Insurance Firm Plans Move to Avoid Rollbacks

In an attempt to escape rate rollback provisions in the various insurance initiatives on the Nov. 8 ballot, Coastal Insurance officials said Friday they have plans to shift their 250,000 auto policyholders to an out-of-state company that would offer new rates not subject to the rollbacks after the election.

The chairmen of both the Proposition 100 and 103 campaigns promptly denounced the tactic, which they charged other insurance companies may soon try to emulate, as an attempt to evade what they said would be the law if provisions in their initiatives that call for broad rollbacks win voter approval.

A short time later, a spokesman for the mainstream insurance industry campaign, Proposition 104, the no-fault initiative, suggested that state Insurance Commissioner Roxani Gillespie would never let this kind of circumvention of the rollbacks take place.

No Position on Legality

But a spokesman for Gillespie said she has taken no position yet on the question of whether such circumventions would be legal.

“It’s something we have thought about, but have not come to any firm conclusion,” said Gillespie’s chief counsel, Fermin Ramos. “We consider it speculative at this point to try to arrive at any opinion on that issue.”

Coastal had announced Thursday that it and its affiliates, FGS and Public Insurance Service, were getting out of the auto insurance business.

On Friday, company officials revealed the strategy behind the move in responding to questions from The Times, which were prompted by information from an anonymous caller that Coastal policyholders would become customers of an Illinois-based company at continued high rates.

Coastal Chief Executive Harry O. Miller and Secretary-Treasurer Steven Avgeris said they do not know what exact rates will be charged by the new company. But they said whatever they are, they will be established after the election and thus will not be subject to any rollbacks the voters may approve at the polls.

The Coastal executives explained that the likely new company, United Equitable Insurance Co. of Lincolnwood, Ill., will not have any rates in effect in California on Election Day. Therefore, they said, there will be no level to roll back rates from, and the company can charge whatever the market will bear.

Avgeris said Coastal is now writing insurance policies in Illinois through United Equitable. He said Coastal does not own the company, but is its “managing general agent” and that United Equitable policies in California will be marketed by the Coastal affiliates, FGS and Public Insurance Service.

Backed Proposition 101

Miller at one point in an interview even suggested that the rollbacks in the insurance initiative that his own companies have contributed nearly $4 million to help pass, Proposition 101, would be circumvented by the new company.

However, a moment later, he contradicted this point, saying that if Proposition 101 passes, he believes that Coastal policyholders will be offered those rollbacks by the new company.

Miller said no one will get 20% rollbacks from levels prevailing on Nov. 8, 1987, as called for under Proposition 103, or the 20% rollbacks from the levels prevailing Jan. 1, 1988, for “good drivers” as called for under Proposition 100. Proposition 103 is supported by consumer advocate Ralph Nader and Proposition 100 by the California Trial Lawyers Assn. and various consumer groups.

‘Will Not Work’

“There will be no rollbacks” from these initiatives, Miller said. Yet, he contended, “We will comply with every provision of the law of the State of California and every directive of the state Department of Insurance.”

However, later in the day, Atty. Gen. John K. Van de Kamp, a supporter of Proposition 100, said he believed that Coastal’s tactic constituted a “ruse that will not work.”

“The corporate veil can be pierced when companies try to dodge the law and establish new identities using essentially the same assets and the same employees servicing the same customers,” he said. “As Proposition 100 was drafted, it was intended to preclude such activity under traditional corporate law principles.”

The statement by the Insurance Department’s spokesman that Gillespie has not yet decided whether Coastal’s move to circumvent rate rollbacks would be legal drew immediate fire from the Proposition 100 and 103 campaigns, which have previously been critical of the commissioner and the Deukmejian Administration for allegedly leaning toward the insurance companies.

Steven Miller, chairman of the 100 campaign, who is no relation to Harry Miller, said:

“The commissioner may be open to the possibility that insurance companies could evade the law and the will of the people. But the facts suggest otherwise, that no insurance company, by deception or will, can avoid the law. The public should demand that the state’s Department of Insurance use its full power to protect California consumers rather than insurance companies.”

‘Outlaw Behavior’

Harvey Rosenfield, chairman of the 103 campaign, said, “This kind of outlaw behavior by marauding insurance companies ignited the voter revolt that led to Proposition 103.”

He suggested that unless Gillespie enforces the rollbacks, she will be thrown out of office in 1990 when, if Proposition 103 is passed, the post of insurance commissioner would become an elective one.

In another development Friday, George Joseph, chairman of the Mercury insurance group, said his companies had filed an application with Gillespie for an exemption from the rollbacks called for under Proposition 103.

“We’ve made it very clear . . . that if 103 passes and we cannot get immediate exemptions from its rollbacks, we are not going to (continue to) write auto insurance in California,” Joseph said. “We are not asking to form a new company.”