No-Fault Bill Would Overhaul State’s Auto Insurance System : Analysis: A look at how the proposed bill would affect motorists.

With the strong backing of Gov. Pete Wilson and an unusual coalition of insurance companies, Consumers Union and social activists, a proposed no-fault insurance bill pending in the Legislature would seem to have the best prospects yet to overhaul California’s auto insurance system.

But nearly every one of the bill’s often radical provisions is the subject of dispute or interpretation.

The bill’s authors acknowledge that they omitted two significant provisions of the New York no-fault law widely described as the nation’s model. Unlike the New York law, the basic California policy would not include coverage for repairing cars or supplemental liability for those lawsuits that would be permitted under the new system.

State Sens. Patrick Johnston (D-Stockton) and Frank Hill (R-Whittier) say they had to do this to engineer a policy that could be offered at an initial cost of $220 per year for good drivers.

Because of those omissions, say critics of the bill, most drivers would buy additional coverage, resulting in higher costs for them than under the current liability system. Thus, they argue, the widely quoted $220 annual cost--one of the most attractive features of the bill--is deceptive.

Controversies like this--and there are many more--assure that proponents of the bill face tough questions when the measure comes before the Senate Judiciary Committee for its first hearing Tuesday. In addition to introducing no-fault insurance to California, the bill contains stricter mandatory insurance enforcement and medical cost-containment provisions. It also would eliminate territorial ratings for the minimum required insurance.

Nonetheless, because Wilson has vowed to veto a competing bill by Assembly Speaker Willie Brown (D-San Francisco) that would retain the liability system, with some changes, it seems likely that it will be the Johnston-Hill bill or nothing this year in the overhaul of the auto insurance system.

Here is a Times analysis of what the bill would mean--and not mean--for California’s drivers.

Q: What are its main purposes?

A: To introduce no-fault auto insurance to California and to make the basic state-required coverage affordable to all drivers.

Q: What is no-fault?

A: Under no-fault, a person’s medical costs and a portion of lost wages resulting from an auto accident are paid, up to the policy limits, by the person’s insurer, regardless of who was at fault in the accident. In this case, the policy limit would be $15,000 per person. Lawsuits would be permitted in accidents in which the medical costs exceeded that amount.

Q: Who must buy the policy?

A: All drivers licensed in the state. But the $220 initial price would apply only to “good drivers” as defined in Proposition 103. These are drivers with no more than one minor traffic violation or one minor at-fault accident in the previous three years. Drivers with more violations or at-fault accidents during that time, and teen-agers and others with less than three years driving experience, would pay a different rate--not set in the bill--but likely to be substantially higher. About 85% of drivers fall in the “good driver” classification.

Q: How long would the initial rates last?

A: The initial rates could be raised after July 1, 1993, and go up each year thereafter, on the approval of the state insurance commissioner, if the commissioner determined that the premiums did not match the cost of claims and insurers’ administration costs.

Q: How much coverage would the bill require?

A: Up to $15,000 per person in medical costs, lost wages and incidental costs for the driver and each passenger of the car involved in the accident. The maximum monthly payment of lost wages would be $1,000 and the maximum daily payment for incidental costs would be $25. Benefits would end once the $15,000 limit was reached, unless the driver bought supplemental coverage, which would be available by law.

Q: How does this compare with current state-required minimum coverage?

A: Now, drivers with the minimum policy can collect nothing from it for their own damages. The basic liability policy, to be scrapped under the Johnston-Hill bill, protects policyholders against claims by other parties. The limits are $15,000 in medical payments and lost wages for an individual to a maximum of $30,000 for a group of injured victims. In addition, the current policy includes $5,000 in property damage to fix the other driver’s car. Payments through the liability policy include compensation for pain and suffering in addition to economic losses within the dollar limits.

Q: How would the new bill affect territorial pricing?

A: Under the proposal, the minimum policy would be sold at flat rates throughout the state. Buying only the new minimum policy would cost some urban drivers at least four times less than it does now, but some rural drivers would pay a little more . Supplemental insurance would still be subject to territorial pricing, in which urban drivers pay far more than drivers in rural areas.

Q: What about pain and suffering payments under the new policy?

A: There would be none.

Q: What about lawsuits?

A: No lawsuits would be permitted unless out-of-pocket costs of an accident exceeded the $15,000 individual limit, or the injury sustained was serious or permanent. Insurance sources claim that 80% of all lawsuits would be eliminated, but trial lawyers say that figure is much too high. The lawyers also say that the remaining lawsuits, because they are for larger amounts, will continue to take a substantial proportion of money paid out for claims.

Q: Because lawsuits are curtailed and payments for pain and suffering are eliminated under the no-fault limits, why might total costs still go up under no-fault?

A: The problem is that under no-fault, more people collect for their damages through their auto insurance policies, those at-fault as well as those not at-fault. Unless the savings in legal costs exceed the costs of the increased number of claims, no-fault premiums will be higher, which has happened in some states. In California, proponents say the Johnston-Hill no-fault bill would drastically curtail fraudulent injury claims, thus saving a substantial sum.

Q: So won’t those buying only the state-required minimum policy save?

A: Yes, except in a few rural counties where liability coverage costs very little now, or in cases of bad drivers and teen-agers who would be charged more.

Q: What about the driver who buys more than the minimum coverage?

A: Most drivers find the minimum coverage insufficient and buy liability coverage for protection against the lawsuits that still would be permitted. Creditors will require them to carry collision and comprehensive insurance until their car loans are paid.

Others will want to buy uninsured and underinsured motorist coverage to protect themselves against accidents with drivers who have neither the insurance nor other assets to pay damages above the no-fault limits. Under the New York no-fault law, drivers buying the basic policy are required to buy some liability and property damage coverage. Although there would be no such requirement under the Johnston-Hill bill, many drivers would probably buy these additional coverages, and critics of the bill say they would cost more than such coverages now.

Q: So who is right? Will most drivers pay more or less than they do now?

A: The insurers and their backers say they will pay less, and the trial lawyers and their backers say they will pay more. Such bills are complex, often with little-noticed clauses that lawyers can argue over and litigate later.

Q: What will induce uninsured drivers to purchase coverage?

A: Under the Johnston-Hill bill, drivers would have to submit proof that they have at least the minimum insurance every year when they register their cars. Without such proof, they would not be able to register their vehicles, which would make driving them illegal.

Q: So this is a powerful new version of the mandatory insurance law?

A: Yes. Motorists already are required to have insurance but the law is enforced only when accidents are reported. This bill proposes the most powerful enforcement of mandatory auto insurance California has ever had.