Prop. 103 Enforcement Bill Rejected by Senate : Measure That Would Fine Insurers That Cancel Policies Loses After Heavy Industry Lobbying

In what was widely viewed as the first major test of insurance industry legislative clout since the passage of Proposition 103, the state Senate, under intense lobbying pressure, rejected a bill Thursday aimed at punishing insurers that violate provisions of the Ralph Nader-backed initiative.

The bill, which would impose hefty fines on insurance companies that arbitrarily cancel auto policies, failed on a vote of 24 in favor and 11 against--three votes short of the two-thirds majority of the 40 senators required for urgency measures. Amid strong Republican opposition and with three Democratic supporters absent, the bill drew backing from 22 Democrats and two Republicans.

Passage Predicted

But Sen. Alan Robbins (D-Tarzana), chairman of the Insurance, Claims and Corporations Committee and the bill’s author, vowed to bring the measure to another vote next Thursday and predicted that it would narrowly pass in the Democrat-dominated Senate.

“What this says is that it isn’t easy getting a bill out of the Senate or anywhere in the Legislature (to which) the insurance companies are opposed,” Robbins said.

Even if Robbins eventually garners the 27 votes required for passage, the strength of the opposition was tangible evidence that insurers still have many powerful friends in the Legislature.

In light of Robbins’ defeat, Senate President Pro Tem David A. Roberti (D-Los Angeles) delayed consideration of his own insurance bill, which had been scheduled to immediately follow the debate. Roberti’s measure would prohibit insurers from switching new clients into affiliates that charge more for the same coverage.

In a public concession to the difficulties faced by both bills, Roberti told members before adjourning the Senate session that he will accept no excuses for absences next Thursday when the two bills come up for a vote.

Robbins’ decision to bring his legislation to a vote despite the absence of three Democrats--two of whom are co-authors of the bill--appeared calculated to put his supporters on record so that it will be harder for the insurance industry to woo away additional votes. It also could focus public pressure on some Republicans, many of whose constituents voted for Proposition 103 last November.

The initiative, which is aimed at cutting insurance premiums and imposing stringent regulations on the insurance industry, already prohibits insurers from canceling policies except when policyholders fail to pay premiums, submit fraudulent claims or applications, or in cases where there is a substantial increase in risk.

The state Supreme Court’s decision to stay various provisions of the initiative while it considers arguments on the measure’s constitutionality did not affect its ban on arbitrary cancellations. But Robbins said the $100,000 penalty called for in Proposition 103 is not severe enough to convince insurers to follow the law.

Fine Tied to Premiums

By contrast, Robbins’ bill would imposes a maximum penalty equal to half the premiums collected in the last year on all the policies that the insurer canceled.

“For a 100,000 penalty, a lot of insurance companies might decide to violate the law,” Robbins said. “For a $24-million penalty, they’re going to think about it very, very carefully.”

A number of insurers initially threatened blanket cancellations, but only four subsidiaries of Travelers Insurance Co. have done so thus far. Insurance Commissioner Roxani Gillespie appears to have upstaged Robbins on that issue earlier in the week when she ordered Travelers to renew its policies. The company said it would comply.

A second provision of Robbins’ bill would close a loophole in Proposition 103 that bars insurance discounts for anyone convicted of drunk or reckless driving. As passed by the voters, the initiative allows the discounts for any driver with no more than one moving violation of any kind in three years, in addition to the rate rollback for all policyholders.

Robbins put that provision in his bill to attract support from some who otherwise would oppose it, but the tactic did not seem to change many votes.

Republican Sen. Ed Davis of Valencia, for example, said he could not vote for the bill because the ban on policy cancellations amounts to a refusal to allow a company to go out of business. And he suggested that Robbins strip the legislation of everything but the “good driver” requirements.

“This bill sets a bad precedent,” Davis said. “It says if you stop doing business in California, we as the Legislature will stick you with a Draconian penalty.”

Senate Republican Leader Ken Maddy of Fresno, summing up the sentiments of a number of his GOP colleagues, said he could not support the bill because it penalizes insurance companies without also going after trial lawyers as well. The trial lawyer lobby has strongly supported Democratic campaigns.

But Sen. John Seymour of Anaheim, who joined fellow Republican Sen. James W. Nielsen of Rohnert Park in voting for the bill, declared: “We have a responsibility to, in fact, get the attention of the insurance industry and say, ‘Look, it’s no longer business as usual.’ ”

In another development Thursday, a Sacramento Superior Court judge refused to prevent two major banks, First Interstate and Security Pacific, from beginning to sell insurance under licenses issued last week by the state Insurance Department.

The licenses were issued under a provision of Proposition 103 that allows banks to sell insurance.

Judge James Ford said he would hear a lawsuit against the banks entering the business brought by the state’s largest insurance agents association, the Independent Insurance Agents and Brokers, but he ruled that the agents would not suffer irreparable harm if the banks began doing business in the meantime.