than if the driver had been previously insured. The suit claims the difference in commissions sometimes amounted to hundreds of dollars per sale.

California’s insurance law, Proposition 103, outlines a number of factors insurers are allowed to use to rate its policyholders. Under that law, insurance carriers are prohibited from using presence of prior coverage as a rating factor to determine premiums or eligibility for coverage.

The former agent, Jill Rogers, was employed at the insurer’s main call center in Costa Mesa, Calif., where she alleges that a number of illegal business practices occurred that discriminated against customers lacking previous insurance.

The Auto Club has denied all of the allegations and said in a statement that the insurer is “confident that the truth will come out during the course of the litigation.”

‘Commission Scheme’ Drove Sales Toward Certain Customers

A scorecard-based commission structure graded agents at the call center, with one of the criteria being “persistency with prior carrier,” according to Laura Antonini, a staff attorney with Consumer Watchdog, which is partially representing Rogers and others in the lawsuit.

“You want more points if you want more dollars,” she said in an interview with Online Auto Insurance News, adding that the persistency factor was “one of the highest scoring items that was a huge point value compared to other criteria.”

Ultimately, Antonini said, an agent selling a policy to a customer without prior coverage earned a $20 commission while those selling a policy to a customer with previous insurance history earned commissions ranging from $100 to $500.

“It was pretty evident that the agents would do everything in their power to avoid writing those policies for those uninsured applicants,” said Antonini.

According to the lawsuit, agents fielding calls and in-office customers knew about their prior coverage history “within the first two minutes” of the inquiries, as the insurer allegedly trains its agents to pose the question immediately after obtaining their name and address.

In the lawsuit, Rogers claims that agents who were “well aware of the harmful financial repercussions” resorted to hang-ups and other tactics to stave off uninsured customers.

Rogers saw other agents hang up on uninsured customers voluntarily or “quote the caller some outrageous premium to get that caller off the phone,” Antonini said.

Rogers did not engage in such practices but brought them up to her superiors, according to Antonini, who added that Auto Club agents were not formally trained about Proposition 103 or any state laws governing the industry. When Rogers notified superiors about such practices by other agents, “it was swept under the rug,” Antonini said.

According to the court documents, Rogers and other plaintiffs in the class-action lawsuit are seeking “full restitution of all earned wages withheld” from them by alleged commission structure.

Such practices also hurt consumers at large, according to Antonini, who said that the “unseemly process of denying people insurance” needs to be curbed to stem the increasing scarcity of cheap car insurance companies.

“These practices increase the number of uninsured drivers out on the road and, ultimately, it drives up rates for everyone else,” she said.

Auto Club Denies Wrongdoing, Previously Faced Similar Allegations

The Auto Club denied the lawsuit’s allegations.

According to Jeffrey Spring, spokesman for the Auto Club, members did not provide evidence of prior coverage in more than 40 percent of the 127,000 policies sold so far this year.

“We highly value the trust our members place in the Auto Club, so we take the allegations … very seriously,” according to an Auto Club statement.

The insurance provider stated that it believed the lawsuit was “without merit.”

The insurer also faced a 2002 lawsuit stemming from similar allegations that was ultimately settled in 2008 with $22.5 million in refunds to about 120,000 policyholders. That lawsuit involved Auto Club surcharging motorists who could not provide proof of previous coverage.

Consumer Watchdog Denies Timing Lawsuit with Election

Consumer Watchdog is also backing efforts against Proposition 33, a state measure that voters will decide on in November’s election. That proposal seeks to change Proposition 103 by allowing previous history of coverage to be considered as a rate-setting factor.

Proponents say it will encourage competition between companies by allowing policyholders to take persistency discounts from insurer to insurer. Opponents, however, say it singles out uninsured drivers who will face surcharges for lacking coverage history.

Antonini said that the Auto Club lawsuit is unrelated to Consumer Watchdog’s efforts against Proposition 33, and that “the timing is not meant to coincide with that in any way.”

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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