LOS ANGELES (Legal Newsline)-California insurance companies must pay consumer groups when they sue to have an insurer's rates rolled back, a state appeals court has ruled.

The state's 2nd Appellate District in Los Angeles ruled late last month that compensation is due even if rates are rolled back as the result of a pre-hearing settlement.

In their opinion, the three-judge appeals court panel upheld a decision by Los Angeles Superior Court Judge James Chalfant, saying the judge was correct to side with the Foundation for Taxpayer and Consumer Rights in its lawsuit against the state insurance commissioner.

The Santa Monica, Calif.-based Foundation for Taxpayer and Consumer Rights sought compensation for the work it did on proposed amendments to the Department of Insurance rules regarding insurance companies compensating interveners against rate increases.

"This important victory ensures that California motorists, homeowners and businesses will pay the lowest insurance premiums possible," said Consumer Watchdog's litigation director, Pam Pressley, who argued the case.

The respondents in the case -- including the Association of California Insurance Companies -- could appeal the case to the state Supreme Court.

Under California's voter-approved Proposition 103, passed in 1988, insurance companies are required to open their books and justify rate increases or decreases to the state's insurance commissioner, who must approve rate changes before they take effect.

The law allows consumer groups to recoup costs when they incur legal and expert fees that help them contribute to the insurance commissioner's decision.

In its Dec. 30 ruling, the appeals court panel upheld the lower court's ruling that the state Department of Insurance was within legal bounds to create such a rule on compensation. It also awarded the Foundation for Taxpayer and Consumer Rights $121,848.

"As insurance companies fail to provide any authority that the statute is intended to shift liability for compensation from insurers to the Department, their assertion is without merit," Presiding Justice Robert Mallano wrote for the panel.

Concurring with Mallano were Appeals Court Associate Justices Frances Rothschild and Victoria Gerrard Chaney.

From Legal Newsline: Reach staff reporter Chris Rizo at chrisrizo@legalnewsline.com.