Justices Block Insurance Cuts : State Supreme Court to Rule on Challenges to Prop. 103 Rollbacks

The state Supreme Court on Thursday temporarily blocked implementation of Ralph Nader’s Proposition 103, with its sweeping insurance rate rollbacks, while the justices decide whether to formally review insurance industry charges that the measure is unconstitutional.

Six of the seven justices signed a brief order that covers all four lawsuits filed by insurers in the high court on Wednesday, the day after the measure won a narrow election victory.

A spokesman for the insurance industry promptly hailed the decision, while Nader, saying he was not surprised by it, expressed hope the stay will be comparatively short.

Atty. Gen. John K. Van de Kamp, who is charged with defending the validity of the initiative against the insurers’ challenge, said he will file papers on Monday asking the high court to lift the stay, or, if the justices are not willing to do that, change its terms to make it less all-encompassing.

This was the full text of the court’s order:

“In order to provide time for further study of the petitions for writ of mandate filed in the (lawsuits), and to permit the filing of papers in opposition to the petitions, the implementation of all provisions of Proposition 103, enacted Nov. 8, 1988, is hereby stayed.”

The order was signed by Chief Justice Malcolm M. Lucas and Justices Stanley Mosk, Allen E. Broussard, Edward A. Panelli, John A. Arguelles and David M. Eagleson. There was no immediate explanation as to why the seventh justice, Marcus M. Kaufman, did not sign it.

A source close to the court said the justices hope to decide fairly quickly whether to go ahead and hear the cases. The source said that lengthy briefs have already been filed, which the justices need to read before making up their minds whether to take up the cases and proceed with a full hearing.

If they decide to do that, implementation of the initiative would probably be stayed a few months at least, even though the Supreme Court often hears major cases on an expedited basis.

Within hours of the Supreme Court’s issuing its stay, Van de Kamp said he will ask the justices to lift it on grounds that “the people of California should be allowed to receive the rate reductions that they approved in Tuesday’s election.”

But, he added, if the court declines to do that, he is filing motions asking that its stay order be narrowed “to cover just the rate rollback provisions of the measure.

“That would allow the other parts of Proposition 103--including those which establish a mechanism for regulating future rate increases--to proceed on schedule,” Van de Kamp said.

Suggests Escrow Account

“Finally,” he added, “if the rollback provisions continue to be stayed, I will ask the court to require that insurance carriers set aside in an escrow account that portion of their premiums which 103 would rebate to their customers. That way, consumers can receive an immediate refund, with interest, if the court ultimately upholds the rollback provisions.”

Proposition 103 calls for a 20% rollback for all customers from the prices prevailing on Nov. 8, 1987, one year to the day before the election, on all auto, homeowner, commercial liability, municipal liability, malpractice and some other types of property casualty insurance policies.

Van de Kamp also said he will ask the Supreme Court to take immediate jurisdiction over several suits the insurers filed in Superior courts around the state, in addition to deciding the four cases already before the high court.

“Otherwise, these cases will have to work their way through the various Superior courts, and the appeals courts, before they are finally resolved by the high court,” he said. “The delay and attendant uncertainty would work a great hardship on consumers as well as on the insurance industry.”

Delays Filing Motions

The attorney general said he believes that Proposition 103 will be found constitutional. Originally, his office said he would file his motions to the court on Thursday, but later said they would be delayed until Monday. The court is closed today for the Veteran’s Day holiday.

Responding to Van de Kamp’s contentions, the insurance industry’s lead attorney, Allen Katz of Los Angeles, said late Thursday that the industry, too, is interested in the high court assuming jurisdiction over all pending suits against Nader’s measure.

But, he said, “We don’t think a formal escrow (of the rollback amounts in dispute) is really called for.”

“If the court decides the matter promptly, then the companies will have adequate money to rebate to their customers, should the court decide that the initiative is constitutional,” Katz said.

“I would think all companies would keep appropriate records,” he added, expressing the view that, if it decides to formally take up the cases, the court may take about four months to decide them.

The court stay had the immediate effect of inducing some insurance companies to lift announced suspensions of new policy sales in California.

The court action came as no surprise to Nader.

“It’s entirely expected that they (the insurers) would get a temporary restraining order and that the various provisions of Proposition 103 will get a court test,” the consumer advocate said in a telephone interview from his Washington office.

“Let’s hope that it’s a test on the merits instead of on any ideological basis. I think they will (decide to formally) take it up, but it’s subject to an expedited procedure. They’re not going to do it in a matter of days, but it’s not going to be months.”

Nader also took note of the state high court’s conservative membership, saying, “This is a situation where ideology may collide with an aversion to judicial activism,” an apparent reference to his fear that the court might be tempted to side with the insurers, even if it had to undo an act of the electorate.

The insurers saw the court’s stay order as a good sign.

“We’re heartened by it,” said George Tye, an industry spokesman. “Obviously, we don’t know when the court will act, but we think we have a very good case, and that Proposition 103 is fundamentally flawed, has severe constitutional problems, and we are hopeful that the Supreme Court will throw it out in its entirety.

“We filed this case to protect our ability to sell insurance to our customers,” Tye went on. “There haven’t been any profits in California auto insurance for years and what we’re trying to do is protect our ability to sell insurance here and, as in any business, if we want to remain viable, the insurance industry has to be able to make a reasonable profit.”

The industry, during its $60-million campaign for its own defeated no-fault measure and against Proposition 103, had insisted that the Nader measure would bankrupt many companies or drive them out of California, if its rollback provisions went into effect.

Meanwhile, Bill Zimmerman, a coordinator of the Proposition 103 campaign, said, “We’re confident that the Supreme Court will not allow itself to be used by the insurance industry to circumvent Proposition 103, which is now the law of the state.”

In a reference to Wednesday’s news that a number of companies had suspended sales in the state, Zimmerman added, “We are also looking closely at the possibility of criminal conspiracy among insurance industry executives to create an organized boycott of California consumers. Should such a conspiracy be discovered, it could lead to jail sentences for any industry executives participating.”

Industry spokesman Tye responded later: “We see no evidence of any conspiracy. Each company’s management is reacting differently to this situation. We invite Mr. Zimmerman to present any evidence of conspiracy that he may have, because boycotts have always been illegal.”

In another development Thursday, a spokeswoman for Assembly Speaker Willie L. Brown (D-San Francisco) said Brown and Senate President Pro Tem David A. Roberti (D-Los Angeles) had decided to hold off on asking Gov. George Deukmejian to summon the Legislature into special session to deal with the insurance crisis.

The spokeswoman, Susan Jetton, said that Brown and Roberti felt the courts should now be given a chance to have their say on Proposition 103 and that there was little the Legislature could effectively do at the moment.