|Monday, December 27, 1993
Section: PART A
Farmers Insurance Was Poised to Fight for a Cut in Lawyer
the Threat of a Powerful TV Ad Shifted the Balance of
By: DAN MORAIN
TIMES STAFF WRITER
No one at Farmers Insurance Group saw the commercial, and
television station aired it. But the impact jolted
executives at the Los
Angeles offices of the huge company.
The 30-second commercial prepared by the California Trial
Assn., the insurance industry's bitter adversary,
detailed how a judge
had ordered Farmers to pay $57 million and said the
company had "lied,
cheated, stonewalled and tromped on the rights of the
insured to escape
its own responsibilities."
The message was clear: If Farmers persisted in its plan
to fund a 1994
California initiative to cut attorneys' contingency fees,
company would have a war on its hands. The television ad
would be the
Farmers, the nation's third-largest insurance company
billion in annual sales in California alone, abruptly
dropped its plans
to back the initiative, known by supporters as the Lawyer
Act. As a result, the initiative, like the television ad,
will never get
a public airing.
The tale of the ad that never aired and the initiative
that never was
is a story about the behind-the-scenes maneuvering of
California's most powerful interests over one of the
state Capitol's most
contentious issues--reform of the civil justice system.
On one side are insurance companies, big business and
supported by Republicans, seek to limit liability. On the
other side are
the attorneys representing plaintiffs in civil cases, who
support among Democrats.
These interests have fueled some of the Capitol's most
battles and deals. Here is a look at the most recent
fight, waged almost
entirely out of public view.
In the words of Browne Greene, a Los Angeles attorney and
president of the California Trial Lawyers Assn., blocking
Accountability Act from appearing on the ballot was the
The initiative had to be stopped, trial attorneys argued,
limiting lawyers' contingency fees would deny poor and
people the ability to fight big corporations in the
But Barry Keene, a lawyer and chief proponent of the
the death of the Lawyer Accountability Act ensures that
the state will
continue to suffer from "lawsuit lunacy." Keene
called the lawyers'
unaired commercial "political extortion."
The fight over the initiative brought to an end a shaky
memorialized in 1987 on a linen napkin at a restaurant in
Trial lawyers, doctors, insurance companies and others
agreed in the
so-called Napkin Deal to a five-year halt in attempts to
either limit or
expand the right to sue.
The latest chapter began when Keene, a Democrat, resigned
state Senate last year because of what he saw as the
stranglehold on the Legislature. Keene took a job as head
of the Assn.
for California Tort Reform, a decidedly Republican group
insurance companies and big business. Its mission is to
Among his duties, Keene joined a group of influential
as part of an organization called Californians for Fair
The members included Kirk West, president of the
California Chamber of
Commerce; Steve Merksamer, former chief of staff to Gov.
Deukmejian and a lawyer who represents corporate
interests in Sacramento;
attorney Gene Livingston, representing insurance
companies in the state
capital, and Jay Michael, a lobbyist for doctors and
The group had been discussing the possibility of an
limit the cost of litigation and Keene was enthusiastic
about it. In the
end, the group decided the best tactic was to go after
pay--specifically lawyers who take cases on a contingency
to file lawsuits against businesses, government or
insurers on the
condition that they receive a third or more of the
Keene proposed capping contingency fees at 25% of the
in a civil award, 15% for the next $100,000 and 10% of
any amount beyond
He hired campaign consultants and pollsters to
initiative. Based on focus groups and random surveys, he
the public supported such limits by a huge margin. By
late summer, Keene
thought he had a "slam-dunk" winner.
In September, Keene wrote a confidential memo to
laying out reasons they should back the measure. He
explained that the
trial lawyers, among the biggest donors to Democratic
have to spend their war chest to defeat the initiative,
leaving them with
less to spend electing friendly lawmakers.
Keene wrote that action in 1994 was urgent. The
Lawyers would have two allies heading the Legislature. In
Speaker Willie Brown of San Francisco often supports
positions and is the largest recipient of the group's
the $716,000 the group gave to campaigns in 1991 and
In the Senate, Bill Lockyer (D-Hayward) is likely to
replace David A.
Roberti (D-Van Nuys) as president pro tem. Lockyer and
Brown penned the
Napkin Deal in 1987. Since then, Lockyer has emerged as
closest friend of the trial lawyers in the upper house.
Adding to the "peril," Keene cited the
possibility that a Democrat
will unseat Republican Gov. Pete Wilson, who favors an
overhaul of the
civil law system to limit litigation.
"If a governor is elected who can be coerced or
cajoled into signing
off on a trial lawyer agenda," Keene wrote, "no
one will be spared the
Jay Michael, representing doctors and hospitals, was not
The medical industry already is protected by the Medical
Compensation Reform Act, a 1975 statute authored by Keene
awards in malpractice suits. Doctors worried that by
initiative, they would be attacked in competing
initiatives by trial
"You don't kick a mean dog for no reason,"
Michael said. "One of the
rules around this place is that if it doesn't affect your
out. That's a very good rule."
Some insurance companies also opted out. A lobbyist for
the Assn. of
California Insurance Companies also feared that lawyers
with competing initiatives.
The lobbyist dreaded the possibility of another year like
insurance companies spent $70 million to beat or promote
insurance-related propositions. Voters approved one,
which directed insurance companies to roll back auto
But Keene entered October with crucial support from the
Commerce, and two insurance companies, Farmers and State
Farm, agreed to
help underwrite some of the $6 million the campaign was
expected to cost.
Then things began to go awry. Harvey Rosenfeld, who
Proposition 103 in 1988, obtained Keene's strategy memo
from a friend in
the insurance industry.
"My first reaction was disgust," Rosenfeld
said. "Then I thought,
'Well, this is pretty damaging. I better let the public
know.' I faxed it
to kingdom come."
The leaked memo led to the first newspaper reports about
initiative. Keene shrugged it off, saying: "The
logic and analysis is
fine for people to know. I wrote it for
A more serious event occurred in the Orange County
of Judge C. Robert Jameson. Attorney Daniel J. Callahan,
a member of the
California Trial Lawyers Assn., sued a Farmers'
subsidiary on behalf of
Surgin Surgical Instrumentation Inc., contending that the
failed to protect Surgin in a lawsuit.
On Oct. 7, Jameson awarded Surgin $57 million and said
Farmers subsidiary had "lied, cheated, stonewalled
and tromped on the
rights of the insured to escape its own
responsibilities." In an
extraordinary move, the judge directed Callahan to send
his comments to
Insurance Commissioner John Garamendi and request an
Callahan obliged, summarizing the ruling in a letter to
Garamendi on Oct.
Veteran political consultants Richie Ross of Sacramento
and Jack Walsh
of Boston, hired by the California Trial Lawyers, saw the
value of such a
ruling. As attorney Callahan put it, "They were the
perfect quotes to be
used in connection with a political campaign."
Walsh produced a television commercial.
The trial lawyers would not say how much it cost them and
declined to let The Times view the ad.
But Rosenfeld and others who saw it say the spot opened
motto: "Fast, Fair, Friendly." Then, a faceless
narrator read Jameson's
comments as the judge's words scrolled over a black
background. The ad
concluded by suggesting that Farmers customers with a
problem should call
the Department of Insurance.
Political operatives showed it privately to at least one
backing Keene's measure. A description of the commercial
was relayed to
Walsh is blunt and unapologetic about the purpose of the
ad. "It was a
glass houses thing," he said. "They started
throwing rocks. We said to
them, 'We know where your glass house is, and we're going
directions to it.'
"The objective was to have good businessmen at
Farmers look at this
thing and say, 'Wait a minute. What are we doing? If we
fight, let's find a way to end it right away.' "
At State Farm, corporate counsel Kenneth Cooley feared
company might be subjected to a similar attack.
The Orange County court ruling had other repercussions.
At a news
conference in Sacramento on Nov. 15, Assemblyman Phillip
(D-Sacramento), chairman of the Assembly Judiciary
Committee, proposed a
law requiring courts to inform the Department of
Insurance whenever an
insurance company loses a case in which punitive damages
At the same news conference, Garamendi announced an
Farmers and suggested that Farmers could lose its license
to operate in
Within days, and after learning of the commercial,
its support of the initiative. Spokesman John Millen
would not discuss
why Farmers folded its hand. But a Farmers executive told
journal, National Underwriter, that the commercial was
Millen noted that Farmers is appealing the $57-million
criticized Garamendi for his part.
"Garamendi was grandstanding for his own benefit and
for the trial
attorneys," Millen said, calling the insurance
Replied Garamendi spokeswoman Elena Stern, "The only
that is reprehensible is Farmers' treatment of its
Once Farmers withdrew support, the trial lawyers shelved
commercial. On Nov. 23, Keene and West announced that
they were calling
off plans to place the Lawyer Accountability Act on the
Keene said the experience reaffirmed his view that the
process has become one more tool of special interests.
For its part, the California Trial Lawyers Assn. is not
home free. The
association may be involved in at least one initiative
fight in 1994.
Writer Andrew Tobias is promoting a so-called Pay at the
initiative and has vowed to spend as much as $700,000 of
his own money to
fund the signature-gathering effort. It would add a
charge of 25 cents
per gallon to gasoline and raise vehicle registration
fees to pay for
auto insurance. The initiative would eliminate most
lawsuits over auto
accidents by creating a system of no-fault insurance.
But in the fight against Pay at the Pump, the California
will have powerful allies--the insurance industry,
including the Farmers
Insurance Group, and the California Chamber of Commerce.
Descriptors: KEENE, BARRY; FARMERS INSURANCE GROUP;
INITIATIVES -- CALIFORNIA; INSURANCE INDUSTRY --
CALIFORNIA; LAW REFORM; CIVIL LAW; POLITICAL ADVERTISING;
Copyright (c) 1993 Times Mirror Company