In Turnaround, Garamendi Backs No-Fault

Insurance Commissioner John Garamendi, in a dramatic switch of position, endorsed no-fault auto insurance Thursday, putting forward a comprehensive plan of reforms that include the possibility of eventually paying for basic auto insurance at the gas pump.

Garamendi, saying that he despaired of ever seeing the state’s politically powerful trial lawyers or consumer advocate Ralph Nader accept no-fault insurance, said he has concluded nonetheless that it is a vital part of any plan for a minimum low-cost policy for California drivers, including millions who cannot afford coverage now.

He said the policy he envisions would cost each motorist with a good driving record $325 the first year. Higher prices could come later if they are needed to keep no-fault afloat. But Garamendi said he believes the average driver would save 10% on auto insurance, even after buying the additional coverage most drivers might want above the minimum policy.

The move by the Democratic insurance commissioner aligns him with Republican Gov. Pete Wilson in endorsing no-fault, a system in which an accident victim’s losses are paid by the victim’s insurance company regardless of who is at fault.

Garamendi’s plan also provides for medical cost containment, new anti-fraud measures that include more money to fight insurance fraud, more controls over car repair costs and safety measures such as more stringent enforcement of seat belt laws.

For the first time, motorists would have to provide proof of insurance when they re-register their cars each year, a tougher enforcement of the state’s mandatory insurance law than ever before.

On the possibility of a “pay at the pump” system, Garamendi proposed a long-term study of the feasibility of “the collection of premium fees on the sale of gasoline, registration of automobiles and drivers licenses.”

The cost of no-fault would be structured into the price of gasoline. He said paying for insurance that way would mean motorists who drove less, or drove cars with better gas mileage, would pay less for insurance.

Garamendi’s proposal was attacked Thursday by several traditional foes of no-fault.

Nader, Proposition 103 author Harvey Rosenfield and the California Trial Lawyers Assn. blasted Garamendi as a turncoat.

“I’ve always thought he was a political windmill,” Nader said.

One element of Garamendi’s proposal would allow lawsuits for “pain and suffering” damages only in cases of serious injury, possibly cutting lawyers’ income from the insurance system.

Santa Monica attorney Ian Herzog, president of the Trial Lawyers Assn., said: “The sad thing is that here John Garamendi was elected to regulate the insurance industry and he is endorsing the No. 1 item on their wish list.”

The proposal will be considered in Sacramento as soon as today. But it does not appear that it will get a friendly reception.

It comes eight days before the end of the legislative session. This week, a special conference committee was formed to come up with auto insurance reform that has eluded the lawmakers for many years.

The six-member committee, however, which includes Assembly Speaker Willie Brown and Senate President Pro Tem David A. Roberti, appears heavily weighted against no-fault.

At least four of the committee’s members, Democrats Brown, Roberti and state Sen. Bill Lockyer of Hayward, and Republican Assemblyman Paul Horcher of Hacienda Heights, are known to be foes of no-fault. Only one member, state Sen. Patrick Johnston (D-Stockton), is definitely for it.

Garamendi, aware that Wilson has vowed to veto any reform package that does not contain no-fault, warned Thursday that failure by the Legislature to act this year “will lead to California consumers facing a very tough auto insurance market next year.”

Even if Garamendi’s move does not make no-fault legislation a reality, it could have major long-term significance.

Garamendi’s and Wilson’s support of a no-fault ballot initiative next year could give the measure powerful momentum. Wilson has already said he is ready for an initiative, but Garamendi said Thursday that the suggestion is premature.

In 1988, an industry no-fault initiative was defeated by a 3-1 margin, but that proposal was widely viewed as too favorable to the insurance companies.

Garamendi’s switch--which actually returns him to the pro-no-fault position he had held as a state senator--was welcomed by Wilson, the insurance industry, and a coalition of organizations representing minority and low-income people that have been pressing for rate relief.

“Our response is basically, ‘Welcome aboard,’ ” said Wilson spokesman Franz Wisner. The Wilson press aide lauded Garamendi for moving toward the no-fault proposal defeated in the Legislature earlier this year. But he stopped short of saying that Wilson approved of the entire Garamendi package.

Garamendi first came out against no-fault in the campaign for insurance commissioner last year. He explained that he felt that it could not win legislative passage so it was useless to advance it.

His Republican opponent in that election, Huntington Beach insurance agent Wes Bannister, said Thursday that he never regarded Garamendi’s opposition to no-fault as sincere.

“He received close to $1 million either directly from lawyers or their intermediaries during the campaign, so he was kind of stuck,” Bannister said. “He couldn’t really endorse no-fault so long as those people were supporting him.”

Garamendi aide Tom Epstein branded Bannister’s statement as untrue. He said Garamendi had received “nowhere near that amount” from lawyers, and he pointed out that Garamendi’s Democratic primary opponent, television commentator Bill Press, had received the most contributions from lawyers.

Garamendi’s explanation for his switch, offered at a Los Angeles news conference, was that he simply had restudied the situation and “our analysis led me to conclude that no-fault was best for consumers” and a necessary component of any low-cost policy.

Highlights of the Plan

State Insurance Commissioner John Garamendi has proposed a compromise plan for auto insurance. Here are some of its key elements:

LEGAL REFORM

A no-fault system with a statewide flat rate of $325 for the first year for a minimum policy that includes $15,000 of personal injury and $3,000 of property damage coverage. Claimants could sue for noneconomic “pain and suffering” damages only in cases of serious injury.

PROOF

Proof of insurance required when a car is registered.

AUTO REPAIR AND REPLACEMENT

Establishment of a voluntary auto repair shop referral system, with a guaranteed price for repairs. A $500 deductible for collision and comprehensive would be mandatory, with a lower deductible available for a higher premium.

FUNDING

Eventual possibility of a “pay at the pump” system. Extra fees for gasoline, drivers’ licenses and car registration would pay the cost of the minimum-coverage policies.

AUTO FRAUD

More money for enforcement. Mandatory reporting of all bodily injury and uninsured/underinsured motorist claims would build file to check against potential fraud. State medical, chiropractor and lawyers’ boards would report on possible fraud by their own practitioners.

MEDICAL COST CONTAINMENT

A commissioner or workers’ compensation schedule would set fees. Policyholders who use their own health insurance first would get discounts. Double payments for health care would be reduced.