Prop. 103 Clause Causes Pause for Selective Insurers

It is hardly the most crucial aspect of the debate over Proposition 103, the Ralph Nader-backed insurance initiative, but it is one ambiguity in the measure that may have to be addressed in the courts.

Does Proposition 103 force insurance companies that serve only a select clientele--military personnel or teachers, for instance--to now provide insurance for any and all good drivers?

That prospect does not sit well with at least one insurance company--United Services Automobile Assn., which has built a thriving, 66-year-old business by insuring military officers and their families, including 240,000 customers in California.

Because such customers--officers of the Army, Navy, Air Force, and Marine Corps--are considered good risks, USAA is able to offer insurance rates lower than companies that insure drivers across the board.

If USAA is forced to open its doors to any good driver, as it believes Proposition 103 will require it to do, it may affect the rate structure built around its class of customers--not to mention changing the company tradition of exclusively insuring military, either active, reserve or retired, and their dependents.

That very concern was raised by USAA in its own campaign literature, which urged its members to vote for Propositions 104 and 106 and against Propositions 100, 101 and 103.

One brochure asked USAA members to reject Proposition 103 because it “would allow the public-at-large to be eligible for USAA insurance.” Another brochure said Proposition 103 “would require USAA to provide auto insurance for any good driver who applies, regardless of eligibility for membership.”

USAA bases its position on Proposition 103 language that says that “every person” who has been licensed to drive for the previous three years and has not had more than one moving-violation conviction shall qualify for a 20% insurance discount. The measure continues:

“An insurer shall not refuse to offer and sell a Good Driver Discount policy to any person who meets” such standards.

“We’d have to change our bylaws” to accept non-military customers based on his company’s reading of that passage, said Paul Ringenbach, a spokesman for the San Antonio-based USAA.

And the company’s insurance rates may increase to accommodate the new, non-military drivers, he said.

“We believe our military officers and their families are good risks, and all our underwriting is based on that. If we start getting additional people, we don’t know if they’d be better or worse risks. But we’re assuming they’d not be as good risks as people we already have.”

Another insurance company that restricts membership to a particular clientele, Teachers Insurance Co., has also taken note of the problem.

“This is one of the many questions that are coming out,” said Morgan Barlow, a spokesman for the company. “It (the all-comers question) seems to be in the general category of key issues that have to be identified and taken care of, as each part is examined” by the courts.

But he said Teachers Insurance did not want to comment on any of the issues raised by Proposition 103 “because of the (California Supreme Court) stay (on its implementation). It’s not our interpretation that will count.”

There is strong argument, given other language of Proposition 103, that neither USAA, Teachers Insurance Co. nor any others that specialize in particular insurance groups will have to open up their doors to all comers.

“Any insurer may issue any insurance coverage on a group plan, without restriction as to the purpose of the group, occupation or type of group,” the measure reads. “Group insurance rates shall not be considered to be unfairly discriminatory, if they are averaged broadly among persons insured under the group plan.”

So it is very clear, argues Harvey Rosenfield, who led the Proposition 103 campaign, that USAA and others who offer group insurance plans do not have to insure any and all good drivers who would not first qualify for membership in that particular group.

“We don’t force any insurance company to offer insurance to anybody,” he said. “It (the proposition) doesn’t determine who insurance companies can sell to. But if you’re selling insurance to someone and he qualifies for the good driver discount, then he’s entitled to it.”

Others say it may be more complicated than that.

“You can’t draw a conclusion at this point,” said Delia Chilgren, general counsel for the Assn. of California Insurance Companies, one of the parties challenging the constitutionality of Proposition 103.

She said she reads the good driver’s discount clause as “a take-all-comers provision that means if you write automobile insurance, you have to write a good driver’s discount policy, and you cannot refuse it to anybody who qualifies as a good driver.”

“I may have no connection with the military but I can go to USAA and say I meet the criteria for being a good driver and you have to sell me a policy,” she said.

But what about the group insurance clause?

“That would have to be reconciled with the good driver clause. A court may have to ultimately reconcile these two provisions,” Chilgren said. “Proposition 103 is written so poorly, it’s hard to tell how all of these provisions interact with each other. But the rules of statutory interpretation indicate that a more specific provision--the good driver clause in this case--dominates over a more general provision.”

Just one issue, over one clause, that may well have to be resolved by the courts.