BILL ANALYSIS
SENATE RULES COMMITTEE
Office of Senate Floor Analyses
1020 N Street, Suite 524
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THIRD READING
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Bill No: SB 49
Author: Lockyer (D)
Amended: 5/23/95
Vote: 21
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SENATE INSURANCE COMMITTEE: 8-0, 4/5/95
AYES: Rosenthal, Lewis, Hayden, Hughes, Johnston, Killea,
Peace, Russell
NOT VOTING: Rogers
SENATE JUDICIARY COMMITTEE: 8-0, 5/9/95
AYES: Campbell, Lockyer, Mello, O'Connell, Petris, Solis,
Wright, Calderon
NOT VOTING: Leslie
SENATE APPROPRIATIONS COMMITTEE: 8-2, 5/15/95
AYES: Johnston, Alquist, Dills, Greene, Killea, Leonard,
Mello, Polanco
NOES: Kelley, Leslie
NOT VOTING: Calderon, Lewis, Mountjoy
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SUBJECT: Automobile insurance
SOURCE: The author
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DIGEST: This bill makes major changes to the automobile
insurance system with changes in both insurance
requirements and the dispute resolution system. Provisions
of the bill take effect between July 1, 1996 and January 1,
1997.
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ANALYSIS: Existing law:
1. Requires owners and operators of all motor vehicles to
maintain ofinancial responsibilityo (usually a policy
of insurance) with minimum limits of $15,000 per person
per accident, capped at $30,000 total for any one
accident, for bodily injury liability, and $5,000 per
accident for property damage liability (o15/30/5o).
2. Provides generally that disputes under $5,000 may be
handled by osmall claimso court, which involves a judge
sitting without a jury and relatively informal rules of
evidence.
3. Allows any person obligated to pay for or provide
benefits to seek recovery or recoupment from a third
party or the third partyos insurer if the injuries were
caused by that third party (collateral sources).
4. Requires any person involved in an accident to
exchange driveros license and vehicle registration
information, and to report the accident to the
Department of Motor Vehicles (DMV).
5. Grants the Insurance Commissioner broad latitude over
automobile insurerso rating of insurance, subject to
criteria contained in Proposition 103.
This bill:
1. Reduces the mandatory financial responsibility limits
to $10,000 per person, capped at $20,000 per accident,
for bodily injury liability, and $3000 for property
damage liability (o10/20/3o), with a provision
authorizing a purchaser of a minimum limits policy to
waive coverage for property damage liability. The bill
also adds a requirement that every policy provide first
party coverage for expenses resulting from injuries to
every occupant of the vehicle, up to a limit of $1000
per person.
2. Establishes jurisdiction in small claims court for
auto accident cases up to $10,000, and provides
specific procedures, including a 20 percent cap on
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contingency fees, for auto accident cases which parties
file in the small claims court.
3. Establish a number of new practices and requirements
for handling litigation of automobile accident cases,
including:
A. A requirement for early exchange of information via
use of a questionnaire developed by the Judicial
Council.
B. The right to introduce omedical injury profileso as
established by the Insurance Commissioner as
nonconclusive evidence of proper utilization of
medical services.
The bill distinguishes between serious and
non-serious auto accident injuries for purposes of
controlling discover and medical utilization and for
implementing the sale of a no-litigation policy.
oNon-serious injuryo means a personal injury
that results in a concussion of a non-permanent
nature or an impairment or injury of the
musculoskeletal system of a non-permanent nature.
It includes sprains, strains, abrasions, bruises,
hematomas, laceration that are not permanently
disfiguring, and injuries commonly characterized in
the automobile injury reparations system as
osoft-tissue.o
oSerious injuryo means a personal injury that
results in a fracture, herniated discs, laceration
that results in scarring or permanent disfigurement,
internal organ injury, loss of sense or senses that
is not temporary, loss of body part, any permanent
nerve impairment, loss of fetus, paralysis,
permanent brain injury, or death.
The determination of whether an injury is
serious or non-serious shall be made by the court.
C. Mandatory judicial arbitration of any case which
the presiding judge, in his or her sole discretion,
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determines would not result in more than $50,000 in
damages.
D. A openaltyo requiring any party to pay litigation
costs and attorney fees if they fail to better any
arbitration award by seeking trial de novo.
Provides that nothing in (C) or (D) is to
preclude any party from mediating the dispute or
utilizing any other voluntary dispute resolution
process.
E. Changes to the so-called ofast-tracko procedures
aimed at facilitating settlements in lieu of getting
quickly into costly litigation.
F. Adopts a medical fee schedule, initially according
to the schedule adopted for workers compensation
cases (80% of the usual and customary fee if the
service is not scheduled) but subject to
modification by the Insurance Commissioner.
G. Reforms the collateral source rules, including
procedures to notify payors of a possible liability
claim, making auto policy first party coverage
(oMedPayo) primary (i.e., the third party claimant
could not recover from the other party amounts paid
directly to the third party by his or her own
insurer).
Provides that the settlement, arbitration or
judgment award of an auto injury claimant would be
reduced (up to a maximum $3,000) when the claimant
has received benefits for the claimed injury from an
auto MedPay policy.
4. Authorizes insurers to use a so-called oPPO for
collision repairso if certain quality control
requirements are met.
5. Requires owners to establish proof of financial
responsibility (insurance) at the time a vehicle is
registered at DMV. Requires a $1 fee at the time of
registration or renewal of registration of every
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vehicle subject to registration, except those exempted
under the Vehicle Code from payment of fees. The money
collected is to be used to reimburse DMV for costs
incurred in implementing these provisions.
6. Requires drivers involved in accidents to exchange, in
addition to current requirements, insurance information
and to report the possibility of a claim within 10 days
of the accident to the insurance company which insures
the other party involved in the accident.
Requires the DMV to include information concerning
these requirements in its Driveros Information
Handbook, and to test for knowledge of these
requirements.
7. Requires liability policies to include an option for
the policyholder to agree that any property damage or
non-serious injury liability claim will be submitted to
binding arbitration.
8. Amends the penalties for insurance fraud. Provides a
five-year enhancement for insurance fraud scheme
involving $100,000 or more; misdemeanor penalties for
auto repairers who offer kickbacks to offset
deductibles on an auto insurance policy.
9. Expresses legislative intent that:
A. Minimum limits policies be sold to good drivers in
all areas of the state for $450 ($350 if property
damage liability coverage is waived).
B. The Insurance Commissioner reach the target price
by use of between five and eight geographic regions.
C. The Insurance Commissioner establish a way to
orecaptureo subsidy to minimum limits policies by
surcharges on policies providing higher limits.
D. The Insurance Commissioner establish a premium
exchange mechanism to ensure an equal distribution
among insurers of the costs of providing a minimum
policy to good drivers.
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10. Provides that a violation of the provision of law
requiring the wearing of a seatbelt does not result in
a violation point count.
Comments
Purpose of the bill: The author has been pursuing
comprehensive reform of the automobile insurance system for
several years, and this bill continues that pursuit. The
approach is to attempt to maintain the basics of the
liability system while attacking the areas which drive the
high costs of the system.
Previous legislation: SB 10 (Lockyer) of 1992, which was
vetoed, contained most of the provisions of this bill. SB
10 went to conference committee, and was the subject of
substantial hearing, debate, and study. Much of the work
focused on quantifying potential savings to the automobile
insurance system which would result from the various
provisions of the bill.
oI am returning Senate Bill 10 without my signature.
oThis bill includes a number of provisions: it imposes a
reduction in financial responsibility limits from
$15,000/30,000 bodily injury, and $5,000 property damage to
$10,000/20,000 bodily injury and $3,000 property damage;
sets a price target of $350-$450 for the basic policy with
rates and territories to be set by the Insurance
Commissioner; and makes several changes in law relating to
small claims, mandatory arbitration, and exchange of
information among parties.
oThis bill fails to achieve comprehensive reform of the
auto insurance system because it doesnot address the
underlying forces causing the greatest increases in costs,
particularly in the bodily injury liability system.
oFor drivers who purchase a basic liability policy only,
this bill would achieve savings through reduced levels of
coverage, not through fundamental reform. Premium
increases in liability insurance have been driver by
perverse incentives that drive up actual injury claims,
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reward fraud, allow excessive involvement of attorneys in
claims, and award pain and suffering damages for eve minor
injuries. SB 10 does not meaningfully correct any of these
deficiencies in the present system.
oMoreover, unlike SB 941 of the 1991 Session, the no-fault
proposal which guaranteed a price of $220, SB 10 does not
guarantee low-cost insurance for California drivers. The
provisions of SB 10 would not produce significant cost
reductions, and the target price in the bill is not
guaranteed. The projected savings in SB 10 are predicated
on a number of unproven assumptions which are not actuarial
sound. Other reform proposals, particularly SB 941, have
met a very rigorous burden of proof showing that the
proposed solutions would in fact produce savings. That
standard has not been applied to SB 10.
oConsumer Union has opposed SB 10, and noted in its letter
to the California Legislature that, oPossible savings
claimed in the system are not adequately documented, and
are too speculative.o Other consumer groups have requested
that SB 10 be vetoed because it does not truly reform the
auto insurance problem in California.
oI am committed to fundamental reform of the auto insurance
system and believe that no-fault insurance, not SB 10,,
will be most effective in attacking the underlying factors
that are driving up the cost of insurance. SB 10 is
nothing more than an empty promise to lower the cost of
insurance. Californians donot want any more empty
promises, they want guaranteed, available, low-cost auto
insurance.
oI will continue to work in the next legislative session
with a coalition of consumer groups, businesses, and
legislators from both parties to enact comprehensive real
reform of auto insurance.o
It passed the Senate 24-8 (Noes: Calderon, Hill, Johnston,
Killea, Leonard, Leslie, Maddy and Rogers).
Related bills: SB 1229 (Killea) proposes a no-fault
solution to automobile insurance problems, and has been
referred to the Senate Judiciary Committee. AB 607
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(Brulte), also a no-fault bill, has been referred to the
Assembly Insurance Committee.
FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes
Local: Yes
SUPPORT: (Verified 5/23/95)
California Defense Council
OPPOSITION: (Verified 5/23/95)
Office of Insurance Advisor
Association of California Insurance Companies
Consumers Union
California Judges Association
Department of Finance
California Association of HMOs
ARGUMENTS IN SUPPORT: The authoros office states, oThis
measure seeks to ensure that affordable automobile
insurance is made available to all Californians through the
implementation of a variety of cost containment, tort
reform and anti-fraud components.
The bill oseeks to reduce insurance costs by requiring each
participant in the process to give up a piece of their
share of the pie. Don Bashline, an independent actuary
from Massachusetts, has evaluated the reforms in SB 49 and
concluded that auto insurance under the terms of this bill
can be offered on a statewide flat rate of $260.o
ARGUMENTS IN OPPOSITION: The California Association of
HMOs opposes the provision in SB 49 eliminating from any
auto accident recovery the first $3,000 of reimbursement
for medical expenses, arguing that this would unfairly
shift costs from insurers and tortfeasors to auto accident
victims who will pay higher health care premiums as a
result.
Consumeros Union (CU) opposes SB 49 because it does not
guarantee that automobile insurance will be available at a
price low enough to allow low-income drivers (many who are
currently uninsured) to purchase insurance and thereby
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comply with the law. CU does not believe that sufficient
costs are taken out of the system by the bill.
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DLW:ctl 5/24/95 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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