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The "Farmers Insurance News-Alert" website is dedicated to providing the consumer and general public with detailed information concerning the Farmers Insurance Group. This includes fraud reports, consumer complaints, lawsuit's and other legal actions taken against this company. All information contained herein is for educational purposes only. Original sources, when known are sited.

 

Monday, May 24, 1999

Ready for a Battle Royal
Insurers and allies rise to block bill by consumer attorneys

By Catherine Bridge
SACRAMENTO -- There are plenty of legislative battles looming this year between trial lawyers and the powerful coalition of businesses and local government agencies determined to stop them.

But one of them is truly a battle royale.

That is state Sen. Martha Escutia's effort to reinstate third-party bad faith suits against insurers. The Montebello Democrat's SB 1237 would in key respects return California law to the way it was 20 years ago, when the California Supreme Court opened the door to such suits in Royal Globe Insurance Co. v. Superior Court, 23 Cal.3d 880.

Because Royal Globe was later reversed, consumer advocates say Escutia's measure is a necessary weapon for auto accident victims and others who tangle with the state's powerful insurance carriers. They also say the bill is a kinder, gentler version of Royal Globe, and they're counting on the governor -- who has yet to signal his intentions -- and the Democrat-controlled Legislature to approve it.

But a daunting array of opponents has lined up in opposition as the bill is scheduled for its first committee hearing on Tuesday.

Besides inevitable insurance industry allies like tort reformers and business groups, the powerful prison guards union, the building industry, and even Hispanic chambers of commerce from Escutia's Southern California backyard are opposing SB 1237.

The California School Boards Association has joined the fight, as have two heavy hitters in local government, the California State Association of Counties and the League of California Cities. In its letter of opposition, the League worries about the threat of multiple litigation and higher insurance rates on county hospitals and community health clinics serving low-income urban populations.

Insurance industry representatives say they'd rather return to the original Royal Globe than live under Escutia's new and improved version. "This is Royal Globe with fangs," says Dan Dunmoyer, president of the Personal Insurance Federation of California. He represents some of the biggest personal line insurers in the state, but he's not talking to Escutia's office or the trial lawyers because, he says, "there's nothing to negotiate."

SETTLE AND SUE
Third-party suits allow plaintiffs in personal injury cases to file directly against their opponent's insurance company over claims that they allege have been unfairly denied or delayed. Such suits were permissible for nine years after the California Supreme Court under Chief Justice Rose Bird ruled them legal in Royal Globe, where a woman who slipped and fell at a food market sued the business' insurer. But in 1988, the court under Chief Justice Malcolm Lucas reversed itself in Moradi-Shalal v. Fireman's Fund Ins. Co., 45 Cal.3d 287, blocking a victim of a car accident from pursuing the other driver's insurer.

The ruling has triggered perennial efforts by trial attorneys to use the Legislature to bring back Royal Globe.

Proponents of this year's model say it will be less painful to insurers than the old system. One change is to do away with the old "settle and sue" tort free-for-all of the '80s, where plaintiffs could threaten insurers with bad faith claims as a strategy to drive up settlement offers. Under Escutia's proposal, third-party claimants could sue only if a favorable verdict or judgment was awarded and then illegally delayed or obstructed. This would theoretically reduce the number of claims against carriers.

In addition, a new binding arbitration process for auto injury claims under $50,000 would provide insurers a safe harbor from further liability.

However, the bill would also make workers' compensation settlements newly subject to civil suits, a move that not even trial lawyers are trying to sell as conciliatory to big business.

Both sides agree that personal injury suits and property damage claims from car accidents are declining rapidly. Motor vehicle tort filings have dropped from 54,000 in 1979-80 to 44,000 in 1996-97, during a period when total civil filings rose by 60 percent, according to court statistics cited in the bill's analysis.

But whether the decline is good or bad depends on whom you ask. In the early '90s, California had a huge auto liability fraud problem, insurers say. Auto insurance liability claims quadrupled under Royal Globe, while Moradi-Shalal stopped third parties from leveraging payouts for fraudulent or marginal claims. Insurers also attribute the decline to safer driving habits, tougher drunken driving laws, and Proposition 213, the 1996 initiative barring pain-and-suffering suits by uninsured drivers.

'FREE OF ACCOUNTABILITY?'
To consumer attorneys, the same decline is reprehensible, a sign of injured parties' impotence under the Supreme Court's 1988 ruling.

"California historically used to stand for the protection of consumers' rights," says Thomas Brandi, the San Francisco lawyer who is the Consumer Attorneys of California's president-elect. "But today we can't hold insurance companies accountable if they discriminate on the basis of race, gender, poverty, ethnicity -- or if they refuse to engage in good faith. Our goal is to modify their behavior."

The CAOC and its allies say that the insurance industry drives down claims and delays payment to bolster their soaring double-digit profits, which are among the highest in the U.S.

For Douglas Heller, a spokesman for the Santa Monica-based Foundation for Taxpayer and Consumer Rights, SB 1237 is "a real no-brainer. . . . This is a measured restoration of an accident victim's right to hold an insurance company responsible. We need to expand access to the civil justice system: Why should the insurance industry be free of accountability?"

Heller's sentiments echo the comments of Justice Stanley Mosk in his dissent from the 1988 case that overturned third-party claims. "Royal Globe, may it rest in peace," wrote Mosk. "During its life it served the people of California well, particularly the victims of unfair and deceptive practices. The majority have now replaced Royal Globe with a 'Royal Bonanza.'"

CAOC president Mark Robinson Jr. -- who was in trial and unavailable for comment -- has said repeatedly and publicly that Gov. Gray Davis has assured him he will sign the measure.

But the governor -- who accepted more than $2 million from trial lawyers in his 1998 campaign -- has not indicated publicly what he intends to do, watching without weighing in on the debate over the bill. The measure is expected to pass out of the Democrat-dominated Senate Judiciary Committee, with the real war to begin in earnest afterward.

LAYERS OF ATTORNEYS
Insurers warn that the new Legislature is untested and Davis too independent and protective of California businesses to kowtow to the trial lawyers' wish list. But if they don't succeed in killing the bill on the Senate or Assembly floor, they're talking referendum, a little-used device by which a proposed bill goes on the ballot for a statewide vote.

Insurers are currently debating whether to start the signature-gathering process immediately. That way, if the Escutia bill passes and is signed, they could get it on the March 2000 ballot in hopes of immediate voter rejection.

Not only would SB 1237 expand third-party liability "to the whole world," says insurance industry lobbyist Dunmoyer, but it would mandate the involvement of "a layer of attorneys if you want to avoid a second suit."

Insurers say that attorneys want to use the threat of third-party suits to leverage unwarranted payouts from their deep pockets. The consequences of such a move, they say, would drive liability insurance rates up by 15 percent at a $1.3 billion annual cost to consumers.

Insurance industry insiders call the proposed inclusion of new liability for workers' comp carriers simply bad politics on the part of the trial lawyers. While Davis may be closemouthed on other issues, he's been open about his determination to drive up workers' comp benefits, according to Ken Cooley, a lobbyist for State Farm Insurance Co.

But if workers' comp carriers are newly subject to suit, he says, "the exclusive price tag system is blown out the back end," making negotiations for benefit increases infinitely tougher.

In an unusual turnaround for business interests, Dunmoyer is not appeased by the proposal to arbitrate cases worth $50,000 or less, saying insurers actually prefer to go to court. Since insurers would have to agree to arbitration requested by a claimant or face a bad faith claim, the so-called "safe harbor" is one-sided, they say.

In a jury trial, "we pay out one-fifth of what we would've paid under an arbiter," Dunmoyer says. "But this takes away our right to take it to trial."

The battle over the measure promises to be an arduous one. Escutia's bill was yanked from the Senate Judiciary Committee agenda May 11 for further amendments and has been tentatively rescheduled for a hearing Tuesday.

"This is going to be a very big fight," promises Fred Main, counsel to the California Chamber of Commerce. "We anticipate lots of opposition [to the bill] from moderate and conservative Democrats."

 

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