Let Prop. 103 Cuts Take Effect, Court Is Asked

Sponsors of Proposition 103, ridiculing the insurance industry’s predictions of “gloom and doom,” asked the state Supreme Court on Tuesday to allow the initiative’s dramatic insurance rate reductions to take immediate effect.

“The insurance companies, by their obdurate and continuing refusal to provide fair and open rate-setting mechanisms, have brought this on themselves,” lawyers backing the measure said in a brief filed with the court.

The justices issued an order Nov. 10 temporarily blocking implementation of the initiative while they decide whether to formally review claims by the industry that the measure is unconstitutional.

The court is expected to decide next week whether to lift all or part of the order and whether to hear the industry’s challenge to the initiative’s legality.

Alludes to Voters

Joseph W. Cotchett of Burlingame, the lead attorney for the backers of Proposition 103, urged the justices to lift the stay order in its entirety--or alternatively, to block only the initiative’s premium rate rollback provisions while allowing other parts of the measure to take effect.

“The people have spoken,” Cotchett said in the brief. “Now, predictably, those who lost the election are looking for and, where necessary, inventing potential problems with Proposition 103.”

The initiative, supported by consumer advocate Ralph Nader and others, calls for automobile, property and casualty insurance rates to be rolled back to the level existing on Nov. 8, 1987, and then be reduced another 20%. The rates then would be frozen until November, 1989. Insurers could apply for permission to charge higher rates but they would have to show they face a “substantial threat of insolvency.”

In their far-ranging challenge to the initiative, lawyers for dozens of insurance companies contended that the rate cutbacks unfairly prevent them from earning a fair return and that the rate adjustment process forces them to operate at a loss until they can show insolvency.

Another provision barring them from canceling automobile insurance except in limited circumstances improperly infringes on their right to refuse to do business, the insurers said.

Cotchett and other attorneys supporting Proposition 103 dismissed the companies’ legal claims as “choruses of gloom and doom” and urged that the order blocking implementation be lifted because, they say, there is little likelihood that the insurers will prevail in their constitutional attack on the measure.

At least, the proponents said, the court should allow provisions that are not directly under challenge to go into effect--such as removal of the insurance industry’s exemption from antitrust laws and creation of an elected state insurance commissioner, now an appointive post.

By lifting the order, the court would permit the insurance commissioner to begin work on procedures to implement the measure, the lawyers said. Contrary to the insurers’ claims, the rollback provisions are constitutional, and companies that believe that they cannot survive cutbacks could seek an exemption under terms of the initiative, they said.

Attorneys backing Proposition 103 argued also that the court should not step in to declare a measure unconstitutional where it has not been tested as applied in a specific case. A law should be struck down on its face only when it is “flagrantly and patently” violative of constitutional rights, the lawyers said.

Supporters of the initiative also rejected the insurers’ contention that the measure is “confiscatory,” effectively taking their property, or revenue, without just compensation in violation of the Constitution.

Protection Against Delay

Established procedures that would be implemented by the state insurance commissioner will ensure against unwarranted delay in the rate adjustment process, the lawyers said. “The danger of delay, which could lead to confiscation, will materialize only if the companies bring it upon themselves,” they said.

Leaders of Voter Revolt, the organization that led the campaign for Proposition 103, announced the formation of a legal team that will defend the initiative in what may be a long and hard court battle.

Cotchett, a well-known plaintiffs’ lawyer, will head a group of attorneys that includes Los Angeles lawyer George Hedges, Robert Fellmeth and James Wheaton of the Center for Public Interest Law in San Diego, and half a dozen law professors from across the state.