Insurance Plan Maze Faces California Voters : Even State Officials Struggle to Translate Five Complicated Propositions Into Plain Language

The five insurance initiatives on the Nov. 8 ballot are so complicated that even state officials are having trouble figuring out how to explain them to voters.

An exasperated Roxani Gillespie, state insurance commissioner, acknowledges that her department’s effort to produce plain-language summaries of the convoluted measures has run into difficulty. In some cases, she said, drafts of the summaries are turning out to be longer than the initiatives themselves and not much easier to understand.

The situation underscores the confusion voters face in trying to unravel the rambling measures put on the ballot by powerful forces in California’s insurance war.

These combatants include the insurance industry, the California Trial Lawyers Assn., and an assortment of consumer activists, most notably Ralph Nader.

There is only one main point all these groups agree on--that something needs to be done about the spiraling cost of insurance in California where auto coverage alone is a $10-billion-a-year business and car accidents account for nearly half the civil courts’ caseload.

Differing Solutions

But the consensus shatters when it comes to deciding how to solve the problem.

Insurance companies and the trial lawyers have taken positions on opposite sides of a great divide.

The companies argue that rates are high because of escalating settlements and court judgments in a state where people seem all too eager to sue. The answer, they say, is to restrict lawsuits and damage claims in exchange for premium reductions.

And the lawyers, supported by many consumer organizations, counter that insurers have been making far more money than they have admitted and could afford to roll back premiums without restricting lawsuits or damage claim payments. What is required, according to the trial lawyers, is mandatory rate rollbacks and state regulation to prevent companies from raising rates too quickly afterward.

This basic dispute accounts for the five initiatives on the Nov. 8 ballot.

Three of the measures, Propositions 101, 104 and 106, are sponsored by insurance industry interests and all seek to limit damage claims and litigation costs. Both Proposition 101, sponsored by Assemblyman Richard Polanco (D-Los Angeles) and backed by maverick insurance executive Harry Miller, and Proposition 104, the insurance industry’s no-fault initiative, would cut back recoveries of damages by the public. Proposition 106 would restrict trial lawyers’ contingency fees.

Rollback Could Be Waived

A fourth measure, Proposition 100 is primarily sponsored by the California Trial Lawyers Assn. and calls for a 20% rollback from insurance rate levels prevailing on Jan. 1, 1988, for drivers who have had no more than one minor violation in the last three years and have not had an accident that was their fault. The measure would allow the state insurance commissioner to waive the rollback requirement for any company that can show that its earnings would be “inadequate.”

The fifth ballot measure, Proposition 103, supported by Ralph Nader, is similar to the trial lawyers’ measure in many ways but is more sweeping. It would roll back rates by 20% for everyone--good or bad drivers and also commercial and homeowner policyholders--from levels prevailing on Nov. 8, 1987, a year before the election. Companies would have to show a substantial threat of insolvency to escape the rollback.

Rollbacks under both Propositions 100 and 103 would be from levels prevailing as far back as a year before the election. Because most companies have raised their rates since then, actual rollbacks on current premiums would be considerably in excess of 20%. In some cases they would exceed 35%.

The insurers say that if the rollbacks are too drastic, they will be forced to quit doing business in California, leaving state government to create its own insurance company. The Nader initiative contains a provision that would enable the state to do just that if the companies pull out.

$43-Million Campaign

To make its case with the voters, the insurance industry has mounted a $43-million campaign to pass its own initiatives, Propositions 104 and 106, and to defeat the ones it opposes. Basically, Proposition 104, the no-fault initiative would scrap the current auto insurance system and substitute one in which drivers would be compensated for the damages by their own insurance companies, regardless of who was at fault in an accident. Drivers would lose their right to sue except in cases of serious and permanent injuries or losses exceeding their no-fault coverage limits. Most payments for “pain and suffering” would be ended.

Supporters of this “no-fault” system say that by eliminating lawyers and lawsuits from most claims, insurance rates would come down. The insurers estimate that the measure would lead to an average premium reduction of 7% to 17%. But Proposition 104 specifies that those reductions would only apply for two years.

Proposition 101, the so-called Polanco Initiative, asks policy holders to accept deeper cuts in benefits in return for greater savings on premiums. Backers of the measure contend that it would result in an average 35% reduction in premiums.

If voters pass either the no-fault initiative or the Polanco measure, there would be a sharp reduction in the number of cases settled by means of lawsuits. That would cut into the earnings of many trial lawyers.

Contingency Approach Limited

Because lawsuits would be severely curtailed and legal fees would be limited, many lawyers say they could afford to take only the cases that still could be litigated on a pay-as-you-go rather than a contingency basis. This, the lawyers say, would make it extremely difficult for most low-income victims to find attorneys to represent them on the cases still allowed under the system.

The lawyers had to walk a fine line in countering the insurance industry proposals. They favor state regulation to roll back insurance rates without limiting the legal rights of victims. But they also were mindful that excessive rate rollbacks might drive insurance companies out of the California market. Clamping down too hard could kill the goose that laid the golden egg.

So the initiative the trial lawyers are backing represents a balancing act.

It contains an escape valve for the insurance companies by allowing them to escape the initial 20% rate rollback if they can persuade the insurance commissioner that it would not allow them “adequate” earnings.

But subsequent to the initial rollback, Proposition 100 would give the state veto power over insurance rate increases exceeding 7.5% on policies covering individuals and 15% for businesses. This would apply to most kinds of policies, not just auto insurance.

New Rating System

The Nader-backed initiative goes even further. A year after the initial rollback, Proposition 103 would require the state insurance commissioner to establish a new rating system for all property and casualty insurance. In addition to giving good drivers, those with not more than one violation in the previous three years, a 20% discount, all increases above the rolled back rates would be subject to the commissioner’s approval.

To cover the possibility that regulation might force insurance companies to abandon their California customers, Proposition 103 would provide the commissioner with emergency powers to establish a state-run automobile insurance system.

Unless voters decide to defeat all five insurance measures on Nov. 8, all sides agree, protracted litigation is a certainty.

Whichever side loses, the insurers or the trial lawyers, will challenge the constitutionality or simple legality of the winning measures.

All of the initiatives provide that the Legislature could change most or all of their provisions only by a two-thirds majority vote--a feature that could make it virtually impossible to obtain the votes needed to pass any proposal opposed by either the insurance or the trial lawyers’ lobbies. In short, the situation could be locked in for years, assuming that the courts uphold whatever the voters pass.

In addition, several of the initiatives contain preemption clauses designed to invalidate provisions of other initiatives in the event voters pass more than one measure.

THE FINE PRINT OF THE INSURANCE INITIATIVES Beyond their major provisions, most of the insurance initiatives contain little-discussed subsidiary clauses that could have major consequences. Here’s a sampling:

Proposition 100, the trial lawyers’ association rate regulation initiative, would:

Allow insurance companies to continue the territorial rating system only if the insurance commissioner rules that a policyholder’s neighborhood is a valid predictor of risk.

Institute rate regulation for health insurance.

Allow banks into the insurance business.

Require the state attorney general to intervene as a consumer advocate in Insurance Department proceedings.

Preempt Proposition 104’s proposed no-fault system if both measures pass but Proposition 100 gets the most votes. Also would preempt provisions in Propositions 104 and 106 that would strictly limit lawyers’ contingency fees.

Reinstitute the Royal Globe decision recently reversed by the California Supreme Court, allowing claimants to sue insurance companies for acting in “bad faith.”

Proposition 101, the measure financed mostly by insurance dissident Harry Miller, chief of Coastal Insurance Co., would:

Define economic losses from accidents in such a way that persons having no separate health or disability coverage would be able to recover more than those having such coverage.

Preempt rate regulation if it passes with more votes than the other insurance measures.

Proposition 103, the Ralph Nader-backed rate regulation measure, would:

Terminate the territorial rating system, giving the insurance commissioner power to revive it.

Make the insurance commissioner an elected official rather than a gubernatorial appointee.

Allow banks into the insurance business.

Proposition 104, the insurance industry’s 122-page no-fault initiative, would:

Preserve the industry’s present exemptions from anti-trust laws.

Continue prohibitions on insurance agents’ offering discounts to consumers.

Allow insurance companies to continue the territorial rating system under which customers in some neighborhoods pay far more than those in others.

Rule out state rate regulation while allowing insurance companies to keep secret much data on payouts to policyholders and on earnings.

If it gets the most votes, override all other initiatives.