Davis Seeks Compromise Between Insurers, Lawyers

Gov. Gray Davis has intervened in the big-money dispute between trial lawyers and insurers over restoring bad-faith lawsuits in California.

The governor’s recommendations include exempting judgments over $1 million in newly drafted legislation pending before lawmakers, Capitol sources said this week.

Davis also said any plan should expire after six years, the sources said on condition of anonymity.

The governor’s comments at the closed-door Capitol meeting last week mark his first intervention in the issue, a costly, intense fight between two powerful lobbies. Both groups call this issue their top legislative priority.

Attorneys want to restore the right to file a bad-faith lawsuit against someone else’s insurance company over legitimate claims that are delayed or denied. That right was thrown out by the state Supreme Court a decade ago.

The dispute focuses on a legal doctrine known as “Royal Globe,” named after a Butte County insurance company that figured prominently in a lawsuit that involved a woman who slipped and fell at a market.

Davis said earlier that he would sign bad-faith lawsuit legislation, but did not specify what it could include.

Davis’ recommendations were expected to go to the Assembly Appropriations Committee.

The governor wants Royal Globe reinstated, with restrictions, Capitol sources said. The governor has offered at least four major proposals:

* Exempt cases in which the judgment in the underlying lawsuit is more than $1 million.

* Require the bill, which would take effect Jan. 1, 2000, to expire Jan. 1, 2006.

* Limit or prohibit bad-faith class-action lawsuits.

* Limit or prohibit companies from suing each other for bad faith.

“I think the governor has balanced the competing interests here, and it is consistent with what he told Californians he would do, to moderate the needs of consumers along with the need to keep the insurance business in California,” said attorney Mark Robinson, a spokesman for the Consumer Attorneys of California.

Insurers are not pleased with Davis’ proposals.

“Unless and until he [Davis] does something to cap punitive damages, he won’t have done anything to really weaken the financial impact of this on California consumers. What’s really going on now behind the scenes is that he is trying to broker a deal the trial bar can live with,” an insurance executive familiar with Davis’ proposals said.

Davis, top advisor Lynn Schenk and the chief executives of four insurance companies--State Farm, Farmers, USAA and Fireman’s Fund--met privately in Davis’ Capitol office last week to discuss Davis’ proposals, sources said.

Davis aides declined to characterize those discussions, but several Capitol and industry sources described the meeting on condition of anonymity.

“He was very businesslike and very direct and he told them exactly what he wanted. The governor was reaching out to the industry,” one insurer said. “The logic here is that the CEOs call the shots, so why not go to the source and see if they say yea or nay?”