Prop. 103 Wins Unanimous OK : State Atty. Gen. Hails ‘Home Run for Consumers’

The state Supreme Court today unanimously upheld virtually all the major provisions of Proposition 103, clearing the way for the sweeping reforms mandated in the insurance initiative passed by the voters last November.

The court approved the measure’s far-reaching 20% rollback and freeze on automobile and property insurance rates but did allow exceptions for insurance companies that can prove that the rate slash prevents them from earning a fair profit.

In other respects, the court upheld important provisions of the initiative that had been challenged as unconstitutional. And other portions, not directly contested by the insurers, were left intact--including provisions for an elected state insurance commissioner, allowing banks to sell insurance, subjecting insurers to state antitrust laws and requiring that auto rates be based primarily on a driver’s safety record rather than residence.

The climactic ruling, ending months of uncertainty about the legality of the measure, was hailed by sponsors as a big victory for consumers. It will affect millions of Californians holding auto and property policies and hundreds of insurers who administer those policies. Immediately at stake are an estimated $4 billion in premium reductions insurers said the initiative will cost them annually.

‘An Incredible Day’

The decision also came as a surprise from a newly aligned court regarded as far more sympathetic to business than its liberal predecessor led by former Chief Justice Rose Elizabeth Bird. And the ruling was issued in a 59-page opinion from the current court’s most liberal justice, Allen E. Broussard.

“This is an incredible day for consumers,” said Joseph W. Cotchett, the Burlingame attorney who represented Voter Revolt, the group that sponsored the measure along with consumer advocate Ralph Nader.

“This cuts across virtually every household in the state,” Cotchett said. “But this is only the tip of the iceberg. From here the movement will go across the country and for the first time, insurance companies will have to be responsible to the public, like any other business.”

State Atty. Gen. John K. Van de Kamp, the main state official defending the measure in court, called the ruling “an inside-the-park home run for consumers,” saying it will end “sky-high, take-it-or-leave-it rate increases.”

Insurance industry attorneys declined immediate comment, but it is widely expected that they will seek review of the decision by the U.S. Supreme Court, contending the measure violates the federal Constitution.

Under the decision, auto and property insurance rates will be reduced 20% below their level of November, 1987, and held in place until November, 1989, unless an insurer can show the state insurance commissioner a higher rate is warranted.

The court said insurers may go ahead and charge a higher rate during that period, but will have to refund with interest any premiums collected that exceed the rate ultimately approved. After next November, as required under the initiative, insurers must submit rate increases in advance for approval by the insurance commissioner.