Davis v. CSAA Insurance Exchange

(December 2025) - In Davis v. CSAA Insurance Exchange, 114 Cal. App. 5th 121 (Sept. 8, 2025), the California First District Court of Appeal affirmed the dismissal of a class action lawsuit by automobile policyholders alleging CSAA Insurance Exchange ("CSAA") had a statutory duty under Insurance Code section 1861.05(a) to refund "excessive" premiums collected during the COVID-19 pandemic even though the premiums were collected under rates previously approved by the insurance commissioner. Specifically, the Court of Appeal held that section 1861.05(a) does not impose an independent obligation on insurers to retroactively refund premiums collected under approved rates later claimed to be excessive. Rather, the provision governs the insurance commissioner's approval and review authority, not a unilateral refund duty by insurers.

The central question before the Court of Appeal in this case was whether Insurance Code "section 1861.05(a) imposes an independent obligation on insurers to refund premiums that were collected under approved rates when those rates later become purportedly excessive." In analyzing this question, the Court of Appeal first looked to the history of section 1861.05(a), which was enacted through the passage of Proposition 103. Proposition 103 made many changes in the regulation of automobile and other forms of insurance in California, including with respect to the setting of insurance rates.

The Court of Appeal next examined the language of section 1861.05(a), which states:

In support of their argument that the section imposes an independent obligation on insurers to issue refunds when approved rates become excessive, the plaintiffs focused on the language in the first sentence that no "excessive" rate shall "remain in effect." Although the Court of Appeal agreed that there is some ambiguity when the language is viewed in isolation, the Court of Appeal found that its meaning is clear when the language is viewed in context. Specifically, the Court of Appeal held that both the section's title ("Approval of Insurance Rates") and the provision itself ("In considering whether a rate is excessive ... the commissioner shall consider ...") are directed at the role of the insurance commissioner and considering whether a rate is excessive falls within that role. As such, the Court of Appeal concluded that "[n]othing in section 1861.05(a)'s plain language or structure evinces an intent to impose an obligation on insurers to independently refund premiums that were paid under approved rates." The Court of Appeal also found that the ballot materials further showed that Proposition 103 focused on expanding the insurance commissioner's authority to review and approve rates before use.

The Court of Appeal rejected plaintiffs' argument that "approved" and "remain in effect" create distinct, enforceable directives on insurers. The Court of Appeal explained that approval of rates is "solely within the purview" of the Commissioner and that multiple mechanisms exist for prospective review and correction of rates already in effect, including commissioner-initiated review and consumer complaints triggering an investigation and administrative process. Relying on State Farm General Insurance Co. v. Lara, 71 Cal. App. 5th 148 (2021), the Court of Appeal reiterated that Proposition 103 operates prospectively. That is, insurers are entitled to charge commissioner-approved rates until different rates are approved, and the statutes do not authorize retroactive rate changes or refunds outside the temporary rollback regime not at issue in the present case. The Court of Appeal also rejected plaintiffs' contention that a liberal construction of Proposition 103 or its consumer-protection purpose could expand section 1861.05(a) to impose retroactive obligations, noting the initiative's dual aim to keep insurance both fair to consumers and available, which requires fairness to insurers as well.

With respect to the plaintiffs' cause of action under the "unfair" prong of California's unfair competition law, while the Court of Appeal accepted that plaintiffs tethered their "unfairness" theory to Proposition 103's stated purposes, it held that section 1861.01(c) supplies a statutory safe harbor because it requires that rates be approved prior to use and thus affirmatively permits charging approved rates. Given that safe harbor, the Court of Appeal did not reach the "unfairness" step of the applicable two-step inquiry. As a result, the Court of Appeal concluded that the trial court properly sustained CSAA's demurrer without leave to amend.

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