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The auto insurance industry is skidding through a pileup of lawsuits over how it prices insurance rates. Insurance companies are being sued and scrutinized for using factors including education, occupation, credit scores and lack of prior coverage to set prices � criteria that plaintiffs allege unfairly lead to higher premiums and discriminate against minorities and the poor. “I think that insurance companies have become much more aggressive in underwriting practices with an eye toward servicing niche markets, desirable markets, but ignoring undesirable markets,” such as the poor and minorities, said plaintiffs’ attorney Andrew Friedman of Phoenix’s Bonnett, Fairbourn, Friedman & Balint. He is currently handling a discrimination class action against Farmers Group Inc., accused of allegedly using credit scores to set homeowners insurance prices that allegedly had a disparate impact on minorities. Lumpkin v. Farmer’s Group, No. 05-2868 (W.D. Tenn.). Insurance industry proponents argue that the industry is the target of too much burdensome and ineffective legislation. California insurers in particular feel threatened as they are forced to give ZIP codes less weight in determining insurance rates. “Basically, the single most predictive indicator of risk is territory, where you drive your car, and people don’t like to hear that,” said Kent Keller of Los Angeles-based Barger & Wolen, who represented a group of California insurers in a industry lawsuit that challenged new rules that limit the use of ZIP codes in formulating rates. The lawsuit failed last year. “[Drivers] scream, ‘I’m a good driver.’ It doesn’t matter,” Keller said. “If you drive your car in a ZIP code in Los Angeles, then you have a much greater risk than someone living in Lee Vining, Calif.” Suits accelerating Litigation over the practices are accelerating, as drivers increasingly turn to state consumer protection laws and federal discrimination laws. In Minnesota, a class action is pending against Geico for using education and occupation as factors in determining rates, a practice that plaintiffs allege discriminates against African-Americans. Amos v. Geico, No. 06-1281 (D. Minn.). In California, a lawsuit is pending against Safeco Corp. for allegedly adding a surcharge because insureds did not have prior coverage, a practice that discriminates against the poor who have struggled to afford insurance in the past. The practice also is illegal in California. Karnan v. Safeco, No. BC266219 (Los Angeles Co., Calif., Super. Ct.). Also in California, the Automobile Club of Southern California settled a lawsuit in March for $22.5 million to resolve claims that it added a surcharge because consumers didn’t have prior insurance coverage. Landers v. Interinsurance Exchange of the Automobile Club, No. BC281759 (Los Angeles Co., Calif., Super. Ct.). The use of credit scores in determining insurance rates also has triggered several class actions in recent years. Last year, Allstate Corp. paid almost $12 million to settle a discrimination class action that alleged its use of credit scores in determining rates resulted in higher premiums for minorities. DeHoyos v. Allstate, 240 F.R.D. 269 (D. Texas). The year before, State Farm Mutual Automobile Insurance Co. settled a similar suit in Hawaii for $1.2 million to resolve claims that it improperly used credit scores to set insurance rates, which violates Hawaii law. On the legislative front, Michigan is considering a bill that would prohibit insurers from using factors like education and occupation to set rates. Six other states, including California and Massachusetts, have similar laws. Delaware last year passed legislation that banned using credit scoring to set insurance rates, joining more than a dozen other states with similar statutes. And in California, a July 24 deadline is looming over insurers, who must be in full compliance with a rule that says good driving records � not ZIP codes � should be the main factor in setting rates. Plaintiffs’ lawyers, meanwhile, charge that the insurance industry is increasingly engaging in discriminatory practices and getting away with it. “When they do engage in illegal practices, it’s very difficult and often impossible for policy holders who have been overcharged to get their money back,” said Missouri attorney Jay Angoff, explaining that most states do not allow for a private right of action in insurance rate disputes. “In a lot of states, the law is even if the insurance company has violated the law, that’s just too damn bad. You can’t sue.” Angoff of Roger G. Brown & Associates in Jefferson City, Mo., who is handling several lawsuits challenging insurance industry practices, said that in some states, if a consumer claims that he or she have been overcharged for insurance, the state insurance commissioner can order refunds. But in most states, he said, the commissioner has no such authority, leaving plaintiffs in the lurch. “The consumer who is overcharged is completely out of luck because he can’t sue privately, and the commissioner has no authority to order a refund,” he said. Guilty of accuracy? David Snyder, assistant general counsel for the American Insurance Association, an insurance trade association, defended insurers, saying they abide by state and federal rules in assessing risky drivers and setting fair rates. “Auto insurers are becoming increasingly accurate in predicting risk, which has nothing to do with unlawful discrimination. Insurers know they are subject to discrimination laws, and there is no evidence of any systematic or widespread violation of those laws,” Snyder said. Snyder noted that because the insurance industry is so competitive, there is no uniform rating system. Companies have their own systems for determining premiums, and they can differ dramatically. All companies, however, are subject to dozens of state and federal discrimination and fair trade laws, which Snyder believes keeps insurers in line. “Insurers know what the anti-discrimination laws are. They don’t collect and use information that would create unlawful discrimination,” Snyder said. That’s not always the case, countered attorney Joseph Sellers of Washington’s Cohen, Milstein, Hausfeld & Toll, who is pursuing the class action alleging racial discrimination against Geico. He claims that Geico, by using factors like occupation and education in setting rates, is intentionally discriminating against African-Americans. “There’s no question that education and occupation levels correlate with race,” said Sellers, who heads the firm’s civil rights and employment practice group. “When an entity uses and continues to use factors, which it knows have had an adverse effect on a protected group like African-Americans, and nonetheless continues to use those factors, it engages in intentional discrimination.” Sellers is pursuing his claim under the Civil Rights Act of 1866, which prohibits using race in making contracts and requires evidence of intentional discrimination. He argues that there is no “plausible connection” between someone’s education or job status, and the incidents of accidents. To prove his point, he cited a 2003 study that chronicled accidents by occupation. Those topping the list were doctors and lawyers, while blue-collar workers were at the bottom. The study was done by the San Francisco-based Quality Planning Corp., which provides statistical data to the auto insurance industry. Plaintiffs in the Geico case have survived motion to dismiss. A hearing on class certification is set for May. David P. Gersch, an attorney at Washington’s Arnold & Porter who is defending Geico, said his client denies the allegations, but he would comment no further. Geico officials did not return calls seeking comment. Attorney Hans Bader of the Competitive Enterprise Institute, a Washington think tank that supports free enterprise principles, believes that insurance companies are justified in using sociological and geographic factors in setting insurance rates. “I totally think insurers should be allowed to use ZIP code, education and occupation as criteria for determining rates,” Bader said. “The purpose of insurance is to hedge against risk, and risks vary based on all sorts of characteristics . . . .Banning consideration of those characteristics as ‘discrimination’ defeats the whole purpose of insurance.” Bader, who has represented both plaintiffs and defendants in discrimination lawsuits, is skeptical that the Geico plaintiffs will prevail in proving intentional discrimination. He said the U.S. Supreme Court has held that even if a company is aware of the consequences of its practices, that doesn’t mean that intentional discrimination has occurred. Personnel Administrator of Massachusetts v. Feeney, 442 U.S. 256 (1979). “Sometimes it’s not always obvious of what someone’s motive is,” Bader said. “I don’t see a case there.”

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