Interinsurance Exchange of the Automobile Club v. Superior Court (Williams)
___Cal. App. 4th ___ (March 26, 2007). 07 C.D.O.S. 3132

Interest Charged on Installment Payments of Insurance Premium Was Not "Premium" That Had to Be Disclosed In the Insurance Contract

The Fourth Appellate District of California granted the petition for peremptory writ of mandate filed by Interinsurance Exchange of the Automobile Club ("Exchange") challenging the trial court's orders (1) granting the motion for summary judgment of Tawndra Williams ("Williams") and (2) denying Exchange's motion for summary judgment. The appellate court expressly concluded the term "premium," as used in California Insurance Code section 381, subdivision (f) ("Section 381(f)"), does not include charges imposed for making payments of the annual premium in installments. The appellate court thus found those interest charges were not required by Section 381(f) to be disclosed by Exchange in its declarations pages or elsewhere in its automobile insurance policies for Williams and other class members.

Plaintiff Williams filed in late 2004 a class action against Exchange on behalf of herself, others similarly situated, and the general public, alleging causes of action for: (1) breach of contract; (2) committing an unlawful business act or practice in violation of Business and Professions Code § 17200 et seq.; (3) violating the Consumer Legal Remedies Act (Civ. Code, § 1750 et seq.); (4) unjust enrichment; and (5) money had and received. The premise for each cause of action was Exchange's alleged wrongful charging and receipt of a fee for payment of annual premiums in installments, which she alleged to be a "premium" not stated in its policies in violation of Section 381(f), which requires premium to be stated.

Williams' class action complaint relates to policies issued by Exchange for the 2004 and 2005 time periods, rather than earlier periods because in earlier periods she paid in one lump sum. In 2004 and 2005 she opted to pay in installments, and incurred installment payment fees which she later claimed were premiums, even though at the time she understood she was paying an interest charge.

After Williams and Exchange filed cross-motions for summary judgment, the trial court, pursuant to Exchange's request, stayed the proceedings and referred to the California Department of Insurance ("DOI") the question of "[w]hether installment fees [constitute a] premium as that term is used" in Section 381(f). In mid-2006, the DOI issued an opinion finding that the purpose of section 381 was to prevent fraud and mistake by requiring insurers to list the basic terms of the contract, and determining that installment fees are [a] premium under § 381, in the private passenger automobile context.

In August 2006, the trial court granted Williams' motion for summary judgment and denied Exchange's cross-motion. The court stated that, in reaching this ruling, it was giving the DOI's opinion some degree of deference and relying on Allstate Ins. Co. v. State Board of Equalization (1959), 169 Cal. App. 2d 165, 168,which had found that "'Premium' in the law of insurance means the amount paid to the company for insurance. [citation.]" The Allstate court held that "The 'installment payment fee' . . . was actually given by the insured for his insurance." Id. at 173.

In reversing, the Court of Appeal ruled that the case was one of first impression, discounted the DOI opinion that installment payments were "premium," and determined that the interest charged by Exchange for use of its installment payment option was not required to be disclosed in its declarations page or elsewhere in the Policy because premium means money paid on commencement of a period of insurance (relying on Insurance Code §480) and interest charged for the value of money over time was not considered part of premium.

The court also distinguished the Allstate decision cited by the trial court, because it interpreted the term "gross premiums" for taxation purposes and, in any event involved inapposite facts to this case.

Finally, the appellate court rejected the argument that substantial deference should be given the DOI's opinion (discussed and quoted above) on the proper interpretation of the term premium in Section 381(f), holding that the trial court erred in giving deference to that opinion.

This opinion is not final. It may be withdrawn from publication, modified on rehearing, or review may be granted by the California Supreme Court. These events would render the opinion unavailable for use as legal authority.

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