Claim for Unlawfully Transacting Insurance
RWA required each of its drivers to maintain automobile liability insurance, physical damage insurance, and cargo insurance for his or her vehicle. RWA gave each driver the option of accepting coverage under RWA’s fleet policies; if the driver elected such coverage, RWA deducted the cost of the insurance from the driver’s earnings. During some years, RWA also deducted an additional administrative fee from the drivers’ earnings.
The plaintiff alleged that this practice constituted transacting insurance without a license in violation of the California Insurance Code. The trial court agreed, but the Court of Appeal reversed.
First, the Court assumed without deciding that the plaintiff was right, and RWA's practices constituted transacting insurance under California law. Second, the Court summarized a number of federal decisions and found that federal law permits motor carriers to charge back the cost of liability insurance to their drivers and to profit from such chargebacks. Third, the Court concluded that if California's Insurance Code prohibits RWA from charging back its liability insurance costs to its drivers, that law is preempted by federal law. Slip op. at 19.
Claim for Workers Compensation Chargebacks
RWA charged the drivers for its workers' compensation insurance. The plaintiff alleged that this practice violated California Labor Code section 3751 and the Unfair Competition Law (UCL). RWA argued that the the Federal Aviation Administration Authorization Act of 1994 (FAAAA), title 49 United States Code section 14501 et seq., preempted the workers compensation law in this respect. The trial court agreed with the plaintiff, and the Court of Appeal affirmed.
The Court summarized the law on FAAAA preemption as follows:
FAAAA preempts state laws that “relate” to a “price, route, or service of any motor carrier.” Taken together, the cases discussed above hold that a state law “relates” to federal law if it has “a connection with” or “reference to” the subject of the federal law. Preemption may occur even if the state law’s effect “is only indirect,” but there is no preemption if that effect is only “tenuous, remote, or peripheral.” Generally applicable state labor laws are not preempted if they do not “acutely interfere with the forces of competition” or prevent carriers from making “their own decisions about [routes] and how many resources to devote to each route and service.” However, if the state labor laws are such that they “bind” the motor carrier’s prices, routes, or services, they interfere with competitive market forces and are preempted by the FAAAA.
Slip op. at 36-37. The parties agreed that the workers compensation law did not "reference" RWA's prices, routes, or services, and the Court found that the law also did not "have a connection with prices, routes, or services. Slip op. at 37-39.
Finally, the Court held that Civil Code section 3287 does not authorize prejudgment interest on an award of restitution under the UCL, but the trial court could award prejudgment interest on the UCL claim under its equitable powers. The Court remanded to the trial court to reconsider this issue.
The opinion is available here.