Consumers Feel Ripple Effect of Nader Initiative

Some home buyers Thursday suddenly found themselves unable to get new homeowner insurance, and car dealers fretted that auto insurance might dry up as insurance companies reacted to the passage of Proposition 103.

Lenders generally will not finance the purchase of a home or automobile until consumers have obtained insurance to protect the property against fire, theft or other damage.

Some insurance companies have withdrawn from the California market and others have stopped writing new policies in the wake of Tuesday’s passage of Proposition 103, which rolls back insurance rates.

The state Supreme Court on Thursday blocked implementation of the measure while the justices decide whether to review claims made in lawsuits by the insurance industry that the initiative is unconstitutional. But the confusion over its impact continued within sectors of the business community.

“We represent about seven companies, and only two are still taking business,” said William H. Mitchell, chairman of two independent insurance agencies in Costa Mesa. “Here we are wanting to place new business, and we can’t.

“The word must be going out, because our phones are almost dead. People have stopped calling,” Mitchell said. “It isn’t affecting renewals; they’re OK. The problem is with new insurance. The companies are telling us not to place any new insurance until further notice.”

Sponsored by consumer advocate Ralph Nader, Proposition 103 was one of several insurance initiatives on the ballot, but it was the only one that passed.

Although most of the public attention on the insurance initiatives focused on auto insurance, Proposition 103 called for price rollbacks on a wide range of insurance products, including those for homeowners. Prices would be rolled back 20% from the prevailing rates of Nov. 8, 1987.

Only now is the full impact of the measure starting to sink in, and it has begun to send ripples of uncertainty and confusion through the mortgage lending industry and general public.

“I think everyone had the impression that Proposition 103 was just for auto insurance,” said Ira Cohen, a senior executive with ARCS Mortgage, a large home lender based in the San Fernando Valley. ARCS Mortgage has already notified its field offices to brace for problems in closing loans.

Lola Levoy, who owns the Beverly Hills Escrow company, said she knew of several real estate deals that have not closed because of 11th-hour problems in obtaining insurance.

‘Not a Pretty Sight’

“It’s disrupting everything,” Levoy said. “We are not closing escrows. . . . It’s affecting every part of the real estate industry. It’s not a pretty sight.”

“I don’t see a quick fix--unless we can get Ralph Nader to write insurance,” cracked H. Collyer Church, underwriting counsel for World Title, a large title insurance company in Burbank.

“I don’t have a handle on how big the problem is,” Church added, “but I think it’s pretty universal.”

Santa Monica attorney Thomas Nitti pointed out that current homeowners also may face a serious problem if insurance companies refuse to renew their policies.

“Lenders won’t fund the loan until the insurance is in place, and if the insurance policy expires without a new policy coming on, that gives the lender the right to foreclose,” Nitti said.

As with homes, auto lenders will not finance a new car unless insurance is in place to protect the lender’s investment. So the potential looms for big problems down the road because two out of every three new cars are financed.

Auto Dealers Fearful

Some car dealers said in interviews Thursday that they are afraid they will lose sales because customers will be unable to obtain insurance if a large segment of the insurance industry abandons California, as some companies have threatened to do unless Proposition 103 is thrown out.

“I know if I were a consumer and I was insured by one of the companies that won’t write new policies, I’d think twice before buying a car,” said Don Robinson, used car manager and desk manager for Santa Ana Chrysler-Plymouth-Isuzu.

But by and large, their fears have not yet been realized, at least partly because California law allows car owners automatically to transfer existing insurance coverage to a newly purchased car.

“Where new policies are concerned, there is a state of confusion,” said Gregg Webber, sales manager of Delilo Chevrolet in Huntington Beach. “Agents are not writing new policies today (Thursday). They say this should be straightened out within several days. It hasn’t affected a sale so far.”

John S. Andrews, the chief spokesman for the nation’s largest auto financing company, General Motors Acceptance Corp. in Detroit, expressed concern that a broad lack of insurance could cut sales.

Since GM and other auto makers finance the sale of substantial percentages of their own cars, the possible loss of business would have a double impact.

“This is a situation that we are watching very closely,” Andrews said. “I don’t think that it’s going to hold just to the state of California if it goes through. I don’t know what the impact is going to be, but there is going to be one if this thing is upheld. You’ve got to have insurance to finance a car. If no one is writing insurance in California, I don’t know what’s going to happen.”

Bob Sutherland, sales manager for Caliber Motors, a Mercedes-Benz dealer in upscale Anaheim Hills, said the insurance muddle has had no effect at all on his business. In fact, sales increased as soon as early ballot returns were in on Election Day.

A lot of Sutherland’s customers “were concerned that the Administration and economy would change,” he said. “Because that didn’t happen, we’ve had a surge since election results came in. People came in Tuesday as early as 1 or 2 o’clock” when the trend for Bush was clear, he said.

Times staff writer Maria La Ganga contributed to this article.