Auto Insurer Claims ‘Basic Right’ to Pull Out of State

Lawyers for the Travelers group of insurance companies told a state Department of Insurance hearing here Wednesday on its refusal to renew its 23,000 California car insurance policies that the company has “a basic American right” to decide to get out of the auto insurance business in the state.

The department has notified Travelers that its action is not in compliance with provisions of Proposition 103, which says renewals can be denied only for nonpayment of premiums, fraud or as a result of “a substantial increase in the hazard insured against.”

The case could set a precedent that would apply to other companies that might decide to exit the California auto insurance market.

It appeared, however, that the practical significance for Travelers’ policyholders could be minimal, because legal maneuvering may last so long that most or all of the policyholders will have lost their policies before the matter is resolved.

Kent Keller, the Los Angeles attorney representing Travelers at the hearing, said the first non-renewals went into effect Dec. 23, and already 700 Travelers policyholders have had to find other insurance. Keller also vowed a court appeal if the Insurance Department orders the Travelers companies to resume renewing policies and said the companies would seek a stay during such proceedings.

Assigned Risk Plan

The department’s chief counsel, John J. Faber, allowed two more weeks for filing briefs on the issue and suggested that drivers losing their Travelers policies could find insurance under the assigned risk plan, which he said might be cheaper than the policies they have now.

However, Faber’s suggestion drew negative comment from state Sen. Alan Robbins (D-Van Nuys), chairman of the Senate Insurance Committee.

Robbins, who attended the hearing and is reportedly considering running for the post of insurance commissioner in 1990 when, under Proposition 103, it will become an elective post, called such an alternative unfair to Travelers’ policyholders because, under assigned risk, drivers can buy only a limited amount of liability coverage and no collision coverage.

The senator also deplored the fact that the Insurance Department has issued only a “notice of non-compliance” to Travelers when Insurance Commissioner Roxani Gillespie had promised last month to issue a cease-and-desist order.

Keller said after the hearing that had a cease-and-desist order been issued, Travelers would have resumed renewing policies, but he added that it would have gone to court on that too and quickly sought a stay.

Faber and another hearing officer, Fermin Ramos, said that department lawyers had determined the notice to be the legally appropriate course.

Gillespie quickly objected in November when Travelers announced that it was ceasing to renew California auto policies and withdrawing from the state. She also objected when State Farm, California’s largest seller of auto insurance, announced it would sell to new customers at a higher rate than to its old ones.

But so far, department action has not succeeded in reversing either company’s course. Nearly a month has gone by since State Farm responded to a department notice of non-compliance by asking for a public hearing, and the department has yet to set a date for that hearing.

Travelers’ lawyer Keller told the hearing that the company had “surrendered its certificates of authority” to sell auto insurance in California the day before Proposition 103 was passed in the Nov. 8 election, and it would be a violation of American principles, he said, to retroactively impose the initiative’s renewal requirements on it.

But a department lawyer, Patricia Skaggs, said that the withdrawal cannot go into effect until the department approves it, so there is no retroactivity question.

Robbins said he believes that state statutes would require a withdrawing company to find a substitute insurer in any case.

Travelers, he added, is doing $800 million in other lines of insurance in California, and it would be “much more American” if it decided to bow to the will of the California electorate and renew its auto policies, as called for in Proposition 103.

In another development, a Hayward insurance agent, Frank Thomas, became the first person to announce his intention to run for insurance commissioner. Thomas, 51, is an anomaly in the insurance industry--an agent who supported Proposition 103. He said that if elected, he would be “an independent, nonpartisan consumer advocate.”