Logic Could Go a Long Way in Auto-Insurance Dispute

After a $70-million advertising blitz--mostly by opponents--on Proposition 103, the voters approved the initiative. However the campaign can be characterized, one thing is certain: The people of California are demanding a rational solution to ever-spiraling insurance costs.

Whether or not Proposition 103 meets certain constitutional safeguards--a question now before the state Supreme Court--and whatever the nature and extent of the court’s ruling, the issues raised will not have been fully resolved.

There are certain givens in this situation that must not be ignored:

--Insurance, whether it be for home, auto or business, is as much a utility as telephone, gas, electric or water service. (The law requires the maintenance of automobile insurance.)

--No one should want any insurance company to become insolvent or bankrupt.

--The tort system by which persons seek redress for damages resulting from negligent, willful or careless conduct of an individual or company must be preserved.

--The contingency-fee contract by which individuals employ attorneys who receive compensation only if there is a recovery should be respected rather than attacked. Without such an agreement, many people would be deprived of the opportunity to have adequate legal representation, to be treated fairly and to be afforded a measure of due process.

--Lawyer and insurance-company bashing merely exchanges scorn for logic and emotion for reason.

The lack of meaningful attention to a resolution of these matters reflects an abandonment of responsibility by the state’s executive and legislative branches. The judiciary should not and cannot be the forum to resolve these matters.

If the above postulates are accepted, then compromise and logic rather than heat and excessive lobbying can give the people of California some clear, long-overdue answers.

What an insurance company makes or loses by way of premium and investment and other income should not be the subject of a press release. Just as the telephone company has to present its books and records to show its need for rate increases, insurance companies should be requiredto do the same. If an honest and objective review of those records mandates an increase, then it should be allowed, for an insurance company must be entitled to a reasonable and fair profit. Without such scrutiny, we are deprived of any reasonable basis on which to formulate an objective judgment. (Proposition 103 has made a meaningful contribution toward this objective.)

It is somewhat ironic that the same insurance companies that now complain to the Supreme Court about an arbitrary roll-back of premiums sought to accomplish a similar result by a statutory setting of attorneys’ contingency fees.

The amount of money that a lawyer receives as a fee after a successful handling of a matter does not affect the amount that an insurance company pays on the claim and has absolutely no effect on the cost of insurance. If, for example, an insurance company settles a claim or pays one as the result of a judgment (say, in the amount of $50,000), it has expended $50,000 regardless of the lawyer’s fee.

While we read of $1-million verdicts, we see nothing of cases that are lost in which lawyers receive nothing and have to absorb costs, which can run into hundreds of thousands of dollars.

Nevertheless, there should not be any contingency fee in excess of 40%, and if the matter is settled without a trial the fee should not exceed one-third.

The tort system, under attack for some time, deserves meaningful support. In a civilized society, persons and companies should be held accountable for their conduct. If such conduct is negligent or otherwise improper, the injured person should be made whole for all damagesby the party that caused the damage and injury.

Two other areas deserve legislative consideration.

First, punitive damages can have a very salutary effect in the settlement of claims. Such damages should not be abandoned, but some consideration could be directed to a standard by which punitive damages can be measured. And if a defendant is to be punished (that’s what punitive damages are about), it shouldn’t necessarily follow that a plaintiff should be rewarded. One approach suggests that after the attorney’s fees are deducted from an award, the balance could be directed to some charitable or educational activity.

Second, collateral-source benefit questions are always around for argument but never for disposition. A collateral-source benefit is outside the legal proceedings. A person making a court claim for injuries has received payment from his own insurance company; with the exception of medical-malpractice cases, he can then present the same bills to the defendant for payment. One solution might be to establish a percentage of such benefits that could be kept by the injured person (after all, he paid premiums for them); the defendant would be able to deduct that amount from the balance awarded.

We have a right to expect leadership from the executive and legislative branches to deal with these problems. Any resolution will be unsatisfactory in some aspect to one or more competing interests, but, if President Reagan can go to Moscow and the Dodgers can be world champions, then this continuing crisis should become but a footnote in the history of California.