Prop. 103 Court Fight Is ‘Hottest Ticket in Town’

At mid-afternoon Tuesday, dozens of lawyers, litigants, reporters and a fortunate few members of the public will squeeze into a 102-seat courtroom in Sacramento as the state Supreme Court hears argument over the legality of Proposition 103.

For those who cannot get into the courtroom, there will be closed-circuit television in the lobby and a specially transmitted telecast to the state Capitol nearby.

“It’s the hottest ticket in town,” said John C. Rossi, the court’s chief deputy clerk, as he outlined arrangements for the hearing last week. “But we’re hoping that everyone who wants to see the argument will be able to do so.”

Rarely has a case before the justices drawn the attention now directed at the politically charged, $4-billion legal battle over the insurance rate reduction initiative passed by the voters Nov. 8.

Besieged by Requests

Court aides and lawyers have been besieged by requests for courtroom seats, transcripts of the proceedings and questions over the implications of the case.

Reform-minded legislators and activists are reported to be working on their own versions of the measure in at least 17 other states. Insurance regulators in other locales are wondering about the impact on rates in their states if premium reductions are upheld in California.

Underscoring the political significance of the case is that two of the attorneys who will argue before the justices are prospective candidates for statewide office. A third potential office-seeker was rebuffed in his bid to appear in the spotlight.

20% Rate Rollback

Under Proposition 103, automobile and property insurance rates would be reduced 20% below their November, 1987, levels and held in place until November, 1989, unless an insurer can show a “substantial threat of insolvency.”

A wide range of other provisions strictly limit auto policy cancellations and non-renewals, abolish the insurance industry’s exemption from state antitrust law, permit banks to sell insurance and provide for an elected state insurance commissioner.

The morning after the initiative was passed, insurers filed suit with the state Supreme Court, contending that the rate reduction process and other provisions were unconstitutional.

The justices agreed last December to hear the industry’s contentions, but allowed the initiative to take effect except for the rate rollbacks and another provision establishing a nonprofit consumer advocacy corporation.

Attorneys say Tuesday’s 90-minute hearing is likely to focus mainly on these issues:

- Rate rollbacks. Do across-the-board reductions, allowing relief only by a showing of impending insolvency, improperly deny insurers a “fair return,” or enough profit to operate a business?

Insurers say the rollbacks are arbitrary and discriminatory and that the procedures for obtaining an exemption are too cumbersome to provide prompt relief. Backers say the rate-reduction mechanisms are both lawful and reasonable in light of substantial increases in insurance rates in recent years. Insurers have yet to show that any company would go out of business, they say.

Frank Rothman, a Los Angeles attorney representing the insurers, observed that the court’s decision on rollbacks will be of key importance not only in California, but in other states as well.

“We’re getting calls from insurance regulators all around the country who are worried that if the rollbacks are upheld, rates in other states may go up in order to subsidize lower rates in California,” Rothman said. “These people are very concerned--and properly so.”

- Severability. If any part of the initiative is found unconstitutional, must the entire measure be invalidated?

The companies say that despite a so-called “severability clause” in the initiative, the measure would never have been enacted without its popular but unconstitutional rate rollbacks. Thus, they say, the whole initiative must be thrown out. Supporters say the challenged provisions of the measure can be separated if found invalid, allowing other parts to remain intact independently.

Joseph W. Cotchett, a Burlingame attorney representing the sponsors of the initiative, sees the severence issue as potentially pivotal. “It’s clear to me the two big issues are the rate rollback and freeze and severability,” he said. “And if the court finds one flaw in the initiative, then severability becomes the whole ball game.”

If the major uncontested portions of the measure are allowed to stand--such as repeal of the state antitrust exemption for insurers--the initiative will still have the broad impact it was intended to have, Cotchett said.

- Non-cancellation. Do sharp restrictions on cancellation and non-renewal of auto policies in effect at the time of passage of the measure violate the insurers’ right to freedom of contract? The companies say the provision improperly applies a new law retroactively to existing agreements and that if upheld, insurers would be forced to provide policies for a virtually unlimited duration. Supporters say the government’s authority to protect the public takes precedence over individual contract rights and that insurers, like other regulated businesses, cannot unfairly refuse service to customers.

- Consumer advocacy. Does creation of a nonprofit corporation to advance the interests of policyholders violate a state constitutional provision prohibiting an initiative from “naming” a private corporation to perform a duty or function?

Insurers See Conflict

Insurers say the provision clearly conflicts with the law and thus serves to invalidate the entire initiative. Backers reply that the provision was not intended to apply to measures such as Proposition 103; rather, they say, it was meant to prevent a lottery company from sponsoring an initiative to create a lottery and naming itself to run the operation.

In all, five lawyers are set to appear before the justices on Tuesday, with time being divided equally between supporters and opponents of Proposition 103. Two of the five may be on the ballot in 1990.

State Atty. Gen. John K. Van de Kamp, who plans to seek the Democratic nomination for governor next year, will argue for the measure, marking one of the few times an attorney general has appeared personally before the court.

Cotchett, a candidate to succeed Van de Kamp and a successful plaintiffs’ lawyer, will appear in behalf of Voter Revolt, the sponsors of the initiative, along with Karl M. Manheim, a Loyola Law School professor who has represented California cities in rent control cases.

State Controller Gray Davis, another prospective candidate for governor, also sought time to argue for the initiative but was turned down by the attorney general and the sponsors of the measure.

Added Lawyers Possible

Rothman, former president of MGM and a highly regarded trial attorney, is tentatively set as the only lawyer to appear for the insurers challenging the initiative. According to court officials, the justices may also hear from an attorney for the American Council of Life Insurance and the Health Insurance Assn. of America, two other groups challenging the initiative.

In some cases that come before the court, the justices allow attorneys to present their arguments with little or no interruption. But in this case, attorneys expect to be questioned frequently by the justices.

Dozens of briefs already have been filed and it is considered likely that the court, even in this complex case, already has reached tentative agreement on at least some major issues.

Under newly adopted internal procedures, the justices will have 90 days after argument to render a decision. But it would not surprise lawyers in the case if a ruling is issued within a month or six weeks.