State Farm, Auto Club Won’t Back Insurance Industry’s Prop. 106

Breaking ranks with other insurance companies, two of the state’s biggest sellers, State Farm and the Automobile Club of Southern California, said Thursday that they are withholding their support from the insurer-sponsored Proposition 106, a ballot initiative that would slash lawyers contingency fees.

The statements came just days after consumer advocate Ralph Nader suggested during a California tour that passage of limits on attorney’s fees could “open a Pandora’s box” that would lead to an initiative in the next election to limit all professional fees, including those of insurance agents.

The companies said, however, that they have been neutral on Proposition 106 for some time.

“We know 106 is important, but we perceive it as not an insurance issue,” said a State Farm spokesman. “We’d rather focus on the insurance issues, Propositions 100, 103 and 104.” He said that letters from State Farm agents to policyholders urging various votes pro and con in the initiative fight do not mention Proposition 106.

A spokeswoman for the Auto Club declared:

“The proposal is unlikely to significantly reduce auto insurance premiums, although it is possible that it could have some impact on the costs (of handling claims). For that reason, the Auto Club will remain neutral on Proposition 106.”

Also expressing reservations about the measure in an interview was Jerry O’Kane, executive vice president of the state’s largest organization of insurance agents, the Independent Insurance Agents and Brokers of California.

“As salesmen of insurance, we don’t think it’s a good idea to enact limits like this in law,” O’Kane said. “We’re supporting it, but somewhat reluctantly.”

Proposition 106 would limit attorneys’ fees under the contingency system, under which a client pays his lawyer only if he wins a judgment or settlement. The fees could not exceed 25% of the first $50,000 of an award, 15% of the next $50,000 and 10% of any amount in excess of $100,000. On a $1-million award, that would amount to a maximum fee of $110,000.

Attorneys now charge varying amounts, but the fee can run 40% or more.

A spokesman for the insurance industry campaign committee, Scott Carpenter, said Thursday that State Farm, the largest contributor to the $43-million industry campaign, has not yet informed the committee that its funds should be kept away from the Proposition 106 phase of the campaign effort, but he said he is aware that there are reservations about the initiative.

“I think it’s more antipathy to regulation than any fear of tit for tat,” Carpenter said of those within the industry choosing to stay neutral. “The negative I’ve heard has to do with conservative feelings that regulation is not a good idea.”

Trial lawyers who often employ the contingency fee system to represent clients who cannot afford regular hourly pay-as-you-go fees are bitterly opposed to the fee limits, and the president of the California Trial Lawyers Assn., J. Gary Gwilliam, was quick to welcome word of reservations among some insurers on pushing Proposition 106.

“Frankly, it’s not all that surprising,” Gwilliam said. “It would do nothing to cap the fees of insurance company lawyers, defense lawyers, corporate lawyers or any other kind of lawyers . . . I think most people realize that just isn’t fair.”