Nader’s Prop. 103 Wins but Insurance Industry Files Court Challenge

Ralph Nader’s Proposition 103, with its promise of sweeping insurance rate rollbacks, won by a margin of about 200,000 votes, triumphing over a $60-million insurance industry campaign.

But within hours, lawyers for the insurance industry went to court to file the first challenge in a variety of court actions to halt the terms of the initiative, including its mandated 20% reduction in rates for auto, homeowner and commercial rates. The cutback will be figured from rates in effect on Nov. 8, 1987.

Fireman’s Fund, the nation’s 10th largest insurance company, one of the firms filing suit today, said it will advise its agents and auto policyholders that it plans to withdraw from the California personal car insurance market.

The company said it would temporarily suspend processing policies to those insured with significant California exposures, except in workers’ compensation and specialty lines.

Meanwhile, the insurance industry’s initiative, Proposition 106, to slash the contingency fees of California’s trial lawyers lost an its early lead and was defeated by about 600,000 votes.

Three other insurance measures--Proposition 104, the industry’s no-fault proposal, Proposition 100, backed by the state’s trial lawyers, and Proposition 101, a rate rollback and claims limit measure sponsored by dissident insurer Harry Miller--all were overwhelmingly defeated.

Advertising Pays Off

In the much closer vote on the Nader measure, it was clear as the returns came in that the insurance industry’s campaign, the most expensive in the state’s history, had succeeded in convincing many voters outside the Los Angeles-Orange County metropolitan area through massive advertising that the initiative might mean a rate increase for them.

There was a sharp disparity in support for Proposition 103 as the returns came in, with Los Angeles voting for it by better than 60% and most counties outside, particularly in Northern and Central California, voting decisively against it. The measure was ahead slightly, however, in most San Francisco Bay counties.

Proposition 103 carried most of the state’s largest counties, where traffic accidents and insurance rates are highest. But it lost big in San Diego County, where rates are comparatively lower and it was faring poorly in suburban and rural counties where the rates are lowest.

The first sizable returns from Los Angeles County showing Proposition 103 winning big gave heart to its managers. Consultant Bill Zimmerman said, “The rural areas, we figure, would vote against us because of the anti-L.A. bias that the insurance companies spread.”

By contrast with the vote on 103, the vote for Proposition 106 was fairly consistent throughout the state.

Under this measure, lawyer contingency fees would be limited to 25% of the first $50,000 of any judgment or settlement, 15% of the next $50,000 and 10% of anything over $100,000. Presently, the fees under the system whereby litigants pay their attorneys only if they win, usually run 33% to 40%.

What was clear from the first returns was that both the major lobbies fighting to protect their income from the highly priced auto insurance system had seen their main initiatives fall into an electoral disaster.

The insurers’ much-touted no-fault initiative was being defeated nearly 3 to 1, while the lawyers’ Proposition 100, calling for more limited rollbacks and rate regulation than Proposition 103, was going down 3 to 2.

Proposition 101 fared the worst. As returns mounted, it was being defeated by about 5 to 1.

The president of the Assn. of California Insurance Cos., Stanley Zax, while not attempting to prejudge the results late Tuesday, said the insurance industry was distressed at public attitudes toward the industry revealed in the initiative campaign.

Public Distrust

“No observer can go away with a good feeling knowing that our customers distrust us and have serious doubts about how we go about our business,” Zax said. “We have to come to grips with this problem.”

And Don McComber, executive vice president of Fireman’s Fund Insurance Cos., said, “We do have an image problem. If more of us knew what the problem was, we would have solved it. We have not, as an industry, done well in communicating our message.”

But Proposition 103 campaign chairman Harvey Rosenfield suggested that if the insurance industry was in trouble with the public, it had only itself to blame. “The companies spent millions pitting consumers in one region of the state against consumers in another,” he declared. “We’ll see if the voters will permit this.”

Predominant Spender

Of the more than $81 million spent for and against the five initiatives, more than three-quarters was spent on the insurance industry side, and much of that total went to a negative advertising campaign against Propositions 100 and 103.

From the earliest stages of the campaign last spring, the coordinator of the insurers’ campaign, Clint Reilly, said he realized that the industry had an uphill fight to pass its own initiatives and defeat those backed by the trial lawyers and the consumer advocates.

As the campaign progressed, Reilly and individual insurance companies, doing their own mailings, pushed their no-fault measure, but they reserved most of their effort for an attack on Propositions 100 and 103, and particularly 103, which led in the polls.

The industry campaign charged that both 100 and 103, instead of rolling back rates, as their authors promised, would actually raise them for most policyholders. The 100 and 103 coordinators blasted the advertisements as false, but the insurers kept using them, spending millions on television time.

The war of insurance initiatives grew out of the Legislature’s inability to act to lower auto insurance rates at a time when they had gone up by an average of 40% in three years.

Donations to Legislators

The insurer and trial lawyer lobbies contributed substantially to the deadlock in the Legislature, giving millions of dollars to legislators, many of whom took campaign contributions and honorariums from both sides. When it came time to vote on legislation that would have lowered rates by requiring sacrifices on one side or the other, no majority could be mustered.

In the summer of 1987, the two lobbies agreed to a compromise for some minor changes in insurance laws, and also made a compact not to field any initiatives against each other for five years. The Legislature went along with its terms on the last night of its regular session, with scant debate.

But the compromise soon broke down when two groups that were not party to it decided to go ahead with their own initiatives. First, the Access to Justice organization announced in November that it would push for strict rate rollbacks in what later became Proposition 103. Then Assemblyman Richard Polanco (D-Los Angeles) said he would go forward with a combination rate rollback and claims limitation measure that later became Proposition 101.

The insurers believed that they could not leave themselves defenseless against the Access to Justice proposal and the trial lawyers thought they could not be defenseless against the Polanco proposal. The truce between the two powerful interests broke down, and both decided to field their own initiatives.

Negotiations continued on a compromise that would avoid the initiative battle throughout the spring, but Nader soon enlisted in the 103 effort and Coastal Insurance’s Miller began contributing to 101. They would not defer to the negotiators and, in any event, the negotiations were going nowhere. By May, the initiative fight was inevitable.

Spending Plan

Originally, the insurance industry’s planners spoke of spending between $20 million and $25 million on their efforts, but by the middle of the summer their plan called for a $43-million campaign, and it grew from there.

Some of those involved in the battle on both sides thought that the state’s stiffer mandatory auto insurance law, which first went into effect in 1985 but then was stayed pending a state Supreme Court review for more than two years, had quite a bit to do with pushing the insurance issues to the fore.

Once the state began enforcing the mandatory law, according to this reasoning, it was only a matter of time before pressure would grow to make auto insurance more affordable. A state Department of Insurance survey indicated that as many as 86% of motorists in some ZIP codes on the south and east sides of Los Angeles did not carry the required insurance, and thousands of driver’s licenses were being suspended.

This provided some of the impetus for the initiative campaigns by Polanco and the Nader people, and the major interests were then sucked in.

Eventually, the California insurance initiative war involved insurance and legal interests far beyond the boundaries of the state. Big Eastern and Midwestern insurance companies with outlets in California contributed millions of dollars to the campaign, as did some Eastern trial lawyers. All were worried that an adverse result in California could spur a push for changes elsewhere that might be to their detriment.

In any event, California is the biggest state market for property casualty insurance in the country. In and of itself, it represents a major stake for the interests involved.