Maneuver Seeks to Nullify 2 Insurance Laws

Having scrambled to put two measures on the March ballot, insurance companies are now spending millions on provocative television commercials to defeat them.

But crazy as it sounds, even the insurance industry’s main opponents, the California trial lawyers, admit this strange tactic is smart politics.

What the insurance industry is gunning for are two laws the trial lawyers persuaded the Legislature to pass and the governor to sign last year. Propositions 30 and 31 on the March 7 ballot are mirror images of these two laws.

Both measures allow injured accident victims to sue the at-fault party’s insurance company if they think their claims have not been settled fairly.

By putting the measures on the ballot, the insurance industry is asking voters to do what it couldn’t do for itself during the legislative debate: Kill the new laws.

“It’s very rare for this kind of referendum to qualify for the ballot,” said Robert Stern, co-director of the Center for Governmental Studies. “It was a very strategic move on their part and a very smart move. Usually when the ‘no’ side on a proposition spends a lot of money, it goes down. This gives insurance companies a way to be on the ‘no’ side.”

At stake for both sides are millions of dollars. Trial lawyers, who represent injured parties against insurance carriers, are expected to see a marked increase in business if the measures pass. Insurance companies, on the other hand, expect that the measures will force them to incur additional costs for settling claims.

Insurance executives believe so much may be at stake for their industry that nearly 300 mostly out-of-state companies have contributed to the $44-million campaign. But the big money has come from a handful of companies that dominate California’s auto insurance market. State Farm Insurance Group has poured $17 million into the effort, Farmers Insurance has contributed $15 million and Allstate Insurance nearly $4 million.

“It’s basically all these bullies from out of the state and out of the country and they’re coming in and saying, ‘Our money has more power than your Legislature,’ ” said Sen. Martha Escutia (D-Whittier), author of the law that insurers placed on the ballot as Proposition 30. “If out-of-state carriers and foreign corporations can get away with nullifying the decision of rightfully elected officials, then I might as well pack up my bags and quit.”

Dan Dunmoyer, president of the Personal Insurance Federation of California, said the contributions are really a small investment when compared to the costs he believes the measures will impose on the industry and its policyholders.

He said industry analysts estimate that settlement costs would rise 15% if the measures pass. “You’re talking about $1.6 billion a year,” Dunmoyer said. “Divide that by 12 and it’s over $100 million more a month.”

The multimillion-dollar donations have given insurers a lopsided advantage over the trial lawyers, whose association, Consumer Attorneys of California, has raised less than $3 million for the campaign.

Even so, both sides have invested heavily in television advertising, filling the airwaves with attack ads.

The “no” side ominously tells viewers that passage of the propositions will cause insurance rates to skyrocket. “It’s just lawyer-speak for ‘money, money, money,’ ” one ad says.

The “yes” campaign counters with a spot depicting the insurance companies as a pack of wolves. “The multinational conglomerates have joined in a pack and are running wild to overturn the new California law,” their ad says.

Long-Running War Over Right to Sue

The campaign is a replay of a decades-old struggle between the trial lawyers and their archenemy, the insurance industry. It’s a heavily politicized rivalry in which trial lawyers align almost exclusively with Democrats and the insurance industry with Republicans.

The proposition fight is only the latest skirmish in the long-running war over victims’ right to sue. In a 1979 lawsuit involving Royal Globe Insurance Co., the California Supreme Court gave trial lawyers their first victory, deciding that injured victims had the right to sue the at-fault party’s insurance company for unfair claims practices.

In 1988 insurers triumphed when the same court overturned Royal Globe, holding that state law did not give victims the right to sue for unfair claims practices.

During the next decade, the threat of a veto from Republican Gov. Pete Wilson kept trial lawyers from pushing legislation that would reinstate the right to sue. Then, in 1999, a heavily Democratic Legislature passed a bill by Escutia allowing those lawsuits under certain conditions.

Democratic Gov. Gray Davis signed the measure, with the proviso that lawmakers would pass another bill modifying some of its provisions. The second law said that only individuals--not businesses--could sue insurers for unfair claims practices.

Both measures were stopped from taking effect on Jan. 1, when referendums on the two laws qualified for the March ballot. On the ballot, Proposition 30 mirrors the original measure passed by the Legislature. Proposition 31 represents the modifications demanded by Davis and cannot go into effect unless Proposition 30 also passes.

Although the campaigns surrounding the propositions are being financed by moneyed interests with a direct stake in the outcome, each side is gearing its message to the consumer.

The “no” campaign insists that the propositions will drive up the size of settlements because insurance companies will decide to pay even questionable claims to avoid the cost of a lawsuit for unfair practices.

“Basically, it creates a system where if someone has a specious claim, they have unparalleled leverage,” said Dunmoyer.

The result of higher settlements, insurers argue, will be higher premiums.

“We are going to have a situation where the policyholder’s rates are going to go up and the person gets no additional benefits,” said Allan Zaremberg, president of the California Chamber of Commerce. “. . . and that is where people become upset.”

Their opponents argue that there is no reason for rates to increase if the industry pays claims promptly and fairly. But without the propositions, they say, there is little incentive for companies to pay claims promptly.

“Right now, insurance companies can mistreat people and never have any marketplace consequences,” said Rosemary Shahan, president of Consumers for Auto Reliability and Safety. “If a company’s making a bad product, or not performing a service, then they’ll lose customers.

“But in this case insurers can’t lose anything because [the victim] is not their customer to begin with.”