Judge: William D. Claster, Case: JCCP5230, Date: 2023-08-11 Tentative Ruling

1. Defendant Mercury Insurance Company's  Notice of Motion and Motion for Judgment on the Pleadings  (ROA #93)

2. Status Conference

Mercury Insurance Company’s motion for judgment on the pleadings is GRANTED. Both sides’ requests for judicial notice, to which no objections have been filed, are GRANTED.

I.            Background

Mercury is an automobile insurer. Plaintiffs purport to represent a class of Mercury’s insureds. Broadly speaking, this case involves the alleged wrongful retention of premiums charged during the COVID-19 pandemic, when miles driven plummeted, but Mercury charged rates (previously approved by the Insurance Commissioner) based on pre-pandemic driving levels. (CC ¶ 2.) In 2020, Mercury refunded a portion of those premiums through billing credits at the direction of the Commissioner. (CC ¶¶ 9-12.) In a March 2021 bulletin, the Commissioner directed California automobile insurers to refund still more premiums. (CC ¶¶ 13-14.) In October 2021, the Commissioner specifically directed Mercury to refund additional premiums. (CC ¶ 15.) Mercury did not provide further refunds in response to the Commissioner’s 2021 actions.

Plaintiffs contend Mercury should have refunded more, and that its failure to do so means it is wrongfully retaining a “windfall” at customer expense. Plaintiffs brought two claims, for UCL violations and unjust enrichment. The Court overruled Mercury’s demurrer to the UCL claim and sustained its demurrer to the unjust enrichment claim with leave to amend. Plaintiffs did not file an amended complaint, so only the UCL claim remains.

In April 2023, the California Department of Insurance and Mercury executed a stipulation of settlement in an administrative action titled In the Matter of the COVID Refund of Mercury Insurance Company and California Automobile Insurance Company. (Mercury RJN, Ex. 12.) Under the stipulation, Mercury will pay $23.5 million to California policyholders “in addition to the amount of COVID refunds or credits previously provided . . . as an additional COVID refund or credit.” (Id., § 1.)

II.          Discussion

A.           Abstention Principles

Plaintiffs seek declaratory injunctive relief, restitution, and imposition of a constructive trust as remedies for their UCL claim. “Because the remedies . . . ‘are equitable in nature, courts have the discretion to abstain from employing them.’” (Willard v. AT&T Communications of California, Inc. (2012) 204 Cal.App.4th 53, 59.) Mercury argues the Court should abstain from deciding this case.

“It is well-established that a court of equity will abstain from employing the remedies available under the unfair competition law in appropriate cases. . . . ‘Where [an unfair competition law] action would drag a court of equity into an area of complex economic [or similar] policy, equitable abstention is appropriate. In such cases, it is primarily a legislative and not a judicial function to determine the best economic policy.’” (Shamsian v. Department of Conservation (2006) 136 Cal.App.4th 621, 641-42.)

B.           Abstention Is Appropriate Here

Mercury points to Torrez v. Infinity Insurance Company (C.D.Cal. 2022) 2022 WL 6819848, a COVID-related automobile insurance refund matter like this one. As in this case, Infinity refunded some premiums to policyholders in 2020, and “Torrez contend[ed] that these rebates were insufficient, and that the pandemic gave Infinity an improper windfall at the expense of consumers holding insurance policies with Infinity.” (Id., at *1.)

The court determined it should abstain from deciding the case. It explained: “Torrez seems to be asking the Court to determine whether a rebate rate of 15% and 20% was insufficient to ensure that Infinity did not obtain a windfall during the lockdown. . . . The question of the fairness of Infinity’s rebate, and how to police that fairness in the future, is better suited to the Insurance Department’s technical expertise in calculating risk and other figures necessary to ascertain whether or not the rebate offered by Infinity sufficiently accorded with the 2020 Bulletin.” (Id., at *4.)

The Court agrees with the reasoning of Torrez. Plaintiffs’ UCL claim is based on the contention that Mercury’s refund of premiums is unfairly low, and should be higher. This would require the Court to calculate what the correct premium should have been, which is a complex, multi-factor assessment depending on seemingly straightforward things like Mercury’s projected losses and defense costs, but also on arcane economic matters like Mercury’s fixed and variable investment income factors, efficiency standard, and maximum profit factor. (See 10 Cal. Code Regs. § 2644.2; see also generally 10 Cal. Code Regs. § 2644.1 et seq.) The Court finds, in its discretion, that because this is a task better suited to the Department of Insurance’s technical expertise, abstention is proper.

C.            Plaintiffs’ Counter-Arguments

Plaintiffs raise several counter-arguments, none of which the Court finds persuasive.

1.            Whether the Stipulation Supports Abstention

Plaintiffs contend Mercury’s argument contradicts the terms of the stipulation, which provides among other things that it “shall not constitute approval of or precedent regarding any principle or any issue in any other proceeding.” (Mercury RJN, Ex. 12, § 4.) But Mercury does not contend the stipulation has a preclusive effect here, i.e., that the stipulation conclusively resolves whether it has provided adequate refunds. Rather, Mercury contends abstention is appropriate because it provided refunds in 2020 and has agreed to provide another $23.5 million in refunds, and the question of whether those refunds are unfairly low is better suited to the Department of Insurance’s technical expertise than the judiciary.

Plaintiffs next contend Mercury’s reliance on the stipulation runs afoul of Blue Cross of California, Inc. v. Superior Court (2009) 180 Cal.App.4th 1237. Blue Cross is inapposite. In that case, the Los Angeles City Attorney sued Blue Cross, contending its rescission policies violated the law because they amounted to postclaims underwriting. Blue Cross had already entered into settlement agreements with the Department of Managed Health Care and the Department of Insurance regarding its rescission practices, and it argued the court should abstain in light of those settlement agreements. The Court of Appeal disagreed, explaining, “[T]he city attorney’s suit does not call upon the court to determine complex economic policy. The Legislature has already made the relevant policy determinations by defining and outlawing postclaims underwriting. The court is, in the main, merely being called upon to enforce those statutory prohibitions.” (Id., at p. 1259.)

Here, on the other hand, Plaintiffs ask the Court to determine whether the refunds given by Mercury are adequate in comparison to a hypothetical ideal refund—or, put another way, whether the premiums Mercury charged were unfairly high in relation to what those premiums should have been. This is a highly technical area of economic policy better suited to the Department of Insurance’s expertise.

Plaintiffs also argue Mercury has taken inconsistent positions with the Court, in that it previously argued State Farm General Insurance Company v. Lara (2021) 71 Cal.App.5th 148 barred the Commissioner from ordering premium refunds, but it now argues “the Settlement Stipulation extinguishes Plaintiffs’ claims.” (Opp. at p. 9.) As explained above, Mercury does not argue the stipulation “extinguishes” Plaintiffs’ claims. Rather, it argues the stipulation shows abstention would be proper because the Court would have to determine whether multiple refunds were unfairly low.

Finally, Plaintiffs argue that to the extent there is a question about whether Mercury and the Department of Insurance intended the stipulation to foreclose this suit, that is a fact question not amenable to demurrer. But again, Mercury does not contend the stipulation itself forecloses or extinguishes anything.

2.            Whether Complex Economic Determinations Are Required

While precedent recognizes several grounds for abstention, Mercury’s opening papers refer only to complex economic policy determinations. Plaintiffs contend no such determinations are required here.

Plaintiffs rely on a brief filed by the Department of Insurance in Rejoice! Coffee Company, LLC v. Hartford Financial Services Group, Inc., a federal case raising similar issues in the context of commercial property and casualty insurance. (Plaintiffs’ RJN, Ex. 1.) In its brief, the Department explained its view that the plaintiff’s claims did not implicate the Commissioner’s exclusive ratemaking authority such that Ins. Code § 1860.1 would bar suit. But § 1860.1 is not at issue on this motion.

In any event, the Court has already held § 1860.1 inapplicable here, as did the federal court in Torrez. See 2022 WL 6819848, at *4.) The question is not whether Plaintiffs’ claims fall within the exclusive ratemaking authority of the Commissioner (they do not), but whether the Court should, in its discretion, abstain from wading into issues that implicate complex economic policy. Depending on the theory of recovery, a claim could be outside the Commissioner’s exclusive authority but still be so deeply entwined with complex economic policy that abstention is appropriate. The Court believes this is such a case.

As a result, Krumme v. Mercury Insurance Co. (2004) 123 Cal.App.4th 924 is inapposite. In that case, the Commissioner filed a brief stating its view that the courts had jurisdiction over the underlying dispute, rather than the Commissioner having exclusive jurisdiction. Again, the Court’s jurisdiction is not at issue. 

Furthermore, the Court notes that the Commissioner’s brief discusses whether the Commissioner’s exclusive ratemaking authority is implicated “[w]hen a suit challenges an insurer’s refusal to adjust its insurance premiums.” (Plaintiffs’ RJN, Ex. 1, at p. 1 [emphasis added].) This is no longer such a suit. Under the stipulation, Mercury has agreed to provide additional refunds. Perhaps it would not require complex economic determinations to decide whether a blanket refusal to issue additional refunds violates the UCL. But the Court does not see how it is possible to evaluate the fairness of agreed-upon additional refunds without getting into technical questions better suited for the Department of Insurance.

For this reason, Plaintiffs’ reliance on Hazdovac v. Mercedes-Benz USA, LLC (N.D.Cal. 2022) 2022 WL 2161506 is misplaced. There, abstention was inappropriate because the plaintiff challenged Mercedes’ alleged across-the-board policy of classifying automotive parts as not emissions-related, which shortened the terms of the parts’ warranties compared to emissions-related parts. Mercedes argued the classification of parts as emissions-related or not was the role of the California Air Resources Board, and the plaintiff’s claims would require the court to make that decision on a part-by-part basis. The court disagreed, explaining that the plaintiff’s claim was based on an across-the-board policy of misclassification—a systematic “flouting” of the law that could be decided “using basic factfinding and statutory interpretation litigation tools.” (Id., at *3.) Again, perhaps abstention might be improper if Mercury had wholly refused to offer additional refunds, like the across-the-board misclassification in Hazdovac. But there is no longer such a refusal, so the Court would be required to wade into the sorts of technical issues that point to abstention.

Plaintiffs also cite the class certification decision in Day v. GEICO Casualty Company (N.D.Cal. 2022) 2022 WL 16556802 as counseling against abstention here. In Day, the plaintiff’s damages expert proposed to determine the additional refund owed each class member by subtracting the refund actually paid the class member (either 15% of 0% of premiums, depending on the class member) from the ideal refund that should have been paid (an identical percentage for all class members), then multiplying this figure by the premium actually charged. (Id., at *3.) The court found this method was capable of measuring damages on a classwide basis. (Id., at *9.) But the class certification opinion in Day does not speak to the underlying question: whether calculating the ideal refund would require the Court to make economic policy determinations better suited to the Department of Insurance’s expertise. Furthermore, while the court allowed the expert’s report into evidence and certified a class, it wrote: “However, the Court remains concerned that this litigation is not the proper forum to resolve this dispute.” (Id., at *5.) This suggests the Day court may yet conclude that abstention is appropriate, depending on the factual record that develops in the future.

3.            Whether Torrez Was Wrongly Decided

Finally, relying on another opinion from the Day litigation, Plaintiffs contend Torrez was wrongfully decided. (See Day v. GEICO Casualty Company (N.D.Cal. 2022) 2022 WL 17825119. The remaining cases cited by Plaintiffs on this point do not discuss the abstention holding of Torrez at all.) In this second Day opinion, the court declined to abstain. But contrary to Plaintiffs’ portrayal, the second Day opinion did not hold that Torrez was wrongly decided. Rather, the court “concur[red] with the preliminary conclusion of the Torrez court that abstention is available under the UCL in appropriate cases where a UCL action ‘would drag a court of equity into an area of complex economic . . . policy.’” (Id., at *1.) Instead, it “part[ed] ways with the Torrez court based upon the factual circumstances and nature of the requested relief as described by Plaintiff in this case.” (Ibid.) That is, on a different record, the Day court may well have reached the same conclusion as the Torrez court.

Notably, the Day court found it would not have to decide complex economic policy questions because it was simply asked “whether a refusal to adjust premiums was ‘unfair’ conduct.” (Ibid. [emphasis added].) This is no longer a case where Mercury has refused to adjust premiums. It has agreed to pay an additional $23.5 million in refunds or rebates. For the reasons set forth above, the Court exercises its discretion to find that abstention is appropriate because deciding the fairness of the refunds Mercury has provided and will provide involves highly technical determinations better suited to the expertise of the Department of Insurance.