Prop. 103’s Fate May Hinge on Clause

It is found in the last paragraph of Proposition 103, listed inconspicuously in a section called “technical matters.”

Nonetheless, the little-heralded provision, known as a “severability clause,” could well determine how much of the landmark insurance reform initiative will survive in its crucial upcoming test before the state Supreme Court.

The clause, a common one in new legislation, says that if any portion of the measure is found unconstitutional, it may be “severed” to permit the rest of the initiative to take effect.

The question of severability is of unusual importance in the dispute over Proposition 103 because of its many far-reaching provisions. Not only does the initiative call for a sweeping rate rollback and 20% rate reduction, it also imposes strict limits on cancellations of auto insurance, subjects insurers to state antitrust laws, allows banks to sell insurance and requires the state insurance commissioner to be elected, among other things.

In their legal attack on the measure, insurance companies have focused primarily on the rate rollback and reduction process, which they see as confiscatory and a denial of due process. But they are also contending that the severability clause cannot be applied to save otherwise valid portions of the measure.

The initiative would never have been approved without the rate cutbacks and other unconstitutional provisions, and if any portion is found invalid, the whole measure must be thrown out, the insurers say.

“Nobody can say with a straight face that the voters would have enacted 103 without the rollbacks,” Ellis J. Horvitz of Encino, an attorney for the Assn. of California Insurance Companies, said last week.

“The integrity of the initiative process requires the court take that into consideration,” he said. “Otherwise, there’s an open invitation to attract voters with something that’s popular, but clearly unconstitutional, in the hope that something else that’s less popular, but still constitutional, will squeak by.”

However, the sponsors of the initiative, state Atty. Gen. John K. Van de Kamp and other backers of Proposition 103 say the measure’s many provisions are severable and can stand independently if the rate reductions or other portions are struck down.

“Each of these provisions, because they are so independent, will give benefits to consumers in and of themselves,” said Nettie Y. Hoge, an attorney for Consumers Union.

“The initiative process is sacred, and the will of the people should be upheld,” she said. “It’s certainly more logical to conclude that if there are unconstitutional provisions, the voters still would rather have 75% of the initiative go into effect than 0% go into effect.”

The insurers’ challenge to the initiative is expected to be argued before the justices in March or April, with a decision likely to come soon afterward.

The justices, in agreeing in December to hear the dispute, allowed most of the measure to go into effect while they considered the challenge to the initiative brought by a coalition of insurance companies. But the court temporarily blocked enforcement of the rate rollback and reduction provisions, as well as a portion of the initiative establishing a private, nonprofit corporation to advocate consumer interests.

Supporters of the initiative say that action in itself shows that the initiative is severable and that the justices may have signaled already that if they do strike down parts of the measure, they will allow other portions to remain in effect.

Opponents reply that no such inference can be drawn from the action. Under the circumstances, it may well be that the court decided to block temporarily only those portions that would have the broadest and most immediate impact.

The full text of the severability clause in Proposition 103 says: “If any provision of this act or the application thereof to any person or circumstances is held invalid, that invalidity shall not affect other provisions or applications of the act which can be given effect without the invalid provision or application, and to this end, the provisions of this act are severable.”

Such clauses are often found in newly enacted laws, and over the years, the state high court has developed a test for determining whether portions of a measure can be separated to allow valid parts to take effect.

Under the test, valid provisions must be “mechanically” (grammatically) severable and “functionally” (able to stand independently) severable from the rest of the measure. It also must be evident that the Legislature or the voters would have approved the valid measures had they foreseen invalidation of the unconstitutional provisions.

Previous tests of severability clauses have brought mixed results.

For example, in 1975, the high court struck down a portion of an initiative banning busing to achieve school integration but let stand another portion that repealed a legislative policy commitment to racial balance. That valid portion was mechanically and functionally severable, and it seemed “eminently reasonable” to assume that the voters would have wanted to achieve at least part of their goal in approving the initiative, the justices said.

But in a 1976 case, the court invalidated an entire rent-control ordinance adopted by the city of Berkeley, refusing to separate an unconstitutional rate-reduction process from the remainder of the measure. The justices held that provisions of the ordinance were not separable, surmising that the voters would not have approved the measure without the deficient provisions or in some rewritten form.

In their challenge to Proposition 103, the insurance companies note that proponents focused their campaign on the rate rollback, the private nonprofit consumer advocate group and other provisions the insurers believe are invalid.

But without those provisions, the measure never would have passed, the companies say. They cite as evidence the voters’ rejection of Proposition 100, an initiative backed by the trial lawyers that contained many similar features but not the rate slashes found in Proposition 103.

“Proponents should not succeed with their attempt to use unconstitutional provisions in a ‘bait and switch’ to obtain approval and effective enactment of the balance of their initiative,” Frank Rothman, a Los Angeles attorney representing the insurance companies, said in a brief filed Monday.

Also, the insurers say, Proposition 103’s wide-ranging provisions are not separable because they represent an “integrated scheme” for reducing and controlling insurance rates. The valid portions are functionally related to the invalid portions, and thus cannot be allowed to stand independently, the companies say.

Finally, the firms argue, the state Constitution specifically bars the creation of a private corporation by initiative and says that an initiative “naming” or “identifying” such a corporation may not have “any effect.”

Proposition 103’s backers reply that the initiative’s far-reaching provisions are separable and can stand independently if others are declared unconstitutional.

The Consumers Union, in a 32-page brief to the court devoted to the severance question, says the clause itself is sufficient evidence of the voters’ intent. The brief urges the justices not to try to “read into the mind of the electorate.”

To do so, the Consumer Union’s lawyers say, would “compromise (the court’s) own integrity” and undermine the law’s traditional deference to the initiative process.

Van de Kamp, named as one of the defendants in the insurers’ suit, contends that such sections of the initiative as the repeal of anti-trust exemptions and of prohibitions against banks selling insurance are clearly constitutional and must be allowed to stand, even if the court strikes down other provisions.

Rejecting the insurers’ contentions, the attorney general adds that no conclusions about the voters’ intentions should be drawn from the defeat of Proposition 100. The insurers “ignore the fact that the principal objection to Proposition 100 concerned not its provisions but its supporters,” the trial lawyers, Van de Kamp said in a brief to the court.

The sponsors of Proposition 103, in a brief filed by San Mateo attorney Joseph W. Cotchett, argue that the initiative meets every test of severability. While all of the provisions relate to the initiative’s purpose of providing “fair, available and affordable insurance,” each would remain self-sustaining if others were struck down, Cotchett says.

The election of an insurance commissioner, the application of antitrust laws and other unchallenged provisions are important reforms in themselves and do not depend on other portions that could be struck down, backers of the measure say.

The court has a long tradition of liberally interpreting ballot measures to uphold their validity whenever possible and any doubts, the sponsors say, should be resolved in favor of the “precious right . . . of the initiative power.”