Auto insurance refunds? California’s Prop 103 may turn out to ban them

We’ve written before about the political genesis of California’s Proposition 103, a remarkably onerous and unreasonable set of controls on the insurance business:

After insurance companies were so rash as to support efforts to obtain liability reform through the initiative process, trial lawyers struck back in 1988 with the rate-slashing Proposition 103, which inflicted huge losses on the industry.

Now, in the wake of drastic declines in miles driven as a result of the COVID-19 emergency, many of the biggest national auto insurers have announced voluntary programs to refund a portion of premiums to motorists, as a goodwill gesture reflecting in part the expectation that claims payouts will be much lower than anticipated. Those checks will come in handy for consumers in most states, but there’s a problem in California: any refunds, even those voluntarily embraced by insurers, appear to violate the terms of Prop 103. Ray Lehmann explains at Insurance Journal. He concludes:

The result is absurd. It’s a bug in the text. But because it was passed by the people of California as a ballot proposition, these sorts of bugs can’t simply be fixed by the Legislature. Any changes to the law require two-thirds majorities in both chambers, and even then, they must be found to “substantially further” the goal of the proposition.

It is yet another example of ways that the structures of Prop 103, well-intended though they may be, have come to be a straitjacket on both insurers and their customers.

In other insurance news, a few days ago I wrote about business-interruption insurance, blasting interest groups that want insurers to have to pay out despite policy exclusions. Now President Donald Trump has weighed in about how businesses supposedly should be able to recover losses for pandemic interruption, policy language or no.

He’s wrong. As I wrote Monday. “This category of risk has been widely grasped for many years… pandemic-related business interruption coverage [was] neither promised nor paid for at the time.” Seven Republican Senators, including Tim Scott (R-S.C.) and Ben Sasse (R-Neb.) have signed a well-informed letter opposing the idea.

Yes, the situation is tough on a dozen business sectors, starting with restaurants and travel. But there’s no way they should be allowed to raid insurance coffers of reserves needed to pay countless other claims whose coverage *was* promised and paid for in premiums. And if we let them get away with that kind of raid, no insurer will ever be able to count on the language of a contract again. Guess what’ll happen to rates when they realize they need to cover that kind of unpredictable future risk?


  • The quotations I’ve seen of Trump’s remarks on pandemic coverage do not support your claim that he’s advocated forcing coverage “policy language or no.” He pretty clearly indicated that exclusions should be honored.

    • If you followed the CNN link from my post, you saw a direct quotation. In that, he weaves back and forth between different ways of discussing the issue and in one case appears to concede that if you “see the word pandemic mentioned,” that exclusion should be honored while also managing to suggest that if you don’t “see it,” then liability should attach.

      There are two main exclusions understood to exclude pandemic. One of them specifically mentions “communicable disease” and presumably he was conceding that one. Another excludes interruption coverage not arising from physical damage to buildings, inventories, etc. His statement strongly suggests that he thinks that exclusion should be knocked out because it isn’t explicit enough in using the word pandemic. That’s a radical position, the sort I’d expect from some policyholder lawyers but not from neutrals, and it’s why the story made considerable waves in the insurance community.

      We can all hope that sounder voices are by now reaching him and that he won’t float this sort of thing again.