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Adhav v. Midway Rent A Car, Inc.

California Court of Appeals, Second District, First Division

July 24, 2019

ASHISH ADHAV et al., Plaintiffs and Appellants,
MIDWAY RENT A CAR, INC., et al., Defendants and Respondents.

          APPEAL from a judgment of the Superior Court of Los Angeles County, No. BC485275 Elihu Berle, Judge.

          Kearney Littlefield, Thomas A. Kearney, Prescott W. Littlefield; Catherine Burke Schmidt; Ringler Law Corporation, Jerome L. Ringler; Esner, Chang & Boyer, Stuart B. Esner and Shea S. Murphy, for Plaintiffs and Appellants.

          Molino & Berardino, Steven R. Berardino and Michelle Cooper, for Defendant and Respondent Midway Rent A Car, Inc.

          Michelman & Robinson, Mona Z. Hanna and Jennifer A. Mauri, for Defendants and Respondents National Specialty Insurance Company, KnightBrook Insurance Company and Knight Management Services, LLC.

          WEINGART, J. [*]


         Plaintiffs Ashish Adhav and Cullen Dickson rented cars from defendant Midway Rent A Car, Inc. (Midway) and opted to purchase insurance coverage in connection with those rentals. Because Midway is not an insurance company, Midway purchased master insurance policies from defendants KnightBrook Insurance Company (KnightBrook) and National Specialty Insurance Company (National Specialty) to make such optional insurance coverage available to its customers. Midway was the insured but was authorized to extend coverage to its customers under the policies. These policies, and the rates they charged Midway, were approved by the California Department of Insurance (DOI) as required by California law. Many of the policies were structured to include a $25, 000 per claim self-insured retention (essentially, a deductible) for which Midway was responsible in case of a customer loss. KnightBrook and National Specialty became liable only if the loss exceeded the self-insured retention. Shifting some of the risk of loss to Midway in this manner lowered the premium Midway paid to the insurers. In light of the self-insured retention, administrative costs in connection with adjusting claims (for which it was responsible), and other factors including presumably some profit margin, Midway charged customers purchasing optional insurance more than the premium it paid to KnightBrook and National Specialty.

         Plaintiffs chose to rent cars from Midway based on convenience, location, and overall cost-not based on anything insurance related. Plaintiffs understood they were not obligated to purchase insurance from Midway. The insurance rates Midway charged customers were set forth in the rental agreement and known to Plaintiffs before they opted to purchase the coverage. The insurance rates paid by Plaintiffs were comparable to rates charged by other rental car companies, and in some instances lower. Plaintiffs received the benefit of the coverage they purchased, did not experience any covered losses, and there is no dispute concerning any adjustment of a claimed loss.

         Plaintiffs nevertheless brought a class action against Midway, asserting they were economically harmed by unlawful and fraudulent business practices. (Bus. & Prof. Code, § 17200, et seq.) Plaintiffs also named as defendants KnightBrook, National Specialty and their managing general agent Knight Management Insurance Services (KMIS) (collectively, the Insurer Defendants). How did the Defendants injure Plaintiffs, one might ask. Plaintiffs assert various Insurance Code provisions required Midway to disclose to them what rate Midway was paying the Insurer Defendants, and further to charge Plaintiffs that same rate (despite this meaning Midway would offer insurance at a loss given the self-insured retention).[1] Plaintiffs contend the Insurer Defendants were liable because, although they never received anything beyond the premium owed by Midway, the Insurance Code required funds collected by Midway from customers purchasing insurance be imputed to the Insurer Defendants. Plaintiffs argue the result of this imputation was that the Insurer Defendants constructively “received” a premium in excess of that authorized by the DOI.

         Plaintiffs claimed these business practices caused them harm because they paid more than what Midway paid its insurers, despite the fact they received the benefit of coverage based not only on the premium paid to the Insurer Defendants, but also on Midway's self-insured retention. Plaintiffs further sought an injunction to prohibit these alleged unlawful and fraudulent practices.

         The trial court disagreed with Plaintiffs' arguments, finding their claims were based on Insurance Code provisions inapplicable to Plaintiffs' interactions with Midway. The court further found Plaintiffs failed to establish any illegal or fraudulent business practice, or any economic injury. Following a bench trial, it entered judgment in favor of the Defendants. We affirm.


         A. The Insurance Arrangements

         Midway is a car rental agency in the business of renting cars to customers. Midway offers insurance to its rental car customers as an optional feature of its rental agreements. Available coverages include Renters Liability Protection Insurance (RLP), Supplemental Liability Insurance (SLI), and Personal Accident Insurance-Personal Effects Coverage (PAC). RLP provides liability insurance coverage at the state-required policy limits for motor vehicle drivers of $15, 000 per person/$30, 000 per accident for bodily injury, and $5, 000 in property damage per accident. (§ 11580.1, subd. (b); Veh. Code, § 16056.) SLI provides liability insurance in excess of any existing insurance, from the state statutory minimum limits up to $1, 000, 000. PAC provides coverage for death or injury in the event of an accident involving the rented vehicle, and loss or damage of a rental car customer's personal belongings.

         1. RLP and SLI Coverage

         KnightBrook and National Specialty are admitted insurance carriers in California. KMIS is their managing general agent. From May 25, 2008 through January 31, 2012, Midway purchased master RLP and SLI insurance policies from National Specialty under which Midway was the insured. Endorsements on these policies, as well as later policies purchased by Midway for RLP, SLI and PAC insurance, allowed Midway to offer coverage pursuant to the insurance policies to car rental customers who opted to purchase such coverage.

         The sale of insurance products in California is heavily regulated, and insurers generally must submit proposed rate filings and receive approval from the DOI before offering an insurance product. Plaintiffs acknowledge the Insurer Defendants complied with these requirements. The Insurer Defendants' DOI filings for the insurance policies at issue indicated the rates in those policies applied to the named insured (the rental car company). In 2011, after an inquiry by the DOI, a representative of the Insurer Defendants specifically confirmed “these are rates being charged the named insured-the car rental company” and not others. As pertinent here, the DOI approved premium rates for RLP insurance offered by National Specialty at $1 per day (subject to a policyholder self-insured retention of $25, 000), and $4.00 per day for SLI insurance, with up to a 25 percent adjustment in the rate charged. Midway paid National Specialty $1.00 for each day a rental customer purchased RLP coverage and $4.38 for each day a customer purchased SLI coverage. The significant self-insured retention lowered the rate the DOI approved, and Midway paid.

         In 2012, when National Specialty was preparing a new regulatory filing, a representative of the vendor processing that filing sent an email to the DOI saying she had “a question regarding rental car insurance in California that I was hoping you could help me with. If an insurance company were to file new program rates like any other product, but we believe that the rental company involved may charge additional money once the insurance coverage is offered to the renters, does that additional money need to be filed as part of the filing and is it considered part of the premium?” The DOI responded that it “believe[d] this would be a separate transaction that is outside our review. If the additional money came back to the insurer in any way, either directly or indirectly, then we would expect to see it included in a rate filing.

         From February 1, 2012 through February 23, 2013, Midway purchased master RLP and SLI insurance policies from KnightBrook. The premium rates approved by the DOI for these KnightBrook policies were $1 per day (subject to a self-insured retention of $25, 000 per claim), and $12.94 per day for SLI coverage. KnightBrook charged these same premium amounts for each day a rental customer purchased RLP and/or SLI coverage under these policies.

         2. PAC Coverage

         From May 25, 2008, through February 23, 2013, Midway was listed as an insured under a PAC group policy issued by National Specialty to Arizona-based Sonoran National Insurance Group. Midway paid 99 cents for each day a rental customer purchased PAC coverage. This rate was not part of a rate filing with the DOI, but was set forth in a master policy that was “desk filed” with the Arizona Department of Insurance. The policy contained a base net rate ranging from $.99 to $1.13, and “gross/retail” rates ranging from $3.95 to $5.95.

         B. The Plaintiffs

         Class representatives Ashish Adhav and Cullen Dickson rented cars from Midway between May 25, 2008 and February 23, 2013. Midway charged Adhav $12.95 per day for RLP coverage, $19.95 per day for SLI coverage, and $3.00 per day for PAC coverage. Midway charged Dickson $14.95 per day for RLP coverage.[2]

         Adhav testified that had he not purchased the optional insurance from Midway, he would have purchased such insurance as part of a car rental from another rental car company at the same price. Both class representatives testified they considered only the bottom line cost when pricing car rentals from competing rental car companies (as opposed to individual charges in the total price). The rental agreements clearly set forth the amounts charged for coverage. Neither class representative noticed any difference in the price of rental car insurance between Midway and other rental car companies. Both Adhav and Dickson rented from Midway primarily based on factors such as convenience and location. Evidence at trial showed the rates Midway charged its customers for optional insurance did not exceed the rates charged by other rental car companies. Indeed, when Adhav bought PAC coverage from other rental car companies, he paid the same amount or more than what Midway charged.

         C. The Relevant Statutory Regimes

         To understand Plaintiffs' unfair competition law theory under Business and Professions Code section 17200 (the UCL), and Defendants' responses to it, some background on four separate statutory regimes implicated by the parties' respective arguments is required.

         1. Civil Code Section 1939.19(c)

         Civil Code section 1939.19, subdivision (c) provides in pertinent part that “[i]n addition to the rental rate, taxes, additional mandatory charges, if any, and mileage charges, if any, a rental company may charge for an item or service provided in connection with a particular rental transaction if the renter could have avoided incurring the charge by choosing not to obtain or utilize the optional item or service. Items and services for which the rental company may impose an additional charge include, but are not limited to, optional insurance... requested by the renter....”

         This statute, codified as Civil Code section 1936 during the class period, [3] was enacted following Truta v. Avis Rent A Car System, Inc. (1987) 193 Cal.App.3d 802 (Truta). The Truta court concluded a collision-damage waiver (CDW) offered by a rental car company was not insurance, and therefore Insurance Code provisions were “irrelevant in measuring the alleged excessiveness” of the CDW's cost. (Id. at p. 820.) Passed in response to Truta, Civil Code section 1936 “was primarily designed to protect consumers against rental car company overcharges for collision damage waivers... and for the cost of repairing cars damaged during a rental.” (Schnall v. Hertz Corp. (2000) 78 Cal.App.4th 1144, 1154-1155 & fn 5.) It does so, among other ways, by capping the total amount of a renter's liability to the rental company resulting from damage to the rental vehicle (Civ. Code, § 1939.05), and specifying the terms of any damage waiver (id., § 1939.09). Sections 1939.01―1939.37 also “touch on a variety of other rental car practices, ” such as permitting a rental car company to “impose additional charges for optional services if the renter knows the charge is avoidable.” (Schnall v. Hertz Corp., supra, 78 Cal.App.4th at p. 1155.) Those additional permitted (so long as avoidable) charges include insurance. (Civ. Code, § 1939.19, subd. (c).) In contrast to some of its other provisions, which limit charges that can be imposed (e.g., id., § 1939.05), the statute is silent regarding the amount of permissible insurance fees that can be charged in addition to the rental rate.

         2. Proposition 103

         Prior to Proposition 103, “California... regulate[d] the rates of most types of insurance ‘to the end that they shall not be excessive, inadequate or unfairly discriminatory.' ” (Amwest Surety Ins. Co. v. Wilson (1995) 11 Cal.4th 1243, 1258.) “The Legislature emphasized... that this goal was to be achieved through open competition in the insurance market rather than by state regulation.” (Ibid.) Proposition 103, a constitutional amendment, was approved by the electors on November 8, 1988 and took effect the following day. (Travelers Indemnity Co. v. Gillespie (1990) 50 Cal.3d 82, 88; Cal. Const., art. II, § 10). Proposition 103 made fundamental changes to this open-market/competition approach. (Wolfe v. State Farm Fire & Casualty Ins. Co. (1996) 46 Cal.App.4th 554, 561.)

         Like the law it replaced, Proposition 103 utilizes the basic standard that “[n]o rate shall be approved or remain in effect which is excessive, inadequate, unfairly discriminatory or otherwise in violation of this chapter.” (§ 1861.05, subd. (a).) But unlike prior law, Proposition 103 directs that “no consideration shall be given to the degree of competition” in determining whether a rate is excessive, inadequate or unfairly discriminatory. (Ibid.) Instead, Proposition 103 installed an elected Insurance Commissioner and created a “prior approval” process whereby most insurance products (including the proposed rates to be charged for those products by the insurer) must be filed by the insurer with the DOI, and approved by the Commissioner, prior to sale. (§ 1861.01, subd. (c).)[4]

         With regard to automobile insurance, Proposition 103 dictates that rates are to be determined primarily by a driver's safety record, years of driving experience, and annual number of miles driven. (§ 1861.02, subd. (a).) Insurers are required to offer good driver discount policies to persons with suitable driving records. (§§ 1861.02, subd. (b)(1), 1861.025.)

         3. ...

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