Brown Under Fire For ‘Gift’ To Mercury Insurance

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SACRAMENTO, CA — Attorney General Jerry Brown is facing accusations that he cleared the way for a ballot measure summary that was favorable to an insurance company that has contributed to his campaign coffers.

The ballot measure, backed by the Mercury General Corp., the state’s third largest auto insurer, would allow insurance companies to offer discounts to ensured motorists who want to leave their insurers.

Initially, in August, Brown wrote that insurance companies would be allowed to raise rates on those drivers whose insurance has lapsed. But a change in a second, Oct. 27 writing of the title and summary left out mention of a rate raise or surcharge — even though that would likely be the result.

Surcharges for lapsed coverage are against the law, but wouldn’t be if this measure — called the Continuous Coverage Auto Insurance Discount Act — is approved by voters. The campaign, Californians For Fair Auto Insurance Rates, has begun to circulate petitions to gather enough signatures to get it on the Nov. 2010 ballot.

The title and summary is the brief description of a ballot measure — written by the attorney general’s office — considered a critical gateway to voters’ understanding of a ballot measure. Partisans from both sides of ballot issues fight fierce battles over single words or phrases in the title and summary, aware of the impact they could have at the polls.

"If it was an insurance company trying to get us to ask them to raise their rates, this is exactly what they’d want," said Harvey Rosenfield, founder of Santa Monica-based Consumer Watchdog and author of the 1988 voter-approved Proposition 103, the measure that restricts the insurance industry’s ability to raise rates.

"It’s a massive gift to Mercury. The attorney general needs to explain why this changed and why it’s no longer important to tell the public about the consequences of this initiative."

Rosenfield has filed a Public Records Act request to gain access to all communications between the attorney general’s office and Mercury. Meanwhile, the attorney general’s office admitted that it recorded the conversations with journalists inquiring about the ballot measure issue.

Mercury is the sole donor to the ballot campaign, having contributed $2.5 million so far. Mercury also contributed $13,000 to Brown in June, before he opened his exploratory committee for a gubernatorial run, and has had a history of big donations to political figures — including $175,000 to former Gov. Gray Davis in the midst of his 2003 recall — in earlier attempts to overturn parts of Proposition 103.

Brown’s chief deputy attorney general, Jim Humes, denied emphatically that political influence had anything to do with his office changing the title and summary.

"The allegations are wrong," Humes said. "It’s a tantrum on Mr. Rosenfield’s part. He has no basis to make them. The reason the title and summary is different is the text of the two initiatives. There’s no reason to believe it was motivated by political concerns. We were doing our job."

In this case, the revised title and summary stemmed from the decision by the ballot committee to rip up a first version of its initiative that had specifically eliminated the state ban on surcharges to motorists whose auto insurance policies had lapsed.

They did so because the attorney general had written on its first title and summary that the measure would allow insurance companies to raise the cost of insurance for those who had not had continuous coverage.

That was the "intellectually honest" interpretation of the initiative, Rosenfield said, because it explicitly showed the intent was to strike out the section of the law — under Proposition 103 — that prohibited auto insurance surcharges approved by voters in 1988.

The ballot measure campaign restored the ban on surcharges in the final version of the initiative. But it added a section in its new initiative that would override the ban. "Notwithstanding section 1861.02 (c)", the section of the law that includes the ban, an insurer may offer discounts, it said.

That is a clear attempt to wipe out the ban on the practice of surcharges, Rosenfield said. And, he added, Brown should have known better.

"Mercury was looking for a pretext to go to the Attorney General to twist his arm and get a title and summary that didn’t show rate increases," Rosenfield said. "Anybody in first-year law school understands that when you say ‘notwithstanding the old law,’ it cancels out the old law. It’s not just a minor correction."

Hume disagreed, saying, "Our view is there’s not just one way it can be interpreted."

The issue of absence of prior insurance dates back to 1984 when the Legislature first passed mandatory insurance laws. Advocates for the poor complained that it was unfair: Making people who had no prior coverage forced the choice between not being able to buy insurance or paying higher premiums.

That led to the passage in 1988 of Proposition 103, which specifically barred absence of prior coverage as a factor in determining rates insurance companies could charge.

A spokesperson for the ballot measure campaign insisted that the intent of the measure is not to increase rates. The Legislative Analyst’s Office wrote an analysis of the initiative that backed up the campaign’s claim, the spokesperson said. Referring to premiums paid by consumers who would not get a discount, the LAO wrote, "any impact, however, would not be significant."

But the LAO’s office disputed the campaign’s reading of the analysis, saying it was strictly talking about the impact on statewide revenues — and not on individual consumers.

"We are required to determine the effect on revenues or expenditures for state and local governments," said Russia Chavis, a fiscal policy analyst. "Our analysis speaks to insurance companies’ rates in the aggregate as related to the impact on state premium tax revenues. We are not allowed to speak to the impact on consumers."

Compare the summaries:

August 13 Title and Summary
ALLOWS INSURANCE COMPANIES TO INCREASE OR DECREASE THE COST OF AUTO INSURANCE BASED ON A DRIVER’S COVERAGE HISTORY. INITIATIVE STATUTE. Allows insurance companies to raise the cost of auto insurance based on the absence of prior automobile insurance coverage. Allows insurance companies to lower the cost of auto insurance for drivers who have continuously maintained auto insurance coverage, even if they change insurance companies. Allows insurance companies to consider "claims experience" when calculating the amount of any such reduction or when determining which drivers will be eligible for it. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: This measure would probably have no significant fiscal effect on state and local governments.

Oct. 27 Title and Summary

ALLOWS AUTO INSURANCE COMPANIES TO BASE THEIR PRICES IN PART ON A DRIVER’S HISTORY OF INSURANCE COVERAGE. INITIATIVE STATUTE. Changes current law to permit insurance companies to offer a discount to drivers who have continuously maintained their auto insurance coverage, even if they change their insurance company, and notwithstanding the ban on using the absence of prior insurance for purposes of pricing. Establishes that lapses in coverage due to nonpayment of premiums may prevent a driver from qualifying for the discount. Summary of estimate by Legislative Analyst and Director of Finance of fiscal impact on state and local government: This measure would probably have no significant fiscal effect on state and local governments.

Reach Steven Harmon at 916-441-2101.

Consumer Watchdog
Consumer Watchdog
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