Insurance: Yes on 100 : California: No

Proposition 103 leads most public opinion polls because it offers the deepest cuts in insurance rates and touts itself as the only measure not financed by either the trial lawyers or the insurers. Written by consumer activist Harvey Rosenfield and supported by Ralph Nader, the AFL-CIO and Consumers Union, Proposition 103 contains pro-regulation, pro-consumer elements similar to those in Proposition 100. Our objection is that Proposition 103 is too extreme; it would return auto, homeowners and commercial insurance rates to levels in effect in November, 1987, then slash them by 20% and freeze them for a year. Companies would be excused from these across-the-board cutbacks only if threatened with insolvency--a likely possibility, ironically, for the smaller, more efficient California-based insurers with the lowest rates. Consumers might never see the rollbacks promised: : Either the insurance commissioner will excuse failing companies or the insurers will persuade the courts that the cuts are confiscatory. Because dramatic reductions in rates are largely illusory, we urge a no vote on Proposition 103.

The initiatives blessed by the insurance industry--Propositions 101, 104 and 106--are deeply flawed, so one-sided that they would erect a fortress around the industry.

Of these, Proposition 101, the work of Assemblyman Richard Polanco (D-Los Angeles) and Coastal Insurance Co., is the sloppiest. In exchange for a 50% cut in the premium for bodily injury and uninsured motorist coverage and overall savings of about 35%, accident victims would have to accept sharp limitations on recovery for their pain and suffering--not a bad idea by itself. But the measure also would require that victims exhaust other benefits--including health insurance, workers’ compensation and state disability--before collecting from auto insurers. That would shift the costs of accidents from auto insurers to health insurers--and then to employers. The proposition’s sponsors say such drafting errors could be corrected in the Legislature, but amendments would require a two-thirds vote of both houses.

The centerpiece of Proposition 104, sponsored by the Assn. of California Insurance Companies, is a no-fault system proponents compare to the very successful New York no-fault program. The principle may be the same--victims give up their right to sue and instead collect from their own insurance companies, no matter who is at fault--but Proposition 104 is far stingier than the New York system. Through the California system, a victim could recover no more than $10,000 in medical expenses, $15,000 for lost wages and $5,000 if he dies--a total of $30,000; in New York, by comparison, the overall limit under no-fault is $50,000 in damages, with no subceilings on medical or wage losses. Those caps are key, for if an accident victim’s expenses exceeded the limits, he would have to rely on his health insurance--or sue, defeating the whole purpose of no-fault. Proposition 104 also would ban recovery for non-economic losses--pain and suffering--unless the injury was both serious and permanent; someone who suffered a fractured hip, for example, could not qualify because he might heal. That is far more restrictive than the New York law.

Proposition 104 is littered with provisions designed to protect insurers and stifle competition, including a ban on state regulation of the industry. In New York, regulation has worked hand-in-hand with no-fault to keep rates in check. In California, if the insurers have their way, regulation would be possible only by a two-thirds vote of the Legislature amending Proposition 104.

Proposition 106 is an example of spite in action, a nasty little measure placed on the ballot by insurers to punish trial lawyers by limiting contingency fees. Lawyers in all tort suits--major product-liability cases as well as nuisance whiplash suits--could be paid no more than 25% of the first $50,000 recovered, 15% of the next $50,000 and 10% of any recovery over $100,000. This measure would not reduce insurance rates; most nuisance suits are settled for less than $50,000, and a 25% fee is hefty enough to attract some kind of lawyer. The danger is that Proposition 106 would cut off court access for middle-income Californians, particularly those with complex suits raising novel issues, who cannot afford to pay their attorneys by the hour. Limiting contingency fees may be justified to prevent gouging, but these proposed limits are among the lowest in the nation.

Although we reject the insurers’ initiatives, we believe that their complaints about California’s tort system are justified. If Proposition 100 passes, we would be prepared to support some form of costs-saving, perhaps no-fault, that addresses both the insurers’ needs and Californians’ deep-seated frustrations with the status quo.