9 States Sue Insurers; Plot to Cut Coverage Charged

The attorneys general of California and eight other states filed lawsuits Tuesday accusing major U.S. and British insurance companies of conspiring to restrict the availability of liability insurance for government and business and to eliminate coverage for damage from environmental pollution.

As a result, the suits allege, rates skyrocketed in what became known as the liability crisis. Some businesses and government entities simply could not find coverage for activities that the insurance companies contended were too risky, or were forced to drop activities because they could not afford to insure them.

Gradually, the suits allege, the refusal by Lloyd’s of London to sell reinsurance--policies bought by insurance companies to protect them from extraordinary losses--coerced the entire U.S. insurance industry into going along with the plot.

The suits, most of which were filed in U.S. District Court in San Francisco, name four of the nation’s biggest insurers--Allstate, Hartford, Aetna and Cigna--as having joined, starting in 1983, with Lloyd’s and the Insurance Services Office, the insurance industry’s leading national consultant on rates, to cut back liability coverage.

The suits ask for injunctions to stop the alleged conspirators from continuing these practices, require them to create a fund to cover losses that are uninsured as a result of the conspiracy and to pay other financial damages to be determined later.

Also demanded is placement of a majority of public members on the board of the Insurance Services Office and divestiture by the alleged conspirators of all subsidiaries--such as reinsurance and brokerage operations--that were used to manipulate the market.

California Atty. Gen. John K. Van de Kamp, one of the leaders of the two-year investigation, was joined in filing the lawsuits by the top legal officials of New York, West Virginia, Wisconsin, Minnesota, Massachusetts, Arizona, Alabama and Texas.

All but two of these--the attorneys general of Arizona and Wisconsin--are Democrats. The Republican-controlled U.S. Justice Department had earlier refused to launch a similar investigation, commenting in 1986 that what Van de Kamp Tuesday called a “collusive exercise in corporate greed” was, in its words, “highly unlikely.”

Conspiracy Denied

Reaction to the lawsuits from the accused companies was generally to deny the existence of any conspiracy and predict vindication in the courts.

But Aetna went further, accusing the attorneys general of political motives.

“Today’s action should be seen for what it is--another political move by political officeholders who have consistently opposed any and all efforts to address the real problems of the nation’s liability system,” the Aetna statement said.

“That problem is the lawsuit crisis,” it added. “The way this country assesses liability in the courts is damaging to society.”

The insurance industry has consistently called for the restriction of lawsuits and the prerogatives of trial lawyers as a means of stemming the rise of liability insurance premiums.

Van de Kamp and a number of the other attorneys general, by contrast, have often sided with the trial lawyers in advocating reform of the insurance industry, not the legal profession, as the best means of controlling insurance prices and availability.

Initiative Lauded

Van de Kamp, whose aide Michael Strumwasser helped draft a proposed California insurance initiative now backed by the trial lawyers and who is on the steering committee of that initiative, had kind words at a Los Angeles press conference Tuesday for that particular initiative, sponsored by Steven Miller of the Insurance Consumer Action Network.

But Van de Kamp also lauded a more sweeping insurance reform backed by consumer advocate Ralph Nader and sponsored by a consumer group called the Voter Revolt to Cut Insurance Rates. That goes beyond the trial lawyers’ positions, but is fundamentally on their side against the insurers.

Both initiatives primarily affect auto insurance, but also have important effects on liability insurance.

Van de Kamp maintained nonetheless that the on-the-scenes investigation by the attorneys general, which ranged as far as London, had developed highly persuasive evidence of the insurers’ conspiracy alleged in the lawsuits.

“The details of this case are enormously complicated,” he said. “But the essence is very simple. Beginning as early as 1983, two of the U.S. companies (Hartford and Allstate) began trying to persuade the insurance industry to cut back all commercial general liability insurance coverage and to eliminate it entirely for pollution.

Pressure Alleged

“When persuasion failed, Allstate, Hartford, Aetna and Cigna conspired with Lloyd’s of London and other reinsurers to deny reinsurance to companies that refused to go along. The reinsurance boycott forced the rest of the industry into line.”

Reinsurance is the sale of coverage to the insurers themselves. They buy reinsurance policies to protect them from extraordinary losses that may occur. Without it, many companies will not sell the particular kinds of coverage involved.

Van de Kamp said that some insurance companies, not happy with what they had been forced into doing, had cooperated with the investigation by the attorneys general but he did not name any.

“The results of this coercive boycott were felt by virtually every public agency, business and nonprofit organization in the country,” he said.

He added that in his legal action Tuesday, “I have chosen to bring a class-action suit on behalf of all local governments here in California. But the damages were not limited to cities and counties. . . .

“There are many factors in the price of insurance,” Van de Kamp said. “This is a large and complicated market. So it is difficult to say with certainty that a particular public park or a specific day-care center was closed solely because of this conspiracy.

Called Corporate Greed

“But we can say that this illegal boycott was a major contributor to the insurance crisis that forced so many cities and businesses up against the wall. And we can say that, in every instance, it was the public and the consumer who paid the price for this collusive exercise in corporate greed.”

The lawsuits were hailed Tuesday by a number of consumer advocates.

“We’ve always said that the insurance crisis was manufactured by the industry,” said Harry Snyder, West Coast director of the Consumers Union. “This is evidence we were right. They got together and they created a crisis.”

Harvey Rosenfield, chairman of the Voter Revolt to Cut Insurance Rates, said, “It just vindicates four years of our belief that the insurance industry has got to be either comprehensively reformed, or we’re all going to continue to pay exorbitantly.”