Ballot Materials Changed, Lawsuit Filed for California Auto Insurance Initiative

California Attorney General Jerry Brown changed explanatory language accompanying a controversial automobile insurance ballot measure, winning applause from consumer advocates and a threatened lawsuit from backers of the initiative.

Brown ordered new language in the title and summary that will be printed in booklets going out to California voters. It now says the Continuous Coverage Auto Insurance Discount Act will permit automobile insurance companies to raise rates on drivers, depending on their coverage history.

Opponents of Proposition 17, which will be on the June 8 primary ballot, welcomed the change. Harvey Rosenfield, founder of Consumer Watchdog and the author of the state's Proposition 103, said, "It's very important for the voters to know many people are going to see enormous surcharges if this goes through."

Kathy Fairbanks, spokeswoman for Californians for Fair Auto Insurance Rates, said the organization plans to sue to block what it calls a dishonest argument. "We're objecting to the new language that's included in the title and summary," she said.

In a related development, CalFAIR filed a lawsuit in Sacramento Superior Court seeking to force opponents to make changes in their own ballot arguments and ballot rebuttals -- included in the voter booklet -- saying the argument that the initiative will raise rates is "patently false and misleading."

"It's included in the official ballot document, which has the stamp of the Secretary of State's office," Fairbanks said. "Advocacy is one thing, but false and misleading statements are another."

Rosenfield said the filed lawsuit is frivolous. "We're looking forward to seeing Mercury in court. I predict it's going to be a judicial debacle for them," he said.

According to CalFAIR, the proposition would allow insurance companies to lower premiums for drivers who have continuously maintained auto insurance coverage, even if they switch to a different insurer. Under current law, an insurer may offer discounts to policyholders who maintain "continuous" coverage only with their company. Insurers would still be required to base their rates primarily on driving safety record, miles driven annually and driving experience.

The Campaign for Consumer Rights, the nonprofit, nonpartisan advocacy and campaign affiliate of Consumer Watchdog, sees Proposition 17 as a trap. Because those with lapses in payments may be disqualified from any discounts, the initiative would effectively invalidate a component of Proposition 103 that barred insurance companies from charging customers more for not having had automobile insurance coverage in the past, they maintain. The impact would be disproportionately felt by those who did not need insurance for certain periods — including those without cars for a time, military personnel, students and the temporarily unemployed (BestWire, Jan. 20, 2010).

CalFAIR is underwritten by Mercury General, which has contributed $3.5 million to the campaign. Mercury Insurance Co. (NYSE: MCY), a member of Mercury General Group, currently has a Best's Financial Strength Rating of A+ (Superior).

The top five writers of private passenger auto insurance in California in 2008, according to BestLink, were: State Farm Group, with a 12.9% market share; Farmers Insurance Group, 11.0%; Mercury General Group, 9.4%; Auto Club Enterprises Insurance Group, 9.0%; and Allstate Insurance Group, 8.4%. BestLink provides online access to A.M. Best's Global Insurance & Banking Database.

(By Sean P. Carr, Washington Correspondent: sean.carr@ambest.com)