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Friday, February 4, 2000

A Tough Proposition
Consumer attorneys are locked in a bloody, big-money battle with insurers over Props 30, 31

By Catherine Bridge

S ACRAMENTO -- Veteran personal injury attorney Daniel Kelly was in an apocalyptic mood last week in San Francisco.

Gazing out at the Transamerica Pyramid and Aetna Plaza from his office perch in the Hartford Building, the longtime Walkup, Melodia, Kelly & Echeverria partner mused on the millions that insurers were pouring into the fight to overturn the first and biggest legislative victory consumer attorneys have seen in 16 years.

"It's just chump change to them," he said. "They routinely outspend us but they never outpeople us.... If we don't make a stand here and now, then when?"

Last year, the Consumer Attorneys of California -- under then-president Mark Robinson Jr. of Newport Beach's Robinson, Calcagnie & Robinson -- struggled mightily to reinstate third-party bad faith lawsuits. But as soon as Gov. Gray Davis signed the two-bill compromise legislation, the trial attorneys' wily and well-heeled foes in the insurance industry mounted a $50 million referendum campaign to overturn the measures.

The rapidity with which they moved gave them a three-month head start on the trial attorneys, and the rarely used referendum form they chose meant they could rely on more easily garnered "no" votes to defeat the measures.

Now the consortium of insurers who've joined forces from California to Zurich is threatening to snatch away the trial attorneys' victory. In television ads that ran unopposed from October to mid-January, insurers made their case for a "no" vote on Propositions 30 and 31, arguing in 30-second spots that the new laws will increase lawsuits and drive up insurance rates.

With the measures far down a crowded ballot, an early primary looming only a month away, and a lack of public clamor for reform, those in opposition express confidence that they have the momentum to overturn the new laws.

Their polling reportedly tallies the "yes" vote at under 30 percent across all demographic sectors. (The CAOC says it hasn't done any polling yet). Experts contend that measures not polling at a 55 percent or higher voter approval rate are in trouble.

"People are showing a high level of concern for their own costs going up and for unnecessary lawsuits," said John Sullivan, president of the Civil Justice Association of California, and a spokesman for the No campaign. "It is looking like people are getting the message."

With trial lawyers being outspent more than 10 to 1, a potential loss could jeopardize other major planks of their ambitious legislative agenda -- especially their effort to raise the MICRA cap on pain and suffering damages in medical malpractice cases.

The CAOC hopes to counter the deep pockets of the insurers by collecting endorsements from such powerhouses as the American Association of Retired Persons, which will urge its 2.8 million California members to support Prop 30.

And they are counting on newspaper editorial boards to make their case as well. They won their first big media endorsement from the Sacramento Bee on Feb. 1.

In addition, they are focusing their efforts around passing Prop 30 only, abandoning the second measure, which bore concessions to the insurance industry that Gov. Davis demanded as the price of his approval.

"Prop 30 restores bad faith [lawsuits]," said attorney Thomas Brandi, CAOC's president. "Prop 31 limits them: We seek the broadest possible relief from predatory practices in the insurance industry."

The ironic victory the CAOC is hoping for would see their foes spend $50 million only to achieve a more expansive version of third-party bad faith at the ballot box than if they had accepted the more moderate version passed.

Brandi's position also reflects a widespread concern among the membership that the bad faith legislation as passed had been "too watered down," according to Roger Dreyer of Sacramento's Dreyer, Babich, Buccola & Callaham. "Lots of our people don't like it: it was just a start, a way to get momentum."

However, Gov. Davis recently -- and pointedly -- endorsed both measures, and now stands as the second measure's leading, if only major proponent. "Prop 31 is the one [Davis] insisted on," emphasized gubernatorial spokesman Michael Bustamante. "It embodies the common-sense relief he believes is important."

To Sullivan, the CAOC's abandonment of Prop 31 "blows their cover: They're putting all their money on [30], the measure that benefits them the most."

But the truth is, the consumer attorneys don't have a lot of money to divvy up. They hope to raise $5 million, but as of Jan. 22 they had collected $2.7 million. In the first three weeks of 2000, they took in $1.2 million while their opponents reported spending $7.2 million, primarily on ads.

The CAOC's biggest contribution to date has been a $100,000 donation from Michael Bidart of Claremont-based Shernoff, Bidart, Darras & Dillon. But most donations range from $375 to $7,500.

In contrast, the State Farm and Farmers insurance groups were able to pump in $16.7 million and $15.7 million, respectively, to kick-start the No campaign last October. Opponents had collected $44 million by year's end.

Trial attorneys' reactions to the monetary onslaught range across the spectrum. For Dreyer, the referendum "is the insurance companies' effort to bleed trial lawyers of money, and nothing more than a bully taking on an entity he feels he can push into a financial hole."

Former CAOC president David Casey of San Diego's Casey, Gerry, Reed & Schenk calls the referendum "an extremely dangerous precedent for big moneyed interests to attempt to buy their way out of thoughtful legislation." He cites the referendum process as unique, unused for decades and a potential hammer held over legislators' heads to wrest concessions not otherwise given.

Referenda may be infrequent, but they are not all that rare. They have proved, in fact, to be an effective tool for those seeking repeal of recently enacted laws. Last used to defeat four measures on the 1982 ballot, referenda have prevented statutes from going into effect in 25 out of the 39 times they have been on the ballot since 1912.

As the CAOC's official spokesman, Brandi professes nonchalance at being outspent. That's been routine for consumer attorneys in some of the biggest initiative battles of the past decade, he says.

"In 1988, insurers spent $70 million and lost [against Proposition 103]," he said. In March 1996, the CAOC beat back "the terrible 200s," a trio of insurance- and business-backed measures that would have capped attorneys fees, among other measures anathema to the organization.

They did so, Brandi said, by putting together a broad coalition of seniors, labor and consumers similar to one they are forming now. Besides the AARP, they count as supporters major advocacy groups for teachers, nurses, labor, seniors and consumers. Four years ago, however, they and their allies raised about $20 million to counter some $60 million from their opponents.

But, Brandi acknowledged, their victory then lay in convincing voters to defeat, not approve, the three measures. Nor were they able to pass a countermeasure they sponsored on the November 1996 ballot.

And those who succeeded against even greater odds in passing insurance reform in 1988 attributed their upset win to a long grass-roots campaign and a public angry and galvanized over the issue, neither of which characterizes this campaign.

But Brandi is counting on "staying on the air throughout the next 40 days" to press CAOC's message that the new law merely gives people the right to sue insurers who unfairly deny or delay a claim under certain limited circumstances. "We've just gone on the air," he says. "The public hasn't heard our side yet."

For longtime consumer attorney ally Harvey Rosenfield of The Foundation for Taxpayer and Consumer Rights, the key to even this uphill victory lies in identifying the insurance industry powerhouses who are supplying more than 99 percent of the funding to defeat the referenda.

The powerful Malibu-based political consulting firm of Goddard Clausen is running the highly disciplined No campaign, in which insurance industry representatives do not speak publicly on the referenda, but refer all inquiries to paid spokespeople like Sullivan and other business or consumer group representatives who provide less than 1 percent of the actual funding.

Similarly, the sponsors of ads on TV list senior and consumer groups as primary backers, not the major insurers actually paying the tab. Rosenfield calls that the "standard modus operandi of Goddard Clausen ... don't let insurers talk to the press so they are never identified as opposing the laws or bankrolling the referenda."

Sullivan begs to differ, calling the business and senior groups publicly backing the repeal "major players, serious stakeholders," because "they'll end up paying the bill" if third-party bad faith lawsuits are upheld. As for the major bankrollers like Farmers, Allstate and State Farm insurance groups, "they're all in the public record," he says. "No one is being deceived."

And finally, there has been no more controversial an opponent of the bad faith legislation than Mothers Against Drunk Drivers, whose claim that it would give drunk drivers new rights to sue has been a major coup for the No campaign.

In ongoing efforts to prove the claim baseless, Senate President Pro Tem John Burton, D-San Francisco, on behalf of the CAOC, prevailed on Attorney General Bill Lockyer to issue an opinion Jan. 21 which confirmed no new rights. But the controversy hinges on the necessity for the driver to have been subsequently convicted of drunken driving.

Rebecca Bearden, MADD's public policy committee chairwoman, says the law might allow a handful of drunk drivers convicted of a lesser offense the right to sue, so "we're standing firm" in opposition.

However, she notes, even some of the No ads have begun to omit MADD's endorsement "to show voters this is not solely a drunk driver issue."

It's a measure of the long-shot quality of this referenda battle that even the fiercest proponents among the consumer attorneys are beginning to consider the possibility of life after defeat.

"It'll just be status quo [again] if we lose," says Dreyer. "[But] it will embolden [our opponents] to launch another attack. And it will tell the Legislature and the governor that if you do anything pro-active, they'll do a referendum and get it repealed."


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