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home / insurance / in the media

The Daily Commerce
Feb 10, 2000

by Russ Nichols

Those Sneaky Devils

The multibillion dollar insurance industry in California is planning to snooker you in the upcoming March election, and they are counting on you not to notice. It's a long and winding road, to quote Paul McCartney, but the road ends in your back pocket, where you keep your billfold.

It all begins with a bill that was signed into law last fall in Sacramento. The bill, SB 1237, is called the Fair Insurance Responsibility Act of 2000. It was designed to allow third party claimants to sue for bad faith. This is good, solid consumer-friendly legislation, which naturally makes it a target for the insurance industry.

Now, anyone who has dealt with an insurance company knows what bad faith is. It is delay and denial and obfuscation, all engineered to wiggle out of paying a claim. These are standard insurance industry tactics. The technical insider industry term for doing everything possible to avoid paying a claim is referred to as an "aggressive defense"" which is insurance industry lawyer talk for "screwing the claimant."

Insurance companies were originally formed in order to help people recover from a loss, but they have evolved into conglomerates that take your money under pretense that they will help you recover from a loss. Their real purpose now is to make money for their shareholders by investing your dollars in the stock and bond market and real estate.

Actually, this story began years ago with a California Supreme Court decision--the Royal Globe case, which allowed third-party suits against insurance companies. An example: you are sitting at a stoplight in your Toyota Celica and along comes a bozo--let's say he's had a few too many beers just to make it interesting--and he slams into the rear of your Toyota with his Ford Explorer and crumples it like a tin can. The drunk is clearly at fault, no question. Now you could go to your own insurance company and try to recover, but why should you? It is this juiced-up bum in the Ford Explorer who should be responsible, and your insurance company should not have to take a hit for his behavior. But, insurance companies being what they are, it is likely you would run into as much delay and obfuscation as possible from his company, and oops we lost your paperwork, now what was your name again? Bad faith.

In the Royal Globe case, the Supremes said you could sue the other driver's insurance companyfor bad faith. Then in 1988, the legislature passed a law that let the insurance industry off the hook. Third party claimants were not allowed to sue the other guy's insurance company for bad faith. Why the legislature and the governor thought this was a good idea is no mystery. The insurance industry spends plenty on lobbyists and campaign contributions, and consider it money well spent. And so, of course, they bought the legislation they wanted, overturning the Royal Globe decision. Once again, you were barred from suing the other guy's insurance company, even if he was clearly at fault.

But late last year, something amazing and wonderful happened, equivalent to an appearance of the Virgin Mary or Elvis in a 7-11 late at night in Reseda. The legislature actually passed a bill making insurance companies responsible to people who were injured by their clients. This was the aforementioned SB 1237.

The insurance industry got this bill limited to claims arising from auto bodily injury liability, auto physical damage; and bodily injury stemming from any commercial liability. And for any claim under $50,000, the third-party claimant and the insurance company have the option of going to arbitration instead of court.

Naturally, our wonderful insurance commissioner, who needs no home--he lives in the back pocket of the insurance industry--diapproved of SB 1237. Chuck Quackenbush, who has eyes for the Governor's office, has said he was "disappointed" by Governor Davis' signature on the bill.

There is already a law--without teeth--that bars bad faith dealing. But Quackenbush doesn't enforce it. He echoes the insurance industry's claim that SB 1237 will raise our insurance rates.

Doug Heller, a consumer advocate with the Foundation for Taxpayer and Consumer Rights n Los Angeles, told me insurance industry profits have ballooned enormously since the 1988 legislation overturning Royal Globe:
"Over these ten years since the insurance companies have been unchained from accountability, their profit margin has increased by 300 percent. They have done well in the stock market, but they haven't turned a hundred bucks into a hundred thousand. They make profits in California by holding back claims payments."

Now, here's the twist. The insurance industry, mostly out-of-state conglomerates like State Farm, Allstate, Farmers, Liberty Mutual and USAA, put together a referendum and got it placed on the March Primary ballot. Proposition 30 calls for California to vote "yes" if we wish to approve the legislation and retain our right to sue an insurance company for bad faith dealing.

Then it gets tricky. The industry has also placed on the ballot Proposition 31, restricting the original right to sue guaranteed by SB 1237. This is how the industry is covering its bet with a second line of defense. In the event the voters are smart enough to vote yes on prop 30, they also have to be smart enough to vote no on prop 31, in order to fully implement SB 1237.

Complicated enough for you? Well, that's just what the industry is counting on, those sneaky devils. And if we don't pay close attention, they will prevail.


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