Prop. 103 Called Ruinous for Some Malpractice Insurers

The California Medical Assn. said Wednesday that the 20% insurance rate rollbacks from November, 1987, levels called for by Proposition 103 might bankrupt several nonprofit, doctor-owned insurance companies that provide most of the state’s medical malpractice insurance.

Contending that the failure of the companies would force California doctors to seek malpractice insurance from out-of-state companies at much higher rates, Dr. Charles Plows, vice chairman of the CMA House of Delegates, told a Sacramento news conference:

“To keep medical costs as low as possible in California, the CMA urges a ‘no’ vote on Proposition 103,” the measure backed by consumer advocate Ralph Nader.

Proposition 103’s rollbacks would apply not only to auto insurance, but to homeowner, commercial and municipal liability and malpractice insurance as well.

Harvey Rosenfield, head of the Proposition 103 campaign committee, called the CMA assertions--surfacing six days before the election--a diversionary tactic on behalf of the insurance industry.

Rosenfield also took issue with assertions by a representative of one of the malpractice insurers, who was present at the news conference, that such specialty insurance companies operate on only a slim margin. The companies include a lawyer-owned company that insures lawyers and a newspaper publisher-owned company that insures newspapers.

“Most of these companies are phenomenal profit makers, because they have a monopoly role in specialized markets,” the Proposition 103 chairman said. “But if they aren’t profitable, Proposition 103 specifically permits companies to get increases above the rollback rate, if they can show they are substantially threatened by insolvency.”

While Rosenfield contended that the CMA was in league with the insurers, the medical association’s statements focused attention on an issue that has not received much attention in the initiative fight: the effect of the Proposition 103 rollbacks on the specialty insurers.

According to Howard Williams, vice president of communications for the Southern California Physicians Exchange, the insurer who appeared at the CMA news conference, his own company and three others, The Doctors’ Company, Medical Insurance Exchange of California and NORCAL Mutual Insurance Co., together sell about 80% of all medical malpractice insurance to California physicians.

“The four companies are policyholder-owned,” Williams said Wednesday. “There are no stockholders. They charge only what is needed to pay claims and costs. Any ‘profit’ goes back to the policyholders in reduced premiums. . . . These are ‘consumer-owned’ companies.”

Plows joined Williams in contending that Proposition 103’s rollback provisions would pose a financial threat to all of these companies, unless they could get quick exemptions from the rollbacks.

Williams said, moreover, that getting an exemption might prove cumbersome, entailing long hearings before a possibly politically motivated state insurance commissioner. Proposition 103 would require that the state insurance commissioner be elected, rather than appointed by the governor.

Williams is also the author of an Oct. 11 letter to California newspaper publishers in which he contended that some newspapers could lose their relatively inexpensive libel insurance if Proposition 103 is passed.

Rosenfield said Wednesday that he considered that letter an attempt to coerce newspaper executives into opposing the Nader-backed measure. But Williams contended that the letter was meant to be informative, not threatening.

In another development Wednesday in the initiative fight, Tom Vacar, a former consumer affairs reporter for KCBS-TV in Los Angeles, sued the insurance industry’s campaign committee for Propositions 104 and 106 for damages for alleged defamation of character, in connection with what he said were letters attacking his reporting ethics. Vacar lost his position with KCBS and is now working for KNX radio.

The industry campaign called the lawsuit an “obviously petty action” and “silly.”