State Summons 125 Insurance Firms in Probe : Subpoenas Issued Over Liability Policy Refusals

The state attorney general’s office has subpoenaed 125 insurance companies in an investigation to determine whether their refusal to sell liability insurance to California cities and counties has been part of an illegal collective attempt to increase pressure on the Legislature to adopt changes in the law that would benefit the companies.

The deputy attorney general in charge of the inquiry, Thomas P. Dove, said Wednesday that exhaustive questioning of insurance executives under oath and under penalty of perjury is expected to take six months or more and could result in criminal indictments.

The first sworn testimony from an insurance executive took place this week.

Conditions for Violation

Dove said that if the withdrawal of offers by companies to sell liability insurance “occurred as a result of any form of concerted effort or agreement within the industry so as to coerce or intimidate the individuals who hold elected positions into applying pressure to the Legislature . . . it would be a violation of the state’s insurance code and antitrust laws.”

The subpoenas went out without public announcement Aug. 11 in connection with a complaint against the companies made by the mayor of the Contra Costa County city of Lafayette, Richard S. Holmes.

Holmes said Wednesday that he had written Atty. Gen. John K. Van de Kamp in January asking for the inquiry after agents representing the Contra Costa Municipal Risk Management Insurance Authority had approached 108 companies and none were willing to quote a price for coverage.

“I said it was incredible that a whole industry could withdraw insurance that it had long offered, and do it all at the same time, and refuse to renew at any price and this could all be pure coincidence,” the Lafayette mayor said in an interview.

Dove said the attorney general’s office checked into the matter and found that early this year only one company was willing to write municipal liability insurance--the Planet Insurance Co., one of the Reliance group of companies, and then only to renew existing policies on an even more restrictive basis than before. Since Proposition 51, the “deep pockets initiative,” was approved by the electorate in June, Dove said the situation has improved, but only slightly.

“We began an investigation,” Dove said. “It soon became evident that we would have to use our subpoena powers to compel them (the companies) to produce documents and to testify under oath and under penalty of perjury. It became impossible to get them to respond otherwise. Even people who were on the surface cooperative would not answer hard questions.”

Content of Subpoenas

The subpoenas amount to orders to the companies to produce knowledgeable executives to testify or to produce sworn written answers to the attorney general’s questions, and to provide a large range of documents.

Despite some suggestions by the insurance industry of political motivation, Dove said Van de Kamp’s office has not sought publicity for the inquiry, has not released the text of the subpoenas to the press and has not disclosed the names of the companies subpoenaed.

The Times obtained a copy of the subpoena Wednesday from Mealey Publications of Wayne, Pa., a trade publication that got a copy from an insurance source and has just published it.

Under a salutation of “Greetings,” each of the companies receiving the subpoena was told, “You are commanded to appear . . . to testify and to answer questions propounded to you and to produce the papers, books, records and documents in your possession or under your control described in Attachment A . . . in connection with the above-titled investigation.” More than 20 pages of specific requests and questions then follow.

Opposed Proposition 51

Van de Kamp opposed Proposition 51, the ballot measure approved by a large majority in June, arguing that such attempts to curtail damage payments and institute other legal changes should be rejected, at least pending commitments by the insurance industry to reduce rates as a quid pro quo.

While more than 20 state legislatures have adopted such changes this year in response to demands from the insurance industry for restrictions on damage claims, the California Legislature, under heavy pressure from the trial lawyers lobby, has rejected such revisions here. The only meaningful change adopted in the state this year was by the electorate in Proposition 51, restricting application of joint and several liability.

A leading lobbyist for the insurance industry, responding to the news of the attorney general’s subpoenas Wednesday, suggested that the investigation would be a burden on the companies but would lead to no findings of illegalities.

‘Tremendously Expensive’

“The attorney general apparently has the right to investigate what he wants,” said Ed Levy, general manager of the Assn. of California Insurance Companies. “It’s going to be tremendously expensive and time-consuming to comply with the subpoenas. This type of inquiry has been done by federal agencies earlier this year and in a couple of other states where the same market constrictions have existed and they found no collusion. But if the attorney general has the extra manpower to do it, so be it.”

As for Holmes’ statement that the denial of liability insurance was too widespread to be coincidental, Levy responded: “There have been very few insurers that were writing municipal liability insurance in recent years. . . . If (Holmes) understood what happened in the reinsurance market, with their massive withdrawal from the business, he would understand why the primary carriers who were left writing municipal liability just couldn’t continue to do so.”

Pressure on Lawmakers

Dove, however, said the attorney general’s office has been collecting accounts of statements made by various insurance executives in which they purportedly suggested that if the companies stopped selling liability policies, it would put pressure on legislative authorities to change claims laws and adopt legal changes beneficial to the companies.

If there is a pattern of such conscious conduct, the deputy attorney general stated, it might well constitute boycott, coercion and intimidation within the meaning of state law.

Dove said further subpoenas will be issued as the investigation proceeds. “This is just the first wave,” he said. “There will also be subpoenas to brokerage houses, intermediate brokerage houses, syndicate members of Lloyd’s (of London) and individual pivotal insurance decision-makers.”