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Insurers End Antitrust Suit for $36 Million : Courts: Case brought by 20 states accused the defendants, who admit no guilt, of rate conspiracy.

October 07, 1994|JESUS SANCHEZ | TIMES STAFF WRITER

Some of the nation's largest insurance firms agreed Thursday to pay $36 million to settle a lawsuit by California and 19 other states that charged insurers had conspired to raise rates and triggered a liability insurance crisis in the early 1980s.

The agreement calls for the companies to give up control of a trade organization that helps set rates and standards for commercial general liability insurance, which covers governments, businesses and nonprofit organizations against claims.

"This settlement will address our concerns in a creative fashion by going beyond our primary goal of stopping the practices in question," California Atty. Gen. Dan Lungren said.

But the agreement, which is subject to federal court approval, disappointed many insurance industry critics and consumer advocates. They claim the settlement won't force the industry to change practices that they allege limit competition and drive up rates.

"Anybody who thinks that this is reform is deluding themselves," said Los Angeles attorney Michael J. Strumwasser, who was an aide to former California Atty. Gen. John K. Van de Kamp when the suit was filed in a San Francisco federal court in 1988.

The antitrust suit claimed that Cigna Corp., Aetna Casualty & Surety, Allstate, ITT Hartford Insurance Group and other insurers conspired in 1983 to limit the sale of general liability insurance. Other defendants were 28 brokers and reinsurers, including several syndicates of Lloyd's of London.

The suit also named New York-based Insurance Services Organization, a nationwide trade organization that compiles loss information to help insurance companies set rates. Insurance companies allegedly pressured the ISO to change insurance forms to limit coverage, the states said.

The suit claims the insurers' actions created an insurance liability crisis that saw rates skyrocket and left governments and business without affordable coverage. Many small local governments were forced to self-insure or drop and curtail operations because coverage became too expensive.

The insurance companies denied the charges, saying the rising rates were in response to an increased number of lawsuits and costly court judgments.

Without admitting guilt, the insurers said Thursday that they agreed to settle the suit to avoid more costly litigation.

Under the settlement, the 32 defendants agreed to contribute a total of $36 million to provide local governments advice and training on risk management, to create a national risk management data base and to reimburse the states' legal fees.

The insurance firms also agreed to reorganize the ISO's board to give outsiders control. The proposed new board would consist of 11 members, seven of whom would be non-insurers.

"Control of the ISO by non-insurers will reassure the public, regulators and legislators of the organization's independence, the objectivity of the ISO's data and analysts and its continued operation in the public interest," the board's current chairman, William H. Bolinder, said.

However, industry critics say such a new ISO board would be far from independent. All its proposed members have been selected by current officials and are subject to a membership vote. In addition, some of the non-insurer directors who would serve on the board have ties to the industry as agents and consultants.

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"What's independent about a board selected by the insurers?" asked Texas Insurance Commissioner J. Robert Hunter.

Consumer advocates and insurance industry critics said the states' lawsuit and other reform efforts have been hampered by a federal law that exempts insurers from the antitrust laws that apply to most businesses.

Even if the ISO board is controlled by directors with no insurance industry ties, the antitrust exemption would have permitted the insurance companies to form another group under industry control, insurance observers said.

"The best way to prevent illegal insurance practices is to remove the industry from the immunity of federal antitrust laws," said Harvey Rosenfield, a consumer advocate and one of the industry's most vocal critics.

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