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home / insurance / in the media

Associated Press
Oct 08, 1999

by John Howard

Governor signs lawyer-backed bill restoring lawsuits against insurers

SACRAMENTO-- Gov. Gray Davis on Friday signed the trial lawyers' prized legislation of the year - a multibillion-dollar reinstatement of an accident victim's right to sue a rival insurance company for bad faith.

The governor's action, culminating more than a decade of intense lobbying by the insurers and trial lawyers, largely restores the so-called "Royal Globe" rule, the controversial right-to-sue doctrine that the state Supreme Court tossed out in 1988.

California's trial lawyers have attempted to reinstate Royal Globe for years, but they have been thwarted by a succession of Republican governors. Davis, whose office announced the signing without comment, is a Democrat and longtime political ally of trial lawyers.

But the governor's decision left uncertain whether the insurance industry would attempt to place a ballot referendum on Royal Globe before voters next year.

A referendum is a rarely used procedure that allows the public to approve or reject a law on the books. It was last used in 1982, when the Peripheral Canal was rejected by voters.

Supporters would have 90 days to qualify a measure for the ballot. Once formally launched, a referendum drive would halt the Royal Globe law signed by Davis, which is scheduled to take effect Jan. 1, until voters have decided the issue, either in March or November 2000. An Indian gambling referendum already is scheduled to appear on the March ballot, but new gaming compacts make that issue moot.

Insurers and business interests, who estimated that Royal Globe will cost them $ 1.5 billion annually in increased litigation and settlements, are "exploring the possibility of referendum but no final decision has been made," said Sharon Hawkins, a spokeswoman for the group.

To qualify, the business coalition would have to submit 700,000 signatures on ballot petitions. To make the March 7 ballot, the signatures would have to be submitted and validated at least 31 days before the election.

Dan Dunmoyer, president of the Personal Insurance Federation of California, said earlier that the timetable could be met, although he acknowledged it would be difficult. He also said such a referendum would be the first in the nation to deal with bad-faith lawsuits.

The legislation was authored by Sen. Martha Escutia, D-Commerce, and Assemblyman Jack Scott, D-Altadena.

It allows bad-faith lawsuits, but prohibits them if both sides agree to go to arbitration in cases involving an original claim of $50,000 or less and limits the suits to bodily injury or property damage claims. It also bars commercial liability suits, a provision that was included to prevent bad-faith actions for construction defects.

Doug Heller, representing the Santa Monica-based Foundation for Taxpayer and Consumer Rights, supported the governor's action.

"After 10 years of insurance industry lawlessness, 'lowballing' is a punishable offense. Accident victims will now have the power to demand fair dealing," said Heller, whose group is a longtime opponent of insurers.

But a major insurance advocate said Davis' action will burden crowded court dockets.

The legislation "will allow personal injury attorneys to file third-party lawsuits. What that means is everyone - consumers and businesses throughout the state - will feel the financial pain of increased litigation flooding our already overworked court system," said Barry Carmody, president of the Association of California Insurance Companies.

"The only winners will be personal injury lawyers," he added.

The Royal Globe doctrine was named after a Butte County insurance company that figured prominently in a lawsuit involving a woman who slipped and fell at a market.

In 1979, the state Supreme Court ruled that an accident victim had the right to file a bad-faith lawsuit against someone else's insurance company over legitimate claims that are delayed or denied. That right was thrown out by the state Supreme Court, but with different members than those who heard the original case, in 1988.

Lawyers have sought to reinstate the doctrine, saying that it improved access to the courts and allowed people with modest incomes to be able to hire top-flight lawyers to fight the insurance companies' lawyers. Bad-faith judgments may involve more money than other types of civil judgments.

Insurers, however, say the doctrine provided more money to lawyers and forced companies to raise rates. They also cite statistics that showed a dramatic increases in settlements and litigation costs during the decade that Royal Globe was in effect.



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