The California insurance industry is studying a state appellatecourt ruling that bars insurers from putting surcharges onuninsured motorists to fund lower rates for insured drivers.

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Association of California Insurance Companies voiced"disappointment" with the ruling, which said that a state law thatallows insurers to discount auto insurance premiums for drivers whomaintained continuous coverage violates Proposition 103, which waspassed by the voters in 1988.

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The association pointed out that one impact of the decision, ifsustained, would be to stop auto insurers from giving discounts todrivers who have no lapses in coverage when they switch to anotherinsurer.

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The law overturned by the court allowed insurers to impose asurcharge on customers whose insurance had lapsed in order to funda discount for insurers with a seamless insurance record, even ifthey switch to a new company.

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The California Court of Appeal, 2nd Division in Los Angeles, anintermediary appellate court, ruled that a law passed by the stateLegislature in 2003 violated the state constitution by permittingsurcharges for drivers who let their insurance lapse.

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The unanimous decision by a three-judge panel upheld a lowercourt ruling that held that the 2003 law "was a direct violation ofthe reforms which the voters enacted in Proposition 103," accordingto Mark Savage, senior attorney with Consumers Union's West Coastoffice.

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Mr. Savage said, "The auto insurance surcharges passed bylawmakers would have made it even more difficult for manyCalifornians to afford the insurance they are legally required tomaintain and would have resulted in more uninsured drivers on theroad."

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But Sam Sorich, president of the California insurance companies'association, said his group is now studying the ruling and willdecide whether to appeal to the state Supreme Court at a laterdate.

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"We are concerned that the court ruling will remove the discountand at the same time discourage drivers from shopping around forinsurance because they can only receive a discount by remainingwith their current insurance company."

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