Former Southern California Auto Club Agent Sues Insurer for ‘Illegal Practice’

A former insurance agent has filed a class action lawsuit in Southern California against Auto Club over what she alleges is an “illegal commission scheme” that penalizes agents who sell policies to people who previously did not have insurance.

It is illegal under California’s Proposition 103 to discriminate against someone who previously has not had insurance, but according to the suit agents at an Automobile Club of Southern California call center in Costa Mesa were awarded points based on the type of insured to whom they sold. Selling a policy to a previously uninsured motorist was worth a $20 commission, while someone with a good driving record and insurance history could garner up to $500 for an agent, the suit states.

Representing the agent as a co-counsel in the suit is Harvey Rosenfield, founder of Santa Monica-based Consumer Watchdog and Prop. 103’s author.

Rosenfield made mention during a press conference on Thursday that Proposition 33 on the upcoming Nov. 6 ballot would make basing prices on someone’s past driving history legal.

While Rosenfield has said the suit isn’t timed as a political attack against the measure, backers of Prop. 33 called the timing of the suit “suspicious.”

Consumer Watchdog and the Prop. 33 campaign have been battling one another in court and in headlines over the measure, and that battle has been waged at a louder volume as election day nears.

“It would overturn the ban,” Rosenfield said, referring to the Prop. 33 initiative, which authors say would enable insureds to take their auto insurance persistency discount and shop it around to other insurers. “This lawsuit will continue whether or not the voters reject Prop. 33.”

He added that Prop. 33 “has nothing to do with saving people money. It’s just a way to engage in redlining.”

Prop. 33 is backed personally by Mercury Insurance Chairman George Joseph, as well as the American Agents Alliance. It’s similar to failed Prop. 17 on the 2010 ballot, but the new measure has language its authors say is designed to protect military serving overseas and people who have lost their jobs due to the sluggish economy.

Prop. 33 spokesman Terry McHale, who referred to the timing of the suit two weeks before the election as “suspicious,” said the suit by Consumer Watchdog is “consistent with the way they do business. They like to throw bombs. They just throw everything against the wall to see what sticks.”

Auto Club issued a statement saying that “the lawsuit is without merit.”

“The Auto Club has provided competitively priced, high quality auto insurance to Southern Californians for 100 years,” the Auto Club statement reads. “The Auto Club is and always has been strongly committed to compliance with Proposition 103. In fact, we were the first major insurer to comply with the rebate provisions of Proposition 103 back in 1991.”

The suit, filed in Los Angeles Superior Court, alleges Auto Club and its insurance affiliate are violating a California law prohibiting insurance companies from discriminating against people who previously did not have insurance, a violation of Insurance Code section 1861.02(c).

According to the lawsuit, the “illegal commission scheme” created financial incentives that led the company’s agents to hang up on telephone calls from consumers calling for a price quote, or quote them an artificially inflated premium.

The suit alleges unlawful business practices, unfair business practices and it seeks declaratory relief.

“Auto Club systematically disincentivizes the sale of policies to drivers without prior insurance,” the suit states. “All other characteristics being the same, an agent who sells a policy to someone without prior insurance stands to make less – often hundreds of dollars less – than an agent who sells that same exact policy to someone with prior coverage.”

The agent, Jill Rogers, is also being represented by Timothy Good with Blood Hurst & O’Reardon LLP in San Diego. Rogers was employed by Auto Club in various capacities for 15 years, the last three of which were as an agent. Her lawsuit, brought on behalf of a class of current and former Auto Club insurance agents, seeks to stop Auto Club from continuing “the illegal commission scheme,” and to require Auto Club to pay back commissions it withheld from agents when they sold policies to first time drivers and others who have not had insurance previously.

Rogers described a commission scheme in which policies were sold and rated on a scorecard as “A,” “B” or “C.”

Each month agents would sit down with a supervisor and go over the number of policies they wrote in each category and their commissions.

An “A” policy in which a driver had previous auto insurance history and a good driving record earned an agent the highest commission, a “B” policy came with a moderate commission and was for someone with an average driving record and a prior auto insurance history, and “C” policies were for people who didn’t have prior insurance and earned agents very small commissions, Rogers said.

Rogers, who said she did not hang up on customers who had no prior history or quote them artificial prices as was the practice of some of the other agents, said the incentives were not explained in a way in which supervisors were outwardly discouraging agents from selling policies to people without a prior auto insurance history, but it was “understood.”

“I would say half of the agents were probably doing it,” she said. “Talking with others on the floor, you could tell that’s what was going on.”

Consumer Watchdog claims it has known about the practice for a year-and-a-half, but offered no details of how it got that knowledge, just that Rogers was the first agent affected by the commission structure to come forward.

Consumer Watchdog said it was sending a copy of the suit on Thursday to California Insurance Commissioner Dave Jones or his review. A query sent to Jones’ office seekign comment was not immediately answered.

During the press conference Rosenfield called the practice “a form of redlining.”

“In effect, not having insurance was like a preexisting condition,” he said of the affect the Auto Club commission structure had on those wishing to become Auto Club policyholders.

It’s not Auto Club’s first go-around with Consumer Watchdog. Consumer Watchdog sued the company in 2002 for imposing a surcharge on motorists who could not show proof of previous insurance coverage. The company settled the matter in 2008, paying $22.5 million to approximately 120,000 policyholders.

Rogers, who said she left the Automobile Club of Southern California a year ago, explained her reasons for leaving and the results of offering a policy to people without a history of auto insurance.

“I wasn’t happy with the way that they were doing business, so I chose to walk away,” she said in reply to a question about whether she had been terminated by her employer. “It just got to be a very negative place to be at.”

However, the Auto Club statement challenges Rogers’ assertion about her exedous: “The former sales agent’s characterization of the circumstances surrounding her departure from the Club that she provided at the press conference was not accurate.”

According to Rogers, when she wrote policies to people without prior insurance, “it was a very low paycheck.”

She did write policies for previously uninsured motorists, which she said was to keep up with a minimum requirement for the number of policies she had to produce each month.

“I would write those policies just because I needed the numbers,” she said. “A lot of the agents would hang up on customers because they didn’t want to take the time to write that $20 policy because they wanted to take the phone call that could be a $100 policy.”

While he mentioned Prop. 33 a few times during the press conference, Rosenfield dismissed suggestions the suit could be viewed as a timed political attack on Prop. 33.

“Unlike (the Prop. 33 campaign) we don’t invoke the judicial branch to make a political point,” he told Insurance Journal, referring to an unsuccessful suit filed by the backers of Prop. 33 against Consumer Watchdog and California’s Attorney General over language on the upcoming ballot.

A judge ruled against the Prop. 33 campaign and left the ballot language – in his ruling the judge let stand both language written by the Attorney General describing what the measure does and opposing language written by Consumer Watchdog – although he acknowledged Consumer Watchdog is known for hyperbole, noted Prop. 33 spokesman McHale.

“They struggle with the truth,” McHale said. “That’s the way they make their money. They’re corporate lawyers, that’s what they do.”

Prop. 33 backers say the measure is actually pro-consumer, allowing consumers to shop their automobile insurance persistency discounts they get with their current carrier to others insurers to find the best auto insurance price. Several groups have come out in favor of the measure in the past two months, including several veterans group, and groups for California Highway patrol officers, and firefighters. According to the campaign more than 200,000 businesses support the proposition.

“The truth is Prop. 33 was written to be inclusive,” McHale said. “It allows more people to get insurance and it allows more people to maintain insurance.”

McHale said the measure creates “safety nets” for those who struggle to make auto insurance payments due to the bad economy, it allows for a 90-day lapse in insurance coverage for any reason and it protects military who serve overseas.

“The idea of Prop. 33 is to get everybody insured,” McHale said.

Rosenfeld disagreed with the idea that the suit is timed to impact voter opinion, and said Consumer Watchdog had pondered filing the suit following the election, but it’s something they have been working for the last 18 months and they did not want to sit on it any longer.

Pressed about how his group came to know of the practice and whether they had spoken to other Automobile Club of Southern California agents, Rosenfield offered no details.

“Let’s just say that we became aware of the problem about 18 months ago,” he said. “I don’t want to get into the issue of who talked to me.”

Rogers said she still keeps in contact with friends who work at the call center in Costa Mesa, which she said employs about 165 agents, and they are still using the scorecard.

Aside from hanging up on potential policyholders who were previously uninsured, some agents “would just make up this outrageous premium” to get customers off the phone, said Rogers, a 38-year-old San Clemente resident who now has a pet sitting business and works as a manger of an AT&T retail store in Mission Viejo.

She said she still has her insurance license, but is not currently practicing. However she said she plans to return to life as an agent at some point.

“I just got to find what company is going to be the best fit for me,” she said. “I thought it was the Auto Club, but I guess it’s not.”