The issue behind propositions 30 and 31 is deceptively simple: Should people have the right to sue someone else’s insurer if that insurer is not paying up?
Yet that question is driving one of the most expensive initiative campaigns on the March ballot, with nearly $50 million raised so far.
If these initiatives pass, insurers are likely to see their costs go up, and some of those costs might be passed on to individual consumers or businesses. That’s why insurance companies have pumped more than $40 million into opposing the initiatives.
If these propositions fail, California voters will have overturned a major legislative victory last year for trial lawyers and some consumer groups. That victory restored the right of third parties to file lawsuits against insurers, albeit under limited conditions. Right after the bills SB 1237 and trailer bill AB 1309 were signed by Gov. Gray Davis, a petition drive was started to put the issue before the voters. SB 1237 became Prop. 30; AB 1309 became Prop. 31. (The two initiatives are partially tied together: Proposition 30 can pass by itself, but Prop. 31 can only pass if Prop. 30 passes.)
Every time someone gets into an auto accident in which the other person is declared at fault and that other party’s insurer is slow to pay or offers what is considered an inadequate settlement the issue of third-party lawsuits comes into play. That’s because no matter how recalcitrant the insurer may be, the carrier cannot be sued to force payment.
The same holds true for a small business seeking restitution from the insurer of a supplier who doesn’t deliver on the goods.
“Right now, if the insurance company doesn’t pay up or make an adequate settlement, your only recourse is to sue the other driver or the other business directly,” said Kelly Hayes-Raitt, spokeswoman for the Yes on 30 campaign. “If they don’t have the money and you can’t afford to wait a year or two for the insurance companies to settle things out, then you end up paying the expenses out of your own pocket. That’s not what insurance is supposed to be about.”
Views of the opposition
Opponents of the measures say that giving third parties the right to sue would only encourage frivolous lawsuits and drive up insurance rates.
“These initiatives set up a mechanism that will result in larger insurance claims, higher insurance costs and, eventually, higher premiums,” said John Sullivan, executive director of the Civil Justice Association (formed to fight frivolous lawsuits) and co-chair of the No on 30 and 31 campaign. “It’s not just how fast the payouts are, it’s how much more will have to be paid out in each case to avoid lawsuits.”
On the auto insurance side, opponents say, higher premiums would prompt more people to drive without insurance.
A statewide survey by the Field Poll released last week found that 46 percent of likely voters now are opposed to Prop. 30, while 25 percent favor it and 29 percent are undecided. The numbers are about the same for its companion measure, Prop. 31.
The right of third parties to sue insurers has been a hotly contested issue for more than 20 years. Until 1979, third-party lawsuits were not allowed in the state. But that year, a liberal state Supreme Court ruled that a third party could sue an insurance company for “unfair claims practices,” including delay of payment or a claims settlement offer well below the actual cost of the financial or physical injury.
Then in 1988, a more conservative state Supreme Court reinstated the ban on such third-party suits.
It is that 1988 ruling that an alliance of trial lawyers and some consumer groups sought to overturn as soon as a Democrat returned to the governor’s mansion. They succeeded on their first try last year, but only after agreeing to a number of concessions limiting the right to sue.
Those concessions include requiring a written request from the third party for the insurer to settle the claim within insurance policy limits and proving that underlying claims costs are higher than the settlement offer from the insurance company. There is also a binding arbitration clause; if the parties agree to arbitration, then the third party gives up the right to sue.
The trailer bill also exempts insurance carriers for businesses from third-party lawsuits.
“If I were writing this legislation, I would not have put in those limitations,” Hayes-Raitt said. “They were put in there to make this more palatable to insurance companies and businesses.”
Opponents say that, even with these limitations, the propositions are too onerous.
“Just the threat of these lawsuits will force insurers to settle for amounts larger than they otherwise would have, which will drive up costs for everyone,” said Fred Main, senior vice president of the California Chamber.
