Firm’s Auto Insurance Withdrawal Denied

SACRAMENTO —  In a test case the rest of the insurance industry has been watching, state Insurance Commissioner Roxani Gillespie on Tuesday ordered four subsidiaries of the Travelers group of companies to halt their withdrawal from the auto insurance business in California and to offer to renew any policies that they had refused to renew.

As the action against Travelers was being disclosed, the Assembly Finance and Insurance Committee narrowly approved legislation that would freeze insurance rates until November, when the regulatory aspects of Proposition 103 take effect.

The bill, which would invalidate the 9.6% general rate hike ordered by the State Farm companies on Monday, now goes to another committee for a financial review. As an urgency measure, which would take effect immediately, it requires a two-thirds majority to pass the Legislature. Gillespie, who was present at the committee session that approved it, said Tuesday she will recommend that Gov. George Deukmejian oppose it.

The insurance commissioner said she believed that a rate freeze would be quickly stayed by the state Supreme Court, just as the rate rollbacks and one-year freeze called for under Proposition 103 were stayed, pending a court test of their constitutionality.

In the Travelers case, Gillespie rejected the argument of the company’s lawyers that Travelers could not be compelled to keep selling auto insurance because it had filed notice of its withdrawal on Nov. 7, one day before the passage of Proposition 103 with its restrictions on non-renewal of auto policies.

Saying that the Travelers subsidiaries must continue to renew their 22,000 auto policyholders until the Insurance Department authorized their withdrawal, Gillespie said, “No insurer can place itself above the law by the mere act of filing papers to withdraw.”

Travelers promptly said it would comply with Gillespie’s order and offer the renewals she had ordered while it appeals the insurance commissioner’s decision to the courts.

“Notwithstanding the commissioner’s order, Travelers remains convinced that its position is correct and will be vindicated in the courts,” said the company’s executive vice president, Thomas McAboy.

“A private business has a right to cease doing business,” he said.

The company said so far it has declined to renew 1,900 policies and has given notice that another 3,100 will not be renewed. The numbers of policies involved in the Travelers dispute are not great, but the issue involves important non-renewal provisions of Proposition 103. These hold that the only basis for a company refusing to renew an auto policy are non-payment of premiums, fraud or a substantial increase in the hazard insured against.

Some observers nonetheless suggested Tuesday that Gillespie’s decision might have been affected by the fact that Travelers was seeking to withdraw only from its small automobile business, while retaining all of its other kinds of insurance business in the state. They suggested that had Travelers really been determined to quit the state altogether, the insurance commissioner would have had little leverage to force the company to stay.

Gillespie, meanwhile, testified for an hour here Tuesday at a hearing on implementation of Proposition 103 held by the Assembly committee that approved the rate-freeze legislation. Much of it consisted of sparring with committee members who insisted that she ought to quickly write precise regulations interpreting various clauses of the measure.

The insurance commissioner said issuing such regulations would be premature before the state Supreme Court finishes deliberating on its constitutionality, even though the court ruled Dec. 7 that, pending its deliberations, much of it could go into effect.

At one point, the committee chairman, Assemblyman Patrick Johnston (D-Stockton), remarked that there is a “lingering suspicion” among many lawmakers that the Deukmejian Administration “wants to defer implementation of Proposition 103 as much as possible, thereby giving the Supreme Court as wide a berth as possible to throw it all out.”

Gillespie replied she believes that her department “has to be careful to implement the law without overstepping our legal bounds.”

Also suggesting Tuesday that Gillespie and Deukmejian are being dilatory in enforcing Proposition 103 was its best-known supporter, consumer advocate Ralph Nader. At a Santa Monica news conference, Nader said unless the Deukmejian Administration begins to implement the measure, a new initiative could be put on the 1990 ballot “that will take the issue of insurance reform out of the hands of politicians altogether.”

Nader and Proposition 103 spokeswoman Carmen Gonzalez said no specific proposal has yet been drafted, but said they envision an initiative that would create a state-sponsored company or an insurance cooperative.

“Proposition 103 was designed to create competition in the market place and provide for accountability,” Gonzalez said. “If the insurance companies try an end run, they are setting the stage for more drastic measures, along the lines of state-run insurance.”