Appellate Law Update: June – September 2025

The following published decisions may be of interest to attorneys practicing insurance law:

California Court of Appeal

Commissioner properly imposed conservatorship and rehabilitation plan on solvent insurer that had attempted merger without the Commissioner’s consent, in an effort to avoid regulatory requirements. Lara v. California Insurance (2025) ___ Cal.App.5th __.

As part of an effort to redomesticate and avoid regulatory oversight of problematic “Reinsurance Participation Agreements” (RPAs) that had generated extensive litigation from its workers’ compensation policyholders, California Insurance Company (CIC) attempted to merge with a newly-formed New Mexico corporation without obtaining consent from the California Insurance Commissioner as required. The RPAs were part of CIC’s “EquityComp” program that allowed small and medium-sized employers to obtain retrospective rating policies through a complex structure involving CIC’s affiliates, but the Commissioner had ruled these agreements void for failing to comply with filing requirements. When CIC attempted the merger, the Commissioner filed an ex parte application for conservatorship under Insurance Code section 1011(c), which allows conservatorship when an insurer attempts without consent to enter “into any transaction the effect of which is to merge, consolidate, or reinsure substantially its entire property or business in or with the property or business of any other person.”  The trial court granted the conservatorship and later approved the Commissioner’s rehabilitation plan, which required CIC to settle the RPA litigation through three options and to have its California policies reinsured and assumed by another company, with any affiliated reinsurer required to use an independent third-party claims administrator.

The Court of Appeal (First Dist., Div Four) affirmed. The trial court’s order approving the rehabilitation plan was an appealable order under Code of Civil procedure section 904.1, subdivision (a)(1) as an appeal from a final judgment and was reviewable for abuse of discretion.  Under that standard of review, the trial court did not abuse its discretion in approving the rehabilitation plan.  Section 1011, subdivision (c) permits conservatorship based solely on an attempted unauthorized merger, even for solvent insurers. Given CIC’s demonstrated pattern of attempting to evade regulatory oversight related to the pending RPA litigation, the conservatorship was proper. Regarding the rehabilitation plan, the Commissioner had authority under Insurance Code sections 1037(c), 1012, and 1043 to require settlement of the RPA litigation as a condition of ending the conservatorship, since resolving this litigation was necessary to address the underlying reasons for the conservatorship. The reinsurance requirement was also within the Commissioner’s express authority.  Finally, substantial evidence supported the requirement for independent claims administration if a CIC affiliate served as reinsurer, based on evidence that the company-affiliated reinsurer was not independent of CIC and CIC had a history of unfair claims handling practices.

Auto insurer did not have obligation to refund premiums that turned out to be “excessive” due to reduced driving during the COVID-19 pandemic. Davis v. CSAA Insurance Exchange (2025)  __ Cal.App.5th __.

Plaintiffs brought a class action against CSAA Insurance Exchange, claiming that automobile insurance rates became excessive during the COVID-19 pandemic, during which driving and accidents decreased. Plaintiffs argued that under Insurance Code section 1861.05, subdivision (a) [providing that “No rate shall be approved or remain in effect which is excessive, inadequate, unfairly discriminatory or otherwise in violation of this chapter”], CSAA was required to refund the “excessive” premiums, even though the premiums had been collected under rates approved by the insurance commissioner. While CSAA had provided some refunds following insurance commissioner bulletins, plaintiffs alleged these were insufficient. CSAA demurred, and the trial court sustained the demurrer without leave to amend on the ground that the statute did not require refunds of premiums paid based upon approved rates.

The Court of Appeal (First Dist., Div. One) affirmed. Insurance Code section 1861.05, subdivision (a) established the insurance commissioner’s role in approving and reviewing rates. It does not impose an independent obligation on insurers to refund premiums when approved rates later become excessive. Any other result would mean that insurers could also raise rates when they became inadequate, without commissioner approval.  The statutes provide a remedy for excessive rates, which are reviewed by the commissioner.   

Defendants violated Insurance Code by paying $1 bonuses to unlicensed and untrained employees for selling insurance products. People v. Adir International (2025) __ Cal.App.5th __.

Defendants owned a retail chain serving primarily low-income customers with poor credit. The company offered customers optional “account protection services” for monthly fees ranging from $4.95 to $16.95, which allowed customers to defer payments during qualifying events like unemployment. Defendants’ employees, who were not licensed insurance agents and were untrained, received bonuses of $1 per account for selling the premium level “account protection services.” Also, the credit insurance disclosures required by Insurance Code section 1758.97 were provided simultaneously with the sale of the “account protection services,” not in brochures or other written materials distributed in advance of the sale.  The California Attorney General sued defendants under the Unfair Competition Law, alleging these practices violated the Insurance Code and Unruh Retail Installment Sales Act. After a bench trial, the trial court found defendants liable for violating the Insurance Code. The Court of Appeal (Second Dist., Div. Eight) affirmed with respect to the Insurance Code violations. Paying employees $1 per policy bonuses constituted payment of a commission, which violated the prohibition on paying “any unlicensed person any compensation, fee, or commission dependent on the placement of insurance.”  (Ins. Code, § 1758.98.)  Further, defendants’ failure to provide the required training to its employees who were selling these insurance products violated the requirements to “provide training to each endorsee about the credit insurance products to be sold” and use approved training materials.  (Ins. Code, § 1758.93.)  Finally, the statutory disclosures required to be made in connection with the sale of credit insurance must be provided in advance of the sales pitch via written brochures or other materials, not simultaneously with the transaction.  (Ins. Code, § 1758.97)

Ninth Circuit

Class certification was improper in case alleging violation of 30-day notice of cancellation requirements. Farley v. Lincoln Benefit Life (2025) __ F.5th __.

Plaintiff sued Lincoln Benefit Life Company as a class representative, alleging that the insurance company failed to comply with California Insurance Code sections requiring specific notice and protections before life insurance policies lapse due to non-payment of premium. The district court found that Rule 23(a) requirements were satisfied and certified a class under Rule 23(b)(2) for declaratory and injunctive relief, covering all policy owners and beneficiaries whose policies lapsed for non-payment without sufficient statutory notice.

The Ninth Circuit Court of Appeals reversed.  The Ninth Circuit’s decision in Small v. Allianz Life Insurance Co. of North America (9th Cir. 2024) 122 F.4th 1182—decided after the district court issued its certification order—controlled.  Under that decision, to obtain class certification, plaintiffs must show not only that the California statutes were violated, but also that the violation caused them harm. Under this “causation theory,” class certification is improper for these lapse claims because the class would include policyholders who intentionally allowed their policies to lapse and thus suffered no harm.

Class certification was improper in case alleging insurer applied improper reductions when determining market value of totaled vehicles. Ambrosio v. Progressive Life Insurance Company (2025) __ F.5th __.

Former Progressive customers sued the insurance company for breach of contract, alleging that Progressive improperly used a “projected sold adjustment” (PSA) when calculating the actual cash value of their totaled vehicles. The PSA was a reduction applied to comparable vehicle list prices to reflect typical consumer negotiating behavior.  Plaintiffs claimed Progressive’s use of the PSA systematically resulted in an unlawful negative adjustment that prevented actual cash value from being determined by the true “market value” as required by their insurance policies. The district court found that plaintiffs satisfied the Rule 23(a) requirements for class certification (numerosity, commonality, typicality, and adequacy) with respect to the issue of whether the PSA was a legitimate way to calculate the vehicles’ actual cash value.  Nonetheless, the district court denied certification under Rule 23(b)(3) in the ground that individual questions surrounding the calculation of each plaintiff’s vehicle’s actual cash value predominated over the common question. A majority of a Ninth Circuit panel affirmed.  Use of the PSA was not facially prohibited under the policies or any laws or regulations in a manner that would permit classwide adjudication of whether use of the PSA was unlawful. To prevail, each plaintiff would need to compare their vehicle’s allegedly flawed “market value” with a correct one to prove the PSA caused them harm.  While individualized damages issues do not prevent certification, individualized inquiries into whether the practice caused harm (an element that must be proven to establish breach of contract) does.  Class certification was therefore inappropriate under Rule 23(b)(3)’s predominance requirement.

This e-Bulletin was prepared by Emily V. Cuatto, Certified Appellate Specialist and Partner of Horvitz & Levy LLP. Ms. Cuatto is a member of the Insurance Law Standing Committee of the Business Law Section of the California Lawyers Association.