Gov. Backs Pools to Insure High-Risk Cities and Firms : Also Favors Limits on Lawyer Fees

Gov. George Deukmejian endorsed legislation today that would require insurance companies doing business in California to join pools to insure high-risk cities and businesses that have been denied liability insurance.

In his first comprehensive policy statement on the controversial insurance issue, the Republican governor also told the League of California Cities audience that he would support “some limits” on the size of fees attorneys may charge clients winning liability suits, but he refused to place a specific dollar amount on the proposed cap on attorney fees.

Voluntary Pools

“We want to give the Department of Insurance the authority to organize voluntary insurance pools which will make insurance available to those businesses and governmental entities that cannot get insurance,” Deukmejian told the city officials.

“If the industry fails to voluntarily participate, then we want the standby authority to mandate a limited joint underwriting association, whereby insurance companies who want to do business in California must participate until the availability problem is solved,” he added.

‘Important First Step’

Citing the passage last week of Proposition 51, the deep pockets insurance initiative, as “an important first step, but only a first step” to ease the state’s insurance crisis, Deukmejian outlined eight specific steps to curb rate increases and policy cancellations and endorsed two bills currently before the Legislature.

Deukmejian’s plan would require insurance companies to substantiate the need for “any large rate increase for commercial liability . . . with complete justification for the increase.”

If such an increase is not warranted, “it will be denied or rolled back,” and “the burden will fall on the insurance company to prove that its actions are fair to the policyholder,” Deukmejian said.

Up to the Marketplace

But Deukmejian stopped short of proposing any broad insurance rate-setting authority for the state, saying that, “in the final analysis, only the marketplace can set prices. It is our hope that these measures will relieve some of the upward pressure on rates and foster greater competitiveness in the industry.”

He also approached the issue of capping attorney fees gingerly, telling the city officials that he endorses proposals for “improving the current imbalance between compensation paid to plaintiffs and fees paid to attorneys.”