Insurers to Launch High-Profile Effort to Void New Law

SACRAMENTO — Californians will soon be bombarded at malls, in parking lots and at other high-traffic spots by signature gatherers for a rush referendum to undo a new law expanding citizens’ rights to sue insurance companies.

Referendum proponents--including the legislation’s most vocal opponent, State Farm Mutual Automobile Insurance Co.--must collect more than 400,000 valid signatures by January to get the measure on the March 7 ballot. If they do, implementation of the law, signed by Gov. Gray Davis on Friday, will be delayed until voters rule on it.

The new law allows accident victims to sue the insurer of a person at fault if they feel the company has acted in bad faith by dragging its feet on a settlement or making a low offer.

The campaign to repeal it promises to be highly visible. The insurers are willing to spend millions to persuade voters that the trial lawyers who promoted the law are merely trying to enrich themselves through more lawsuits.

“This is a classic special-interest measure ginned up by the personal injury lawyers to make tons more money for them,” said Mike Johnson, executive director of one of the groups pushing the referendum.

In addition to State Farm, Farmers Group Inc., Allstate Insurance Co., USAA, Commercial General Union Insurance Co. and Fireman’s Fund Insurance Co. have pledged support to the effort, although details of their financial commitment have not yet been worked out.

Trial lawyers and consumer groups say that insurers are the greedy ones. They too are willing to spend millions.

“The insurance companies and their paid lobbyists do not like this legislation because it will force them to pay legitimate claims of people who buy insurance,” said Harvey Rosenfield, who heads the Foundation for Taxpayer and Consumer Rights.

The law, SB 1237, which passed the Legislature only after the governor intervened with extensive compromises, reinstates provisions of a legal ruling named for an insurance company, Royal Globe, which was overturned by the state Supreme Court 11 years ago.

A March referendum would let voters decide whether the new law should take effect. If enough qualified signatures are not collected, the law will be implemented in January as scheduled (which would not preclude a November effort to eliminate it).

In 1988, insurers spent a record $80 million on four insurance initiatives--a record not broken until last year, when gambling interests spent almost $100 million in the fight over Indian gaming.

“We could see $100 million spent on something like [the referendum drive],” said Los Angeles campaign consultant Bill Carrick, who is working for the trial lawyers.

Trial lawyers also tend to spend heavily. In 1996, they spent $10 million to kill three litigation-limiting initiatives.

“Easily, we’ll spend $10 million” trying to defeat a referendum, said Orange County attorney Mark Robinson, president of Consumer Attorneys of California.

The money buys television time, bringing the Capitol debate into Californians’ homes. Backers of the new law say that accident settlements in California were artificially suppressed without the law--25% lower than the national average. Their opponents say that the new law will result in premiums 14% higher.

In fact, the referendum campaigners believe the threat of higher premiums may be their most persuasive argument to wallet-conscious voters. Johnson says insurers will offer higher-than-merited settlements--and ease up on investigating fraud--out of fear of being sued. And, he said, those costs will be passed on to policyholders.

“What a few consumers get from this is really very little, but everybody will pay substantially more,” Johnson said.

Rosenfield countered that insurers have already built adequate settlement estimates into their rates. He and other backers of the new law have always said it would not lead to more lawsuits but to more responsive and generous insurance companies.

Times staff writer Dan Morain contributed to this story.