Insurance Czar Warns Against Legislation : Consumers: Quackenbush says reopening courts to bad-faith suits would raise rates.

The state’s top insurance regulator told an Orange County group Tuesday that two legislative bills reopening the courts to certain lawsuits against auto insurers would lead to more lawsuits and premium hikes averaging $350 a year.

Insurance Commissioner Chuck Quackenbush, who opposes the measures, said the bills would make California the only state to give injured consumers the right to sue a wrongdoer’s insurance company for bad faith in rejecting or mishandling claims.

“The costs are huge,” he told a Newport Beach gathering of Citizens Against Lawsuit Abuse, a statewide lobbying group. “I spent my first five years bringing costs down, and I don’t want to spend my next three years [with] costs going up.”

But consumer advocates quickly labeled Quackenbush’s warnings scare tactics, and said the bills wouldn’t have been needed had he been doing his job.

State law now requires that claim disputes be handled administratively through the Department of Insurance. But in his five years as commissioner, Quackenbush failed to bring action against any insurer for failing to pay claims, said Harvey Rosenfield of the Foundation for Taxpayer and Consumer Rights in Santa Monica.

“Insurance companies are making record profits, and their rates are supposed to reflect the full payment of claims,” Rosenfield said. “But they’re jacking people around all the time.”

Gov. Gray Davis is expected to sign the two bills, but neither he nor any staff member was available Tuesday for comment.

Davis had balked at a more sweeping bad-faith bill. But state Sen. Joe Dunn (D-Garden Grove) pushed through a second bill earlier this month to, among other things, restrict lawsuits to bodily injury, wrongful death or property damage and to allow some personal-injury claims to be covered by binding arbitration.

Still, Quackenbush asserted, the threat of lawsuits--and potential punitive damage awards by sympathetic juries--likely would result in more claims, higher settlements and a big hike in premiums.

If the bills are signed into law, he said, the insurance industry probably would support a statewide initiative next year to rescind them--an effort Quackenbush said he would support.

In 1978, a sharply divided California Supreme Court ruled that consumers had broad authority to sue insurance companies for refusing to offer a fair and timely settlement for injuries inflicted by their policyholders. “Everyone tacked a bad-faith lawsuit onto every claim” and premiums soared, he said.

Ten years later, however, a more conservative but still divided court overruled that decision and removed the right to sue for bad faith. It decided that only the insurance commissioner could settle disputes between third parties and insurance companies over the handling of claims.

A statewide initiative passed in 1996 helped lead to reduced rates, Quackenbush said, by barring uninsured drivers from recovering damages for noneconomic harm, such as pain and suffering.

The Citizens Against Lawsuit Abuse said it plans to run full-page newspaper advertisements Thursday in north Orange County to criticize Dunn and to urge Davis to veto the two measures, Assembly Bill 1309 and Senate Bill 1237.

The ads are similar to those that ran earlier this month in Pasadena criticizing Assemblyman Jack Scott (D-Altadena), who wrote the Assembly bill.

Dunn was traveling Tuesday and couldn’t be reached for comment.