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Relief From High Auto Insurance Not in Sight : Although State Drivers Are Fuming, Powerful Lobbies Stymie Attempts at Legislative Reform

CALIFORNIA'S AUTO INSURANCE MAZE: A look at the problems of rising costs, spiraling settlements and conflicting legislative proposals. First of four articles.

November 23, 1986|KENNETH REICH | Times Staff Writer

The retiring Insurance Committee chairman in the Assembly, Alister McAlister (D-Fremont), called the present system "a disgrace."

"It's serving the middlemen very well," he asserted. "It's serving lawyers, both for plaintiffs and defendants, marvelously well. It serves, for the most part, the insurance men well. . . . The people who get hurt are the purchasers of insurance and the people who are victims of accidents and who file claims."

McAlister said statistics given the Legislature indicate that "well less than 50% of the premium dollar" is paid out in claims that wind up in the pocket of the traffic accident victim. He said most of the rest goes to insurance company commissions and other expenses and to lawyers' fees. This is not so different from other lines of insurance, but auto claims and litigation resulting from them make up a substantial and highly visible part of the insurance system, one which affects potentially every adult Californian.

The two assertive professional groups McAlister mentioned--the insurance sellers and the trial lawyers--blame each other, often in shrill tones, for the price spiral.

The persistent argument as to who is to blame for the high cost of auto insurance--with political conservatives most often taking the side of the companies and liberals the side of the lawyers--drew an expression of exhausted patience this past spring from Bruce Bunner, the state's insurance commissioner at the time who later resigned amid signs of Administration displeasure.

"My personal feelings are . . . the trial lawyers are wrong and the industry's wrong and the consumer groups are wrong," he said in an interview. "They all have biases. They're being intractable, and they don't want to solve the problem. They don't want to give. I think we can all say in honesty the system is not working the way it should work and it's not fair."

Insurance industry leaders blame the lawyers for the rising prices, claiming there are mounting lawsuits, ever larger expenses of litigating, exorbitant jury awards and also a public that, they claim, often views an auto accident as an opportunity for a windfall.

Caps on Awards

The Reagan Administration appears to have accepted the argument about exorbitant damage awards and has come out in favor of national legislation setting caps on awards for pain and suffering and restraints on litigation. Similar bills have been introduced in numerous state legislatures and have recently been adopted in more than a dozen, but not in California.

The trial lawyers, on the other hand, suggest that the increases in rates result from the workings of a business cycle--the industry alternately seeking its profits through investments or higher premiums, whichever the economic climate makes easiest. Right now, the lawyers say, with declines in interest rates, raising premiums have been the only alternative.

The increases, they suggest, also may be serving to build public pressure on legislatures to adopt tort reforms that result in lower claims payments by the companies. California Atty. Gen. John K. Van de Kamp's office recently subpoenaed 125 insurance sellers to give testimony as to whether there is such a connection.

Consumer groups most often side with the trial lawyers against the industry. Their calls for reform include greater disclosure of industry profits, more government regulation of the companies and more comparative pricing information for the public.

J. Robert Hunter of Alexandria, Va., president of the National Insurance Consumer Organization (NICO) and a leading industry critic, said a close examination shows that "the primary cause of the insurance crisis is insurer behavior."

Steven Miller, head of the Insurance Consumer Action Network (ICAN), a small Los Angeles-based group affiliated with Common Cause, asked: "If it's the very nature of claimants that they pad the claim, is it the very nature of insurance companies that they seek excessive profits?"

Inquiries into the financial backing of both the Hunter and Miller groups show that they have received substantial support from trial lawyers.

The biggest such contributor to both groups is a former president of the California Trial Lawyers Assn., Claremont attorney William Shernoff. A personal injury lawyer, he is the author of the recently published book, "Payment Refused," about his experiences suing insurance companies.

Lawyer's Contribution

Shernoff said he made a $20,000 contribution to help Hunter establish NICO in 1980 and has made other contributions to it since. He said trial lawyers and consumers are in a natural alliance and that before he helped form the consumer groups, "I found in observing the (California) Legislature, almost no one was there to represent the consumer except for the trial lawyers."

Miller acknowledged that Shernoff gave $5,000 to help ICAN organize its first public conference on insurance problems in Los Angeles in February.

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