Conservatives Must Say No to 200 and 202 : Propositions: Look beyond who the critics are; the proposals expand government intrusion.

Propositions 200 and 202--establishing a “no-fault” system of auto insurance for Californians and imposing partial price controls on attorney contingency fees, respectively--are opposed by trial attorneys. They are opposed by Ralph Nader and Harvey Rosenfield. They are supported by much of the new, entrepreneurial business sector. Accordingly, principled conservatives should support them, right?

Wrong. Propositions 200 and 202 violate a broad array of conservative principles. The central issue is the fundamental conflict between government control and the liberty and efficiency furthered by market competition. Conservatives simply cannot compromise on that choice without eroding the entire foundation of our approach to legitimate government power.

Proposition 200 imposes on the auto insurance market a bewildering array of limits, requirements, mandates and constraints on coverage amounts, deductibles and premiums. This effectively destroys the freedom of individuals to enter into insurance contracts tailored to their own particular circumstances. And the coverage limits must equal the highest for any state; thus, in effect, is federalism replaced by a cartel enforced by government.

A further layer of price controls is imposed on medical providers, with long-term consequences for the quality and availability of medical care that are sure to be adverse. Insurance companies must offer insurance with the required coverage and deductible limits to any “good driver” as defined under Proposition 103 (passed in 1988). The insurance premiums will be determined by insurance commissioners ambitious for higher office, thus guaranteeing that the premiums will be structured to create subsidies for some groups of drivers, paid by others in the form of premiums higher than actuarially fair. Thus will Proposition 200 further the politicization of the auto insurance market. And because motorists will be required to buy expensive insurance as a prerequisite for auto registration, the underground market for false registration documents will receive a shot in the arm, as will the political demand for government insurance programs subsidized by the taxpayers.

Any “no-fault” system erodes the principle that individuals ought to be held responsible for their actions. This might be acceptable if excessive litigation is reduced, but Proposition 200 offers no such benefit. Because insurers will be required to pay claims within 30 days--under threat of a 24% interest penalty--policyholders will have incentives to inflate claims, using the interest penalty and the threat of “bad faith” lawsuits as weapons. Increased litigation is a wholly plausible outcome, and higher insurance premiums are a certainty. Since “intentional” acts under Proposition 200 may be litigated, we can expect an increase in accusations of “intentional” auto accidents, and attendant litigation.

Proposition 202 imposes a partial system of price controls on contingency fees. Contingency fees are not the central problem at the heart of the litigation crisis because they are merely a way for the market for legal services to allocate the potential risks of litigation. The central problem has been created by the modern expansion of the definition of liability, by the erosion of the traditional common law of torts as plaintiffs pursue “deep pocket” defendants even if innocent or only marginally at fault and by the absence of a “loser pays” rule, thus encouraging meritless suits.

The price controls will distort the market for legal services and make such services more difficult to obtain. The market is likely to respond with a rising contingency fee scale and/or a partial substitution of hourly fees. Either effect can be predicted to lead some deserving plaintiffs to settle too early or to forgo litigation altogether. Since the price controls apply only to “early” settlement offers, attorneys will advise their clients not to settle early. Thus it is far from clear that the net result would be more settlements.

Propositions 200 and 202 offer one shining benefit, in that they have exposed a display of hypocrisy by Nader and Rosenfield. For decades, they have supported price controls and most other coercive and confiscatory measures directed at any industry and sector imaginable--except the trial attorneys.

Conservatives, on the other hand, must stand on principle. We must oppose expansion of the coercive and confiscatory power of government. We must oppose price controls in any form. We must oppose Propositions 200 and 202.