San Diego Union Tribune
SACRAMENTO — A coalition of insurers and business groups, contending that legislation signed by Gov. Gray Davis could drive up insurance rates 15 percent, plans to spend as much as $50 million on a referendum in March asking voters to overturn the new laws.
The first Democratic governor in 16 years, whose centrist stance has won praise from business groups on other issues, touched off the first high- stakes referendum battle in nearly two decades when he signed two bills last week sponsored by trial lawyers.
The bills overturn a 1988 state Supreme Court decision and will allow an accident victim to sue the other party’s insurer for delays and low settlements. Most of the new lawsuits are expected to result from auto accidents.
“Drivers, homeowners, small business and consumers should not have to pay higher insurance rates because of insurance fraud and personal injury lawyer greed,” Mike Johnson of Voter Revolt, co-chairman of a coalition backing the referendum, Consumers Against Fraud and Higher Insurance Costs, said in a statement.
But a group allied with trial lawyers, the Foundation for Taxpayer and Consumer Rights, said the value of claims paid to accident victims has dropped 29 percent since the court decision in 1988 blocked lawsuits by a third party charging an insurer with bad faith.
“The governor signed one of the more significant consumer protection bills in a long time,” said the foundation’s Doug Heller. “But now the insurance industry has jumped out to oppose it, under the cover of these business groups.”
Heller said the petitions filed yesterday with the attorney general for a referendum on SB 1237 by Sen. Martha Escutia, D-Commerce, and AB 1309 by Assemblyman Jack Scott, D-Altadena, were signed by representatives of business groups.
The filing of the petitions keeps the new laws from taking effect for 90 days, the time allowed to gather the signatures of 419,260 registered voters needed to place a referendum on the ballot. If the measures qualify for the ballot, the laws are stayed until the election determines their fate.
The coalition plans to place the referendum on the March ballot next year. The Secretary of State’s Office said signatures would have to be submitted in 30 to 45 days to place the measures on the March ballot.
Companies hired by the coalition to gather signatures would have to scramble, but signatures for an Indian gambling measure were gathered in only 17 days. If the signatures were submitted too late for the March ballot, the referendum could still qualify for the November 2000 ballot.
An insurance industry official, who asked not to be named, said early plans for the referendum on the two new laws estimate that a successful campaign may cost “$38 million to $50 million, but then again that may be overstated.”
The referendum renews a battle between two of the most powerful special- interest groups, insurers and trial lawyers. They fought with expensive initiatives and counterinitiatives in 1988 over Proposition 103 and insurance regulation and again in 1996 over liability lawsuits.
The last referendum battles were in 1982, when voters rejected a peripheral canal around the Sacramento-San Joaquin Delta and new legislative and congressional districts drawn by the Democratic-controlled Legislature.
What are often called “third-party bad faith” lawsuits were authorized in 1979 in the Royal Globe decision by a state Supreme Court dominated by the appointees of the last Democratic governor, Jerry Brown. But the suits were barred in 1988 by a decision from a state Supreme Court controlled by the appointees of Republican Gov. George Deukmejian.
The insurers and business groups signaled their determination to fight the trial-lawyer-sponsored legislation this year by forming a broad coalition, Californians for Affordable Insurance Rates, which ran television advertisements opposing the bills in July.
In an unusual move, the Escutia bill reinstating much of the Royal Globe decision was held at the Senate desk for more than a month to avoid a veto from the governor. Davis agreed to sign the legislation last month when it was accompanied by the Scott bill, which gives businesses some protection against third-party lawsuits.
The modification caused the American Insurance Association to drop its opposition. But the Personal Insurance Federation of California and the Association of California Insurance Companies are still strongly opposed to the new laws.