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Insurance Industry Tactic Pays Off

Despite the considerable expense, use of referendum to override Legislature's work could inspire similar efforts, observers say.


SACRAMENTO — Legislators and government scholars fear that a daring, highly successful gamble by America's largest insurance companies to overturn right-to-sue laws using Tuesday's ballot will inspire similar efforts by big-money interests to kill laws they don't like.

Skillfully using a Populist 1911 referendum formula created to give citizens a voice in government, the insurance industry defeat of Propositions 30 and 31 was a direct slap at the California Legislature's main function--writing and passing laws.

And the industry's success against a formidable rival, the state's trial lawyers, adds yet another layer to California's already complicated lawmaking process. From now on just because an elected, representative Legislature debates and passes a law does not mean the battle is over.

Political scholars say the insurance effort forms a blueprint for other well-monied interests to bypass the Legislature and go directly to the public.

"In terms of a new twist in the whole direct democracy game, this is it," said Ted Lascher, associate professor in the graduate program in public policy and administration at Cal State Sacramento.

The laws that prompted the industry to embark on a bold strategy to nullify the actions of the Legislature were two measures passed in 1999 extending to injured automobile accident victims the right to sue an at-fault driver's insurance company if it didn't settle quickly or satisfactorily.

The industry spent $30 million gathering signatures to qualify the measures for the ballot as referendums. In California, a referendum gives voters the power to approve or reject a law passed by the Legislature and signed by the governor.

Once the issue was on the ballot, the industry spent an additional $20 million on a campaign to defeat the measures that hammered away at a single theme--the measures would substantially increase insurance rates. Trial lawyers, who represent injured parties in lawsuits and stood to gain millions if the measures passed, spent $6.5 million on an opposing campaign.

On Tuesday the voters rejected both propositions by more than a 2-1 margin.

A disappointed Sen. Martha Escutia (D-Whittier), who had sponsored the original legislation, complained that the vote eroded the authority of the Legislature and would encourage other special interests to use the referendum process to nullify laws.

"I think the dam has broken and I do think we will see more of this," she said. "What happens if we pass HMO reform or even serious gun control legislation? Don't you think the NRA [National Rifle Assn.] is going to come into town and say, 'Oh well, we don't like that, we're going to put it on the ballot.' "

Escutia said she hasn't decided if she will attempt to pass legislation that would reinstate the right to sue an at-fault driver's insurance company but she conceded that its chances of passage would be slim. "If I come back with an identical measure, I suspect other senators are going to laugh me out of their offices," she said.

John Allswang, emeritus professor of history at Cal State L.A. and the author of books on the initiative and referendum process, said the resounding success of the insurance industry's strategy is likely to rekindle interest in referendums--a procedure that until Tuesday's election had not been used since 1982.

Since the introduction of the referendum by Hiram Johnson, a Populist governor who ran against domination of politics by the railroad companies, Allswang said it has been used 39 times in California but most frequently in the decade between 1911 and 1921.

"Political law firms certainly watch this stuff because it's where they make their money," Allswang said. "It wouldn't surprise me if they didn't start advising these big interests to go this route again."

He said the insurance industry's use of the device was particularly interesting because in the campaign it was rarely mentioned that Propositions 30 and 31 were actually laws that had been passed by the Legislature and were now being presented to the voters for consideration.

"I might question a bit trying to cloak the fact that it was a law the Legislature passed," he said.

Dan Dunmoyer, president of the Personal Insurance Federation of California and a strategist for the insurers, acknowledged that the industry's success is likely to spawn imitators but he disagreed that it would ever be widely used.

He said the cost of mounting campaigns and the difficulty in gathering signatures in the short time period prescribed by the process would not make it a very attractive procedure to many groups.

But he disagreed with those who viewed the industry's use of the process as a slap at representative government.

"Is there any issue the voters of California shouldn't have an opportunity to vote on?" he asked. "If it doesn't withstand the scrutiny of public debate then the voters should be able to say 'no thank you.' "

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