Insurers Want All Provisions of Prop. 103 Struck Down

Proposition 103, the landmark insurance initiative, should be struck down in its entirety because “it is uniquely clear that the electorate would not have approved” it without its huge rate rollbacks, and those are unconstitutional, insurance industry lawyers told the state Supreme Court on Monday.

Filing a 50-page brief on the deadline set by the high court, the representatives of major insurers affected by the measure charged repeatedly that what they called the “drastic, arbitrary” 20% rate rollbacks from November, 1987, levels called for in Proposition 103 would unconstitutionally deprive the insurers of a fair return on their investments.

They also charged that a provision allowing the state insurance commissioner to authorize individual insurers to raise their rates if she is convinced in hearings that they are “substantially threatened with insolvency” by the rollbacks is impermissibly “cumbersome.”

“Proposition 103 does not authorize the commissioner to grant general rate adjustments,” said the brief prepared by several attorneys and signed by Frank Rothman of Los Angeles.

“Instead it requires rate adjustments to be made on a case-by-case basis, through a cumbersome hearing process, without specifying any time limit for rendering a decision on an insurer application for an increase and with no provisions to prevent loss of premium income during the process. In sum, no insurer is assured of prompt rate relief.”

The defendants in the case--Gov. George Deukmejian, Insurance Commissioner Roxani Gillespie, state Atty. Gen. John K. Van de Kamp and the State Board of Equalization--have until Jan. 12 to file their briefs, and the insurers have until Jan. 23 to respond.

The high court is expected to set oral arguments in the case in February and may rule about two months after that.

On Dec. 7, the court continued an earlier stay it had imposed on the rollbacks and rate freeze called for in Proposition 103 as well as on a clause allowing creation of a corporation to represent consumers’ interests in the rate-setting process due to begin late next year.

It agreed then, by a 6-1 vote, to let the rest of the measure go into effect--including clauses allowing rebates by insurance agents, allowing the banks into the insurance business and the beginning of planning for all-encompassing rate regulation due to begin Nov. 8, 1989.

Some lawyers for the insurers have said privately since the Dec. 7 decision that they fear that the court’s selective moves on the stay telegraphed an ultimate decision to allow much of the initiative to go into effect, even if it ultimately strikes down the rollbacks and rate freeze.

The brief filed Monday gave no hint, however, of any pessimism on this score. The industry’s lawyers contended that if the Supreme Court strikes down the rollbacks, it inevitably ought to strike down everything.

“The proponents of Proposition 103 used the unconstitutional (rollback) provisions to secure voter approval of the entire measure,” the lawyers contended. “That effort succeeded, but only by a 1% margin. Voters soundly rejected other insurance initiatives, including Proposition 100, which contained provisions similar to the remaining provisions in Proposition 103.

“Thus, in this case it is uniquely clear that without the unconstitutional provisions, Proposition 103 would not have passed.”

The insurers argued that the rate rollback on not only auto insurance but on “virtually all property and casualty insurance lines” violates constitutional due process clauses. They said that by “imposing a 20% rejection on all insurers in dozens of unrelated lines of insurance,” Proposition 103 “would permanently deprive California insurers of billions of dollars.”

This, they said, “is arbitrary on its face and is not, as constitutionally required, premised on affording the regulated entity the opportunity to receive a fair return.”

The lawyers cited the 1976 case of Birkenfeld v. City of Berkeley, in which the state Supreme Court struck down a Berkeley rent-control ordinance that rolled back rates on the main ground that it was confiscatory and contained cumbersome procedures that failed to give the landlords a chance to adequately seek redress. The parallel with Proposition 103 is clear, they argued.

The industry brief also specifically took issue with clauses in Proposition 103 that sharply restrict the insurers’ right to cancel or refuse to renew auto policies and that allow the state Board of Equalization to increase premium taxes on insurers to counterbalance any decline in tax revenue that results from putting the rollbacks into effect.

The establishment of a private corporation to defend consumers’ interests in the rate approval process is also unconstitutional, the insurers’ lawyers contended.

The bottom line, they said, is that Proposition 103’s “constitutional defects” are so substantial that none of the measure can be saved.