Davis Signs Bill Allowing

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Sacramento Bee

Closing an unusual legislative chapter involving the year’s most heavily lobbied issue, Gov. Gray Davis on Friday signed two measures giving accident victims the right to sue insurance companies for “bad faith” handling of claims.

California insurance companies, which bitterly fought the bills — SB 1237 by Sen. Martha Escutia, D-Commerce, and AB 1309 by Assemblyman Jack Scott, D-Altadena — said the expanded right to sue will lead to higher auto insurance rates across

the state, perhaps by $ 1 billion a year.

And some companies may prolong the battle into next year. They are considering an attempt to overturn the law with a ballot referendum, but a spokeswoman for the group said no decision has been made. Consumer advocates and trial lawyer groups said the measure will protect consumers from insurance companies that deny, delay or “low-ball” those making legitimate

accident claims.

“Insurance companies will have to learn to play fair, because 10 years of grinding down claims without any real oversight has finally come to an end,” said Doug Heller of the Foundation for Taxpayer and Consumer Rights.

Current law allows people to sue their insurance company if they feel their claims were delayed or mishandled, but it prohibits them from suing any other insurance company involved in the case.

The new laws reinstate elements of the 1979 “Royal Globe” decision by the state Supreme Court that allowed such third-party suits. That decision was overturned in 1988 by a state Supreme Court considered more conservative.

Insurance industry representatives contend the new law will raise auto insurance premiums by about $ 300 a year for a two-car family with one adult and a teenage driver now paying $ 2,200 a year in premiums.

Proponents say no such rate increases will occur without the approval of the state insurance commissioner, and that the bill simply puts consumers on a more equal footing with insurance companies.

The companies, in turn, say the bill is a money grab by their perennial rivals — trial lawyers. “They stand to make millions of additional dollars in fees at the expense of California consumers,” Barry Carmody, president of the Association of California Insurance Companies, said Friday.

For Davis and his fellow Democrats who control the Legislature, the issue provoked intra-party tension and an unusual procedural maneuver during the summer.

With the Escutia bill nearing passage, the governor sent word that he wanted to soften its impact to appease insurance companies. But Democratic lawmakers approved it anyway, angering Davis and deepening a rift between the governor and Democratic leaders. In a unusual move, Senate leaders held the approved bill in the Senate for nearly two months after passage

instead of routinely sending it to Davis’ desk. That allowed time for lawmakers to return from a monthlong recess, when they began negotiations with the interest groups and the Governor’s Office on the Scott bill in an effort to limit the scope of Escutia’s measure.

The Scott bill limits the third-party lawsuits by exempting medical and legal malpractice insurers from its provisions, requiring judicial arbitration for claims under $ 50,000 in urban counties and prohibiting those convicted of driving under the influence from filing third-party claims.

Auto insurance companies, however, remain opposed and may pursue a referendum. Under state law, those seeking a ballot referendum — which overturns an action passed by the Legislature and signed by the governor — would have 90 days to qualify it for the ballot by collecting some 700,000 signatures. The law, scheduled to go into effect Jan. 1, would be on hold

until voters pass judgment next year.

Heller predicted a campaign approaching $ 100 million over the issue should it make the ballot. Moreover, he said, consumer groups and trial lawyers likely would seek an alternative ballot measure that would broaden even further consumers’ ability to file third-party suits.

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