Prop. 101: It’s ‘Not Perfect,’ Measure’s Sponsors Concede

Based on his own polling, Harvey Englander, coordinator for Proposition 101, the November ballot initiative backed primarily by dissident insurance man Harry O. Miller, says Californians want lower auto insurance rates even if it means giving up some of their rights to recover damages.

If Englander is right, Proposition 101 would seem to have excellent prospects at the ballot box. The measure promises a 50% cut in rates charged for the bodily injury component of auto insurance policies. It would make this reduction possible by limiting the ability of claimants to recover damages from auto insurance companies.

There are two problems, however.

First, it is uncertain how big the overall premium rollback would be, since, while mandating the 50% reduction, for one year, in the bodily injury liability portion of policies, it contains no controls on the rates for other portions of the policies. These could rise without any interference from state authorities.

Second, its provisions limiting damage pay-outs go beyond what even its leading proponents now say they think is right.

In fact, Proposition 101’s sponsors publicly acknowledge that their measures contains “defects” and have explicitly promised that, if the measure passes, they will ask the Legislature to clarify and correct it.

But doing so might prove difficult because Proposition 101 specifies that such changes would require approval by two-thirds majorities of both houses. It is doubtful that proposed changes in the measure could gain such majorities without support from the powerful insurance industry lobby. And that lobby may not go along with the kind of changes the Proposition 101 sponsors have promised to make, in general relaxing the measure’s limitations on damage claims.

Assemblyman Richard Polanco (D-Los Angeles), chairman of the Proposition 101 campaign, acknowledged that he will have to “introduce clarifying language” in case the measure wins voter approval. The language, he said, would make it clear that accident victims would not, as critics charge, have to use up sick leave and vacation time provided by their employers before they could file a disability claim with their auto insurer.

More sweeping changes have been proposed by Lee Bluestone, senior vice president for government relations for Miller’s Coastal Insurance Co. and an organizer of the Proposition 101 campaign.

Bluestone went far beyond Polanco in describing the scope of corrective legislation that would be necessary.

Called ‘Not Perfect’

Describing the initiative as “not perfect,” Bluestone said that two other key provisions would have to be changed by the Legislature.

One of these provisions raises the possibility that two persons suffering identical losses in an accident would be compensated with different amounts of money, if one had health insurance and the other did not. The person with no health insurance would end up with more compensation than the person who had insurance.

The other provision involves a definition of “serious and permanent” injuries that would be used to determine whether accident victims qualify for compensation for full pain and suffering. The definition is so narrow that comparatively few accident victims would meet the test.

Bluestone said that if the measure wins voter approval, the Legislature would be asked to remove the inequity in compensation and to loosen the definition of injuries allowing full pain and suffering recoveries.

Others ‘Less Perfect’

His remarks added up to a concession that some of the initiative’s most outspoken opponents may be right in their criticisms, although Bluestone was quick to say that while he views Proposition 101 as “not perfect,” he thinks the other insurance initiatives, Propositions 100, 103, 104 and 106, are even “less perfect.”

From the state’s trial lawyers and consumer organizations, there has come the charge that Proposition 101 would “shift the cost of auto accidents away from insurance companies and onto you--the taxpayer, the consumer, the employer and the employee.”

The mainstream insurance industry has suggested that Proposition 101 would foster inequities in pay-outs that might lead the courts to invalidate it.

The basis for these criticisms is the way Proposition 101 would go about reducing insurance company pay-outs to finance the premium rollbacks.

Up to now in California auto insurance, compensation for pain and suffering has been quite high. Proposition 101 would sharply limit it.

‘Non-Economic’ Losses

The initiative states that under the new system, no person could recover compensation for “non-economic” losses exceeding 25% of the amount he receives for “economic” losses, unless his injuries are both “serious and permanent.”

(“Economic” losses concern such items as the cost of repairing a car, treating injuries and compensation for lost wages. “Non-economic” losses are pain and suffering.)

Proposition 101 defines “economic” losses as only those costs paid for by the auto insurer. Under a so-called “collateral source” rule, the accident victim would first have to collect any available benefits he or she had coming from health insurance, workers’ compensation or company disability insurance before going to the auto insurer.

So, if an accident victim incurred $5,000 in medical costs and could collect $4,000 of that amount from his health insurance company, then he would collect only $1,000 in “economic” benefits from his auto insurer. Since Proposition 101 limits “pain and suffering” damages to 25% of “economic losses” paid out by the auto insurer, this victim would only be entitled to collect $250 for pain and suffering.

But if this person had no health insurance, he would collect $5,000 from the insurer, and he would be entitled to collect a quarter of that amount, or $1,250, for his pain and suffering.

Higher Compensation

Consequently, the person with health insurance would get total compensation of $5,250, including $1,250 from the auto insurer. The person without it would get $6,250, all of it from the auto insurer.

Bluestone said that if Proposition 101 passes, the Legislature will be asked to rewrite the initiative’s language so that $6,250 would be paid to such a victim whether or not he had health insurance.

Will Glennon, a legal analyst for the California Trial Lawyers Assn., cites the inequity Bluestone promises to correct as his reason for calling Proposition 101 “the single most irresponsible initiative I have ever seen on the ballot.” And Allen Katz, a Los Angeles attorney who drafted the insurers’ no-fault initiative, asked recently, “Will this be held constitutional?” Katz noted that the courts often do not go along with such inequities.

It was one of the few times in 1988 that representatives of the trial lawyers and the insurers have been in agreement.

Defines ‘Serious’

The health insurance inequity is not the only problem in the initiative. The initiative’s definition of “serious and permanent” injuries--those that would qualify a victim to get pain and suffering compensation above the 25% limit--is also restrictive. A serious injury is defined as one “substantially prohibiting the injured person from resuming substantially all of his or her normal activities.” A permanent injury is defined as one for which “effects cannot be eliminated by further time or recovery or by further medical treatment and care, including surgery, or both.”

By contrast, New York state, which also has limited pain and suffering compensation, requires only a finding that the injury is “serious,” based on a looser definition of serious, to allow an exemption from the limit. Even “a fracture” is considered a serious injury in New York.

Bluestone said the Legislature would be asked to loosen the definition contained in Proposition 101, although he did not say what the new definition should be.

If, however, the initiative is passed and no new definition is forthcoming, some opponents say, insurance companies’ bodily injury pay-outs will be reduced by 85%, while the cost of bodily injury coverage would be lowered only by the required 50%.

Whatever Proposition 101’s effects, they will not last long. The initiative would lapse Dec. 31, 1992. After that it would be up to the Legislature to decide whether to continue, change or abandon the system the initiative installed.

Language Changed

Proposition 101 was originally drafted, with somewhat less restricted pay-outs, by George Joseph, chief executive of the Mercury insurance companies. It was redrafted into its present language by Los Angeles attorney Seth Hufstedler.

Miller’s company, Coastal Insurance, and its subsidiary Public Insurance Service, sell mainly to high-risk drivers, including many who already have bad records. Such companies could suffer financially under a no-fault insurance system, because it calls for policy holders who have accidents to collect from their own insurers, regardless of who is at fault. So Miller decided not to join the mainstream insurers in supporting no-fault.

Proposition 101 actually came close to becoming the mainstream choice. Clinton Reilly, coordinator of the industry’s no-fault campaign, originally recommended that it would be easier to pass than no-fault, and many mainstream insurers agreed with him. However, big companies headquartered outside the state, including State Farm and Allstate, insisted upon no-fault, saying that they would not finance anything else, and they prevailed.

So Miller has gone his own way, pledging up to $5 million in contributions to the Proposition 101 campaign.

PROVISIONS OF THE INSURANCE MEASURES PROPOSITION 101 Proposition 101

ACCIDENT CLAIMS LIMIT

Main Sponsor: Harry O. Miller, chief executive of Coastal Insurance Co.

Other Supporters: Assemblyman Richard Polanco (D-Los Angeles) and nine other legislators, American Agents Alliance, Ralphs Grocery Co., Southern California Grocers Assn., Checker Cab Co., Assn. of Los Angeles Deputy Sheriffs, California Correctional Peace Officers Assn., Retail Clerks International.

Opponents: California Trial Lawyers Assn., Common Cause, Consumers Union, Ralph Nader.

Key Provisions of Proposition 101:

Rollback of Rates: Rates on the bodily injury liability portions of auto policies will be rolled back for one year, either by 50% from the rate in effect Oct. 31, 1988, or by 50% of the rate in effect Oct. 31, 1987, augmented by a cost-of-living adjustment pegged to the Physicians Services component of the Consumer Price Index, whichever is lowest. Rates for other parts of auto insurance will not be regulated.

Resumption of Rate Increases. From Nov. 9, 1989, until Dec. 31, 1992, the bodily injury liability portion of policies will be permitted to rise at the same rate as the Physicians Services component of the Consumer Price Index.

Sunset Clause. The measure lapses after Dec. 31, 1992, when it will be up to the Legislature to decide what to do next.

Rate Regulation. The measure will rule out provisions in Propositions 100 and 103 mandating insurance rate regulation, if it should receive more votes than those initiatives. However, insurers will be required to file bodily injury liability rate rollbacks and subsequent increases with the state insurance commissioner, and any new insurers will have to obtain approval of their rates.

Limits on Damage Compensation. No person can recover “non-economic” (pain and suffering) losses in excess of 25% of economic losses unless his injuries are both serious and permanent. Serious is defined as “substantially prohibiting the injured person from resuming substantially all of his or her normal activities.” And permanent is defined as injuries in which “effects cannot be eliminated by further time or recovery or by further medical treatment and care, including surgery, or both.” Another exception is made for injuries involving “serious and irreparable disfigurement,” although that is undefined.

Collateral Sources. Before collecting from auto insurers under this measure, one must first collect any available benefits from health insurance, workers’ compensation or company disability. “Economic losses” against which the 25% rule for pain and suffering losses will apply will not include any of this other compensation or potential compensation.

Limits on Claims. No claims to recover pain and suffering losses in excess of 25% “shall be included in a complaint or other pleading unless the court enters an order allowing” such a pleading.

Examinations by Neutral Physicians. If an insurer disputes the extent of an injury, the claimant will be examined by a neutral physician. The county medical association or the state Board of Medical Quality Assurance will submit the names of three physicians qualified to evaluate the injury, the claimants and the insurer will each eliminate one name, and the remaining physician will conduct the examination. Both parties will share equally in the costs. If the claimant refuses to submit to such an exam, the courts will not allow a claim for pain and suffering losses in excess of 25%.

Attorney’s Fees. Lawyers will not be permitted to collect a contingency fee in any case where damages are claimed for bodily injury, unless the injury is both serious and permanent.

Amendments. Prior to the Dec. 31, 1992, lapse of the initiative, the Legislature may not act to amend it, unless by so doing it furthers the initiative’s purposes, and then only by a two-thirds majority, except that the Legislature can otherwise act if the electorate gives its subsequent approval.