Senate Panel Backs Repeal of ‘Dirty Trick’ Bill on Car Insurer Profits

After deliberating for just three minutes Wednesday, the state Senate Insurance Committee voted unanimously to repeal legislation enacted last year that was interpreted by some insurance industry lawyers as allowing auto insurers to double their profits.

Sen. Ed Davis (R-Valencia), who often has sided with the industry on legislative matters, expressed the prevailing mood when he remarked afterward, “Getting rid of this is a charitable service.”

After the 9-0 vote, Committee Chairman Alan Robbins (D-Van Nuys) predicted that the repeal legislation, authored by the same lawmaker who sponsored the original bill, Assemblyman Tom Bane (D-Van Nuys), would sail through the Legislature and quickly go to Gov. George Deukmejian for his signature. Deukmejian let the original legislation become law without signing it.

Noting that insurance lobbyists, who a few days ago were opposing any change in the Bane bill, were silent in his committee on Wednesday, Robbins said:

“It’s over. They have been told loud and clear by Bane, by myself and other members of the Legislature that after the dirty trick Allstate’s lawyers have pulled, the (repeal) bill is passing and that’s it.”

It was Allstate’s attorneys who led the way in arguing in rate filings with Insurance Commissioner Roxani Gillespie that an amendment inserted by Bane into his bill in the last days of the 1988 legislative session in effect made it state policy to allow profits of 27.8% a year on auto liability insurance and 18.4% on auto physical damage coverage.

This averages out to be more than twice the 11.2% that Gillespie announced earlier this month as her standard.

A nervous Bane said last week that he had been misled by insurance lobbyists as to the impact his amendment would have. At that time, he said he would simply push a clarification of his bill’s language that would make it clear it did not have the meaning the insurance lawyers said it did.

But the controversy grew to such an extent that Bane, who has a record of carrying special-interest bills, decided to change his clarification bill to an outright repeal. He explained to a reporter that once the issue came to be perceived in the Legislature as a matter of voting whether or not to double the industry’s auto insurance profits, all most lawmakers wanted to do was get rid of what had become an embarrassment.

“He got a lot of aggravation out of this,” Senate Insurance Committee consultant Jim Cathcart said of Bane on Wednesday.

Meanwhile, an insurance lobbyist who asked not to be identified told of being summoned by Bane to explain how his amendment, which states that “The Legislature has determined that the prima facie reasonable rate of return for underwriting of private passenger automobile insurance is an after-tax profit of 5% of earned premium,” could be construed as authorizing profits as high as 27.8%.

The lobbyist said that he had told Bane it was not at all clear how the 27.8% figure had been arrived at.

Robbins said, “This was absolutely a raunchy attempt to slip something through by industry lawyers that was not the intent of the author.”

The committee action went very quickly Wednesday, with Bane standing up to say he wanted “to repeal this legislation, so it doesn’t conflict with Proposition 103.”

This apparently was an allusion to arguments by insurance industry lawyers saying that the original Bane bill governed what profit standard that Gillespie could use in exercising her powers under Proposition 103 to approve or disapprove insurance rate increases.

Robbins asked if anyone wanted to speak against the repeal. No one did.

The committee chairman then invited Judith Bell, the Consumers Union representative who last week had first stirred public interest in the matter, to speak. She said the Consumers Union favored repeal.

The vote came seconds later.