The accident surcharge, also referred to as a Non-Verifiable Accident Record Surcharge, is illegal in California. It was charged as an additional fee for drivers who were previously uninsured. This surcharge violated the California Insurance Code which does not allow insurance companies to use an individual's lack of prior insurance to be taken into consideration when deciding insurance premiums and Good Driver discounts. According to the California Insurance Code, insurance companies are not allowed to discriminate against new drivers or motorists who were previously uninsured by charging them higher insurance rates.However, the surcharge was not only applied to previously uninsured drivers. It is alleged that State Farm also applied the surcharge if the company was not able to verify previous auto insurance. This meant that people who had a lapse in insurance coverage, or who had a safe driving record but no insurance in their name, were forced to pay the surcharge.
There have been previous lawsuits arguing that the practice of charging a Non-Verifiable Accident Record Surcharge is illegal. In 2001, a lawsuit was filed against Farmers Insurance Company alleging that the insurer used the defendant's lack of prior automobile insurance as a factor in determining premiums. An earlier lawsuit, a class action called Mitchell v. Allstate, in Los Angeles County Superior Court was resolved after a settlement was reached in which Allstate agreed to stop charging its Non-Verifiable Accident Record Surcharge.
Earlier this month, auto insurers in California lost a court battle over using a driver's address in determining how much to charge for insurance. The court ruled that the state insurance commissioner had the proper authority to force insurers to look at other factors, including driving records and miles traveled, before considering ZIP code in setting a customer's insurance rates.
Last year the auto insurance industry filed a lawsuit against the insurance commissioner arguing that insurance customers who lived in suburban and rural areas would be forced to pay more for car insurance if rates were not based on customers' addresses.