The California Court of Appeals in San Francisco has overruled a previous court decision that determined that a state statute passed 12 years ago allows insurers to unfairly use ZIP codes as a major factor in determining auto insurance premiums.

"The court has ignored the will of the voters."

On Dec. 28, 2000, the appellate court overturned a lower court's ruling that Proposition 103 — which was passed by state residents in 1988 — has been unfairly implemented by placing heavy emphasis on ZIP codes. The appellate court ruled that "territory is a more important determinant of the risk of loss than any other single factor."

Passed in 1988, Proposition 103 uses a driver's safety record, driving experience, and annual mileage to determine auto insurance rates. Sixteen "optional factors" can also be used in establishing rates, including ZIP codes.

In 1998, a number of consumer groups, including the Spanish Speaking Citizens' Foundation and The Foundation for Taxpayer and Consumer Rights, sued then-Insurance Commissioner Chuck Quackenbush, alleging that he allowed insurance companies to use ZIP code information too heavily to determine rates. While a Superior Court judge ruled in favor of the appellate groups, Quackenbush appealed the decision.

In its decision, the appellate court says that it does not find evidence that suburban drivers would pay more in premiums to deflect the high cost of coverage to drivers in more urban areas. The court says the 51 rural counties where premiums would increase under Proposition 103 include four of the state's 10 largest urban centers, and at least two of seven urban counties that have large rural areas.

"While there is talk . . . about drivers in certain areas being made to unfairly 'subsidize' the premiums of those in other [areas], it is not always clear who would be subsidizing whom," the court wrote in its decision.

Harvey Rosenfield, president of the Foundation for Taxpayer and Consumer Rights, says his group will appeal the decision. "The court has ignored the will of the voters by backing the insurance industry's flawed reasoning that good drivers should pay more simply because they live in a ZIP code where there are more accidents, even if those drivers have never caused an accident," he says.

Candysse Miller, executive director of the Insurance Information Network of Califorina, an insurance industry trade group, says appellate court made the right decision. "Prop 103 has been a problem child from day one," she says. "The assertion that you should pay the same rate regardless of where you live does not make any financial sense."

Scott Edelen, a spokesperson for the California Department of Insurance, says that Insurance Commissioner Harry Low and members of the department's legal branch will review the decision and its implications, but declined further comment.