California Department of Insurance Issues Opinion That Underwriting Rules Submitted By Carriers Are Public Information

Under California Insurance Code section 1861.05(b), most property and casualty insurers seeking a rate change must submit an application that includes various financial information and “such other information as the commissioner may require,” including what the Department of Insurance describes as “underwriting rules.” “Underwriting rules” are “any rule or factor used by an insurer in the process of examining, accepting, or rejecting insurance risks, and classifying those risks selected in order to charge the proper premium for each.”¹

Under Insurance Code section 1861.07, all information provided to the Commissioner of Insurance in connection with a rate change is to be available for public inspection. That section, which was added in Proposition 103, also states that section 6254(d) of the Government Code and Section 1857.9 of the Insurance Code “shall not apply” to the materials required to be submitted to the Commissioner in a rate change application. Under the language of those sections, certain information may be kept confidential and not revealed by the Commissioner, including trade secret information eligible for protection from disclosure under section 1060 of California’s Evidence Code.

Relying heavily on the California Supreme Court’s decision in State Farm Mut. Auto Ins. Co. v. Garamendi, 32 Cal.4th 1029 (2004), the General Counsel of the Department of Insurance issued an opinion earlier this month clarifying the Department’s position regarding the interplay between the transparency sought by Insurance Code section 1861.07, and the evidentiary and statutory disclosure protections in section 1857.9 of the Insurance Code and section 1060 of the Evidence Code.² The opinion concludes that materials submitted to the Department by insurance companies seeking a rate change must be made available to the public, even if the documents have been marked “confidential,” “proprietary,” or “trade secret” by the carrier, or otherwise qualify for protection from disclosure under section 1857.9 of the Insurance Code or section 1060 of the Evidence Code.

Specifically, the opinion states:

Underwriting rules filed in connection with a rate application pursuant to Insurance Code section 1861.05(b) must be available for public inspection pursuant to Insurance Code section 1861.07 regardless of whether such underwriting rules are marked “confidential,” “proprietary,” or “trade secret.”³

In reaching its conclusion, the Department noted that “a rate application that does not include underwriting rules or denominates such underwriting rules as confidential or not subject to public inspection is incomplete under Insurance Code section 1861.05(b) and insufficient to trigger public notice of the rate application pursuant to Insurance Code section 1861.05(c).”

The Department concluded that,

Providing public access to all information submitted to the Commissioner pursuant to Article 10 [of the Insurance Code] is consistent with Proposition 103’s goal of fostering consumer participation in the rate review process. The application of any other statutory exemption from disclosure would also nullify the broad disclosure mandate of Insurance Code section 1861.07. Accordingly, there is no statutory exemption to the disclosure requirements set forth in Insurance Code section 1861.07 applicable to underwriting rules.

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¹ California Department of Insurance Opinion, dated August 10, 2018, Confidentiality of Underwriting Rules Filed with Rate Applications Pursuant to California Insurance Code section 1861.05(b), page 1.
² In Garamendi, the California Supreme Court upheld the Commissioner’s authority to make insurers’ “Community Service Statements” publicly available. The Court also ruled that, under Insurance Code section 1861.07, trade secret information included in a Community Service Statement is not exempt from disclosure by the Commissioner.
³ Citing Garamendi, 32 Cal.4th at 1046.