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home / insurance / in the media

Associated Press
Jul 24, 1999

by John Howard

Caught between Senate and governor's desk, confusion surrounds year's major bill

Sacramento-- Even the well-heeled partisans in the fight over the year's major bill, a billion-dollar expansion of the right to file bad-faith lawsuits against insurers and others, don't have a clue about what's happening to the legislation, which was dumped into Capitol limbo after the Senate approved it two weeks ago.

The bill is the highest political priority of the rival trial lawyer and insurance lobbies. Critics say it could affect millions of California motorists where they are most vulnerable - in their pocketbooks - by forcing increases in premiums to cover the costs of insurers' litigation.

But after the Senate approved the bill July 12 and sent it to Gov. Gray Davis, the measure virtually disappeared into a procedural and ceremonial abyss called "enrollment," where bills normally reside a day or two as they are put in final form for the governor's signature.

But this bill, SB1237 by Sen. Martha Escutia, D-Commerce, has languished in enrollment for 13 days, ordered held there by the Senate leader at the personal request of Davis, who told several people he would veto the bill in its present form.

During his campaign for governor last year, Davis said privately he would sign such a bill.

His reversal of position has confused both backers and opponents of the legislation, which would reinstate a legal doctrine known as "Royal Globe" that increased the ability of accident victims and their attorneys to sue rival insurance companies.

The measure is not on the governor's desk and it is not in the Senate. The 12-day deadline for the governor to sign a bill, veto it or let it become law without his signature does not apply to this bill because it has not reached his desk. The Senate cannot rescind its approval of Escutia's bill and return it to the floor because the Senate is on vacation.

So the bill - the culmination of a decade of lobbying between lawyers, insurers and an array of secondary players that include business interests and some public agencies - is staying put.

"Total confusion, I've never seen anything like this, at least not with a bill of this size. Nobody has absolutely any idea what's going on here," said one participant in the negotiations, a 20-year veteran of the Capitol.

An opponent of the bill agreed.

"That's what they're saying in the Capitol: 'Has anybody seen SB1237?' Nobody knows what's going on, and it changes all the time depending on who you talk with," said Jeff Sievers of the Civil Justice Association of California, a tort reform group that opposes Escutia's legislation.

The 'Royal Globe' doctrine was in effect from 1979 through 1988 - a decade that insurers contend was marked by a quadrupling of claims costs and higher premiums. The state Supreme Court established the doctrine in a case involving a Butte County insurance company called Royal Globe," and the same court, but with different membership, threw out the doctrine
threw out the doctrine years later.

California law allows policyholders to sue their own insurers for alleged bad faith. The "Royal Globe" ruling expanded that concept to allow a person to file a bad-faith lawsuit against another person's insurance company over legitimate claims that were delayed or denied, such as those arising from an automobile crash. The doctrine also applied to other businesses, as well as government entities sued by members of the public.

The proposal's principal supporters are the trial lawyers, who believe insurers have been able to lower settlements at the expense of injured.

The Escutia bill "will help California become a low-balling free zone. The dark days of insurer low-balling and endless denials of claims may soon come to an end," said Doug Heller of the Santa Monica-based Foundation for Taxpayer and Consumer Rights, a consumer group allied with the trial lawyers that favors the bill.

But insurers contend contingency-fee lawyers simply want more money and that the argument over low-balling is a sham. Reinstating Royal Globe would cost $ 1.5 billion to $ 2 billion annually in higher premiums and claims.

"What that means is that the money has to come from somewhere. And it is going to come out of the hides of consumers. Is it worth paying higher premiums to jack up the settlement amounts?" said Mike Johnson of Voter Revolt, which opposes the bill.


Several Capitol sources on both sides of the negotiations said the bill was held in enrollment by the order of Senate leader John Burton, D-San Francisco, acting at the request of the trial lawyers, who got wind of Davis' intention to veto the measure.

Davis, who plans to meet personally this week with the insurers and lawyers about Royal Globe, apparently opposes provisions in the bill that would negate some portions of Proposition 213, the 1996 ballot initiative targeting uninsured motorists. He also is concerned about opposition to the bill from Mothers Against Drunk Driving.

The negotiations, which continued through the weekend, offered several possibilities.

One is to freeze the bill in enrollment until a second bill called a "trailer" is approved by the Legislature and sent to Davis. The trailer, the product of compromise, would remove Davis' opposition.

Another possibility is to limit the Escutia bill to automobile insurance only, but it was unlikely that insurers would agree to it.

"There are still a lot of problems with the bill and the governor wants to moderate them. That's why the bill is hanging in limbo and nobody knows how the governor is going to go on this," Sievers said.


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