Assembly Democrat Revives No-Fault Insurance Legislation

Despite voter rejection in November of a no-fault initiative, the chairman of the Assembly Finance and Insurance Committee on Wednesday introduced legislation that would enact a California no-fault auto insurance system modeled on a successful one operating in New York.

The proposal has strong backing from Consumers Union. But its author, Assemblyman Patrick Johnston (D-Stockton), acknowledges that it faces an uphill battle in the Legislature where opposition from trial lawyers has stymied similar efforts for nearly two decades.

Nonetheless, Johnston told reporters Wednesday that there is a new recognition among lawmakers of the need to control legal costs that drive up insurance premiums, which he contends was not accomplished by voter passage of the Ralph Nader-backed Proposition 103.

“If we do not act in 1989,” Johnston warned, “there will be another voter revolt in 1990.”

Johnston’s proposal drew cautious support from the insurance industry, which spent tens of millions of dollars promoting Proposition 104, its own, less generous no-fault proposal that was overwhelmingly defeated on the November ballot.

But while one insurance spokesman lauded Johnston’s proposal as “on the right track,” industry lobbyists stopped short of an outright endorsement and confided that they believe the bill does not go far enough to restrict lawsuits and clamp down on medical claims.

Speaker to Offer Own Bill

Meanwhile, Assembly Speaker Willie Brown (D-San Francisco) said he will introduce his own insurance bill, and officials of the California Trial Lawyers’ Assn. are unequivocal in their opposition to Johnston’s measure. They contend that the legislation would increase costs rather than reduce them and is actually “an attempt to undermine Proposition 103.”

“We just had an election where the people were given an opportunity to choose, and they rejected no-fault by 75%,” said Will Glennon, the association’s legal analyst. “Now Pat Johnston and Consumers Union are saying, ‘Let’s look at no-fault again.’ It’s ironic, to say the least.”

In fact, Johnston’s proposal offers far more generous benefits to motorists and is less restrictive of legal rights than the insurance industry’s defeated ballot initiative.

Under the traditional “tort liability” system used in California and 24 other states, the negligent driver’s insurance company must reimburse the innocent party in an accident.

With no-fault, motorists are compensated for injuries by their own insurance companies no matter who is at fault. Costs are reduced because lawsuits are prohibited unless injuries are particularly serious or medical bills exceed a certain limit.

Johnston’s legislation would provide up to $50,000 in medical benefits, $3,000 for funeral costs and up to $2,000 per month for three years to compensate for lost wages. It also would allow “reasonable and necessary” payments for child care and other services up to a maximum of $50 daily for one year.

To cut costs, the legislation would allow lawsuits only when the total loss exceeds the $50,000 maximum medical benefit or in the case of a “serious injury.”

By contrast, Proposition 104 would have allowed a maximum of $10,000 in medical benefits, $15,000 in lost wages and $5,000 in funeral costs, with no provisions for other expenses incurred by an accident victim. The insurance industry-sponsored initiative would also have made it much more difficult to sue, allowing a case to go to court only when an injury is “both serious and permanent.”

Voter passage of Proposition 103 does not prohibit the adoption of a no-fault system. Moreover, when combined with Proposition 103’s stringent regulation of the insurance industry, Johnston’s proposal would result in a system that closely mirrors New York’s.

New York Plan

According to New York insurance officials, the adoption of that state’s no-fault system prompted an 80% reduction in the volume of lawsuits and a significant increase in the amount of each premium dollar that goes to accident victims. Premiums also rise more slowly than in many other states although New York remains the seventh most costly state in which to buy auto insurance.

Harry Snyder, West Coast director of Consumers Union, conceded that Johnston’s proposal, like New York’s system, is unlikely to actually reduce premiums. But he contended that it will keep rates from raising as rapidly as they might otherwise, “and that is very significant in itself.”

Although there are sharp differences between Johnston’s proposal and the defeated no-fault initiative, the insurance industry’s unsuccessful campaign to sell its ballot measure as New York-style no-fault may confuse some lawmakers and make it more difficult for Johnston to win support for his proposal. The trial lawyers, whose fees from lawsuits would be jeopardized by any no-fault system, were quick to capitalize on that point.

“The insurance industry spent $70 million, mostly aimed at selling Proposition 104 as New York no-fault,” said the association’s Glennon. “(Johnston’s) proposal will be washed out by that campaign.”

Johnston will also not be able to count on support from Speaker Brown, a trial lawyer loyalist. The plan Brown said he will introduce would continue the present system but would require that injury claims for less than $50,000 be submitted to arbitration rather than allowed to go to court.

Another major hurdle faced by Johnston is the vocal opposition of Harvey Rosenfield, the primary author of Proposition 103. On Wednesday, Rosenfield said the Legislature should take no steps to modify the insurance system until Proposition 103 is fully implemented and the insurance industry is forced to open its books and justify the need for further cost-cutting measures.