CJAC: Civil Justice Association of California

Aug 5, 1999

Governor Davis Urged to Veto SB 1237

Bill Allows Insurance Fraud To Thrive In California

SACRAMENTO - The Civil Justice Association of California (CJAC) has joined a wide coalition of business, consumer, taxpayer and labor organizations known as Californians for Affordable Insurance Rates (CalFAIR) in urging Governor Davis to veto Senate Bill 1237 (Escutia, D-Montebello).

The bill would cause more litigation and higher insurance costs by allowing predatory lawsuits against insurance companies that vigorously defend their policyholders against exaggerated or fraudulent claims. The additional lawsuit would be separate from the lawsuit against the insurer’s client and has the potential of producing a large punitive damage award. Personal injury attorneys, the bill’s sponsors, would take a large percentage of the larger lawsuit award in their contingency fees.

“SB 1237 was jammed through both houses of the Legislature in an effort to avoid public scrutiny,” explained CJAC President John H. Sullivan. “California is the last state that should enact a law that makes it more costly to challenge insurance fraud. Southern California already has been given the undistinguished title of ‘Auto Insurance Fraud Capitol of the World.’”

California’s fraud problems are well documented:

  • A 1995 RAND Institute for Civil Justice study found that fraudulent and exaggerated medical claims in auto accident litigation cost California consumers from $2.8 to $3.5 billion a year in increased auto insurance premiums, an average of $250 per policyholder. RAND also found that 60 to 66 percent of claimed medical costs in California appear to be excessive, compared with 35 to 42 percent nationally.
  • The auto insurance fraud unit of the Los Angeles District Attorney’s office won 900 convictions in 300 cases and estimates it prevented $195 million in economic loss by putting auto fraud rings out of existence in 1993 alone.
  • The national Insurance Research Council sampled auto injury claims in nine states and found that 67 percent of the claims in Los Angeles have the appearance of “buildup” or fraud, compared with a 36 percent average across the nine state sample.
  • The California Department of Insurance (CDI) and insurance companies have taken an aggressive approach to pursuing suspected fraud. In 1997, the CDI Fraud Bureau reported a 130 percent increase in suspected auto insurance fraud cases since 1990. The CDI Fraud Bureau reports that as many as ten staged auto crashes occur per day in Southern California.

Attempts to commit auto insurance fraud can be tragic. In 1997, three members of the Juan Lopez family died in a fiery Southern California crash when their station wagon was crushed between two trucks in a staged accident.

Lawsuits of the kind promoted by SB 1237 were allowed in California from 1979-1988. During that period, injury claims and court caseloads soared, with State Judicial Council statistics show a case filing increase of 39,280 (76 percent). Injury claims in California increased 222 percent more rapidly than the average in the remainder of the country.

The California Supreme Court overturned SB 1237-type lawsuits in 1988, noting that the public suffered from undesirable social and economic effects, including increased insurance costs, multiple litigation, escalated legal costs and unwarranted or fraudulent claims.

“We must not deter insurance companies from investigating suspected fraud,” Sullivan explained. “Without investigations, fraudulent claims run unchecked, insurance costs soar, and the public is left to pay the bill.”

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