Attorneys’ Wrangling Bogs Down Hearing on Insurance Rollbacks

The first day of a historic hearing to consider rolling back the rates of a major California insurance company bogged down Wednesday in arguments among opposing attorneys over how to proceed.

The hearing--the first of its kind to be held by the state insurance commissioner under authority of Proposition 103--was called to allow the Allstate insurance company to try to persuade an administrative law judge that its rates should not be cut by 6%.

The hearing in the auditorium of the downtown State Building was scheduled to last only two days, but more than a dozen attorneys representing insurance companies, state agencies and consumer groups spent the greater part of the first day arguing over procedures. Early in the session, Administrative Law Judge Jerry Whitfield conceded that resolving the complex issues will take longer than the two-day hearing called by state Insurance Commissioner Roxani Gillespie.

Duration of Months Predicted

Robert Pike, general counsel for Allstate, predicted late in the afternoon that the matter will take months.

Harvey Rosenfield, author of Proposition 103, was optimistic during a lunch break that the hearing process will work toward lowering rates for consumers

But by the afternoon, he proclaimed during a break: “This is a sinking ship, the way Gillespie has structured this.”

Opposing attorneys did not begin opening statements until after 3 p.m. The 14 lawyers at the hearing represented three distinct camps: the state Department of Insurance, insurance companies and a loose coalition made up of the state attorney general’s office, Voter Revolt (the group headed by Rosenfield), the Proposition 103 Intervention Team and Consumers Union.

Translate Into Rollback

The state Department of Insurance lawyers came prepared to discuss, if not defend, the validity of holding insurance companies to an annual return-on-investment rate of 11.2%, which would translate into a rollback of $85.7 million in Allstate’s rates.

Allstate came to seek an annual return-on-investment rate of 13%.

But coalition attorneys contended that insurance companies’ true rates of return on investment are much higher than publicly stated and are disguised by reserve funds and company expenses. They criticized Gillespie for setting the tentative 11.2% ceiling and contended that a hearing should have been held to establish rules to require insurance companies to disclose financial data beyond that required by the state Insurance Department.

Much of the first day’s hearing was devoted to arguments over ground rules for the exchange of information between the opposing attorneys.

Lawyer’s Complaints

Allstate lawyers complained that the state Department of Insurance had not provided the company with information backing up its 11.2% figure and that the attorney general’s office had failed to supply it with volumes of documents requested. Department of Insurance attorneys replied that the department’s financial expert has been on vacation and the attorney general’s office apologized that its document copying process had broken down.

Deputy Atty. Gen. Anthony M. Summers complained in turn that Allstate had refused to furnish him with extensive companywide financial data. Mike Zigler, representing Allstate, contended that Summers’ request was so extensive that it was “incredibly burdensome.” Judge Whitfield finally ordered the two lawyers to confer and gave them three weeks to work out a compromise.

At one point early in the proceedings, state Insurance Department attorney Elizabeth Mulroy asked Whitfield if she could approach the bench for an off-the-record conference.

Crowd in Front of Judge

When Whitfield looked up and found 11 lawyers crowded in front of him, he observed that it might have been easier to ask the audience to leave the room.

The audience, which nearly filled the auditorium, was made up largely of men in gray suits with brief cases who scribbled on yellow legal pads.

Gillespie sat next to Whitfield and occasionally whispered in the judge’s ear as attorneys made their arguments.

Gillespie’s critics have complained that her authority is tantamount to that of prosecutor and judge in the hearing.

The outspoken commissioner was optimistic at the begining of the first session, announcing that she had added four major insurance companies to a list of 13 scheduled for rate hearings this year.

“Make no mistake about it,” Gillespie announced before the hearing bogged down, “there will be no slow boat here.”

She also announced that she will hold a hearing to consider the rates of 257 smaller companies all at one time.