NEWS ANALYSIS : ‘Brilliant Political Stroke’ : Court’s Prop. 103 Ruling Praised by Legal Experts

SAN FRANCISCO —  When the Proposition 103 case began last fall, few would have expected that a generally pro-business state Supreme Court would unanimously uphold a consumer-sponsored insurance reform initiative under heavy attack by the industry.

But Thursday’s ruling by the court not only approved Proposition 103 but also represented several notable accomplishments, in the view of legal experts.

The justices were able to speak in one clear judicial voice, united in a single opinion without dissent, in a politically charged case affecting millions of policyholders and involving billions of dollars in insurance premiums. Thus the court minimized the chances of doubt and confusion over where it stood on the issue.

They were able to uphold the major elements of the initiative--thereby deferring to the will of the electorate--but still craft a decision that makes it easier for individual insurers to gain an exemption from the measure’s sweeping rate rollbacks and freeze. As a result, neither side walked away empty-handed.

And in all probability, the justices effectively defused what might have been an avalanche of criticism had they struck down an initiative that promised drastic reductions in auto and property insurance premiums that have skyrocketed in recent years.

Three years ago, three justices were voted out of office largely because of dissatisfaction with court rulings on capital punishment.

“This was a brilliant political stroke by the court,” UC Berkeley Boalt Hall law professor Stephen R. Barnett said Friday. “It disarms any ‘pro-business’ charges and probably gives the court an iron-clad shield against election challenges.”

Myron Moskovitz, a law professor at Golden Gate University in San Francisco, noted that the justices followed a well-established judicial path in which courts attempt to defer to the voters and will try, if necessary, to interpret or re-craft an initiative in order to save it from being found unconstitutional.

“That is a very basic principle in California law,” he said. “The people’s right to legislate by initiative is to be respected. In this case, that right had to be balanced with the constitutional right of the insurers not to have their (revenues) confiscated.”

Before Thursday’s ruling, there had been speculation that the court would be divided, perhaps by a 5-2 vote, with the five generally conservative appointees of Gov. George Deukmejian in the majority and the remaining two liberals dissenting.

But when the decision came, it was unanimous and took the form of a clearly written, well-organized, 59-page opinion by Justice Allen E. Broussard, an appointee of former Gov. Edmund G. Brown Jr. Broussard is regarded as the court’s most liberal member and its most frequent dissenter. But he also enjoys the reputation of a conciliator, a strong inner force on the court who tries to achieve consensus when possible in certain cases.

“I think it was good for the state and good for the court that the justices made an effort to have a unanimous decision,” said Allen M. Katz, a Los Angeles attorney who represented insurers in the case. “It wasn’t surprising that the effort was made in view of the obvious importance of the case.”

In its ruling, the court upheld the initiative’s 20% rollback and freeze on insurance rates and, while finding some aspects of the measure unconstitutional, rejected insurers’ contentions that any legal flaw in the initiative would require the whole thing to be thrown out.

But significantly, the court held that insurers will not have to show the “substantial threat of insolvency” the measure required to gain exemption from the rollbacks through next November.

Instead, the court said, an insurance company for now can continue to set its own rates and keep the extra money if it can prove that the rollback will prevent it from earning a “fair and reasonable” profit.

It will be up to the state insurance commissioner to determine what is “fair” for an individual company--a complex decision involving reams of financial data. The commissioner’s ruling can be taken to court, but it will likely be years before such a case comes back before the justices.

“A lot of difficult issues will be put off for the future,” said John Carey Sims, a professor at the University of the Pacific’s McGeorge School of Law in Sacramento.

“That’s probably one reason it was possible to get everyone on the court to agree in Thursday’s decision,” he said. “The principles the court articulated are almost beyond dispute: So long as insurers earn a fair rate of return, then state regulation is proper.”

Barnett contends that the court, in making it easier for insurers to escape the rollback and freeze, effectively rewrote the initiative to avoid being forced to strike it down as unconstitutional.

“They did an extensive job of plastic surgery and came up with something pretty different from what the voters passed,” he said. “The main selling point had been the freeze and rollback. . . . They turned the freeze into a fountain.”

Until Thursday’s decision, the newly aligned court under Chief Justice Malcolm M. Lucas had largely sided with employers, insurers and other businesses in several significant cases.

For example, the court upheld the 1986 “deep pockets” initiative limiting damages in civil liability cases, eliminated the right of accident victims to sue a wrongdoers’ insurer for bad-faith refusal to settle a claim, granted broad protections to prescription drug manufacturers in product liability suits and restricted damage claims by workers charging wrongful dismissal.

But the justices’ ruling in the Proposition 103 case was enthusiastically hailed by consumer groups and to many legal observers, underscored the dangers of attaching the label “conservative” or “liberal” to a court.

“All those people who think this is a one-sided court are just wrong,” said Joseph W. Cotchett, a Burlingame lawyer who represented Voter Revolt, the sponsors of the initiative.