Legislature Accused of ‘Inertia’ on Insurance

State Insurance Commissioner Roxani Gillespie took off the gloves Wednesday, accusing the Legislature of ignoring the insurance concerns of consumers while knuckling under to special interests and declaring that her own department had been subject to “undue influences” in the case she decided this week involving the Travelers company.

Gillespie said she had overruled her own chief counsel, John J. Faber, in deciding Tuesday that four subsidiaries of Travelers must halt their attempted withdrawal from the auto insurance business in the state. Of Faber, she said, “I don’t know what I’ll have him do (in the future), but nothing very important.”

Faber was the hearing officer in the Travelers case, and Gillespie said he had recommended a different course of action than the one she had decided to take. But under questioning from Senate Insurance Committee Chairman Alan Robbins (D-Van Nuys), Gillespie would not say what she meant by “undue influence” because of a pending legal challenge by Travelers.

Faber did not return a telephone call asking for his version of what had happened.

Gillespie was appearing before a legislative committee for the second time in two days to discuss Proposition 103 enforcement matters, and she was clearly angered by legislators’ charges that she has been foot-dragging in enforcing provisions of the measure and going after insurance companies accused of violating it.

“We’re breaking new ground with enforcement of the insurance laws every day,” she told Robbins’ committee. “We’re taking on industry leaders like State Farm, Fireman’s Fund and Travelers. And what do we hear from you? Charges that we’re foot-dragging. That’s not what the record shows.

“If we want to discuss footwork, let’s examine the ‘Legislative Shuffle,’ the Legislature’s record in dealing with insurance reform. Inertia! For years, policyholders were treated like wallflowers at the prom, while the trial lawyers and insurers dominated the dance card.

“Consumers were finally driven to the initiative process in desperation because of the (Legislature’s) lack of activity,” Gillespie went on. “Those who make our insurance laws could not or would not address their problems.

“Well, I’m here to tell you that the Department of Insurance will not be your whipping person on this one. The department has a record. And no amount of grandstanding or upstaging can erase it.”

She told the legislators that if they did not like the way things were going, they should remember that they are the ones who write the laws that govern her department’s operations.

When Gillespie finished her statement, one senator, Ed Davis (R-Valencia), uttered a loud “Bravo!”

But Robbins charged that Gillespie and the Insurance Department have “tended to be either neutral or opposed” to virtually all proposed legislation on insurance questions. “The department has not been aggressively promoting measures to bring down the cost of insurance,” he said.

Gillespie responded that a lot of the proposed legislation has been “piecemeal or one-sided, a lot we know won’t go anywhere and some of it is plainly unconstitutional.”

Robbins suggested that Gillespie has not been quick enough to go after the state’s largest auto insurer, State Farm, and he said the 9.6% general rate increase announced by the company this week will bring it more than $100 million in additional premium income. Gillespie answered that she will call a public hearing to challenge the rate increase but wants to be sure of her legal ground first.

“You do not go against State Farm with a bow and arrow,” she said. “They have far more legal resources than we do. It takes us time to build our case.”

Gillespie’s statement that there had been “undue influences both in and out of the (Insurance) department” in the Travelers case came after Robbins began asking her about reports that she had reversed a staff recommendation that Travelers be allowed to withdraw from the California auto insurance business in what has become a widely watched test case.

Gillespie said Travelers’ move to withdraw was “an extremely important and dangerous problem, not just an attack on Proposition 103, but an attack on the whole way companies may quit business and free themselves of obligations to their policyholders.” As the department’s deliberations over the matter proceeded, “I have rarely seen such a squeeze” of inside and outside pressure, she added.

In this situation, she said, she had to make a decision that went against the hearing officer, her chief counsel, Faber. Later, she told reporters that other staff members had concurred with her decision.

Robbins tried to press for more details, but Gillespie would not give the committee any.

Also present for part of the hearing was Assembly Insurance Committee Chairman Patrick Johnston (D-Stockton), who on Tuesday had said there was a “lingering suspicion” on the part of many lawmakers that Gillespie and the Deukmejian Administration want to “defer implementation of Proposition 103 as much as possible.”