Un-Insured Motorist Bill Held in Committee


AB 1063, by Assemblyman Bradford, relative to underinsured motorist coverage, was held in committee this past Wednesday after a two hour debate between interested parties.

AB 1063 would expand the scope of underinsured motorist coverage by repealing the offset between Underinsured Motorist coverage and the limits under an at-fault driver’s liability limits are allowed following an accident.  In other words, if a consumer purchases $100,000 of underinsured motorist coverage, the insurer would be liable for $100,000, not $100,000 minus the limits of insurance carried by the at-fault driver as under normal current law.  Currently, 27 other states allow for the same offset as California law.  Such a change would likely cause a significant increase in automobile insurance costs, especially for lower limit insurance policies.

Opponents testified that insurance rates are, among other things, based on the expectation of future losses.  Without the use of the offset, quite simply it is reasonable to expect that future losses will climb and Californians will see an increase in the cost of insurance.  Furthermore, a significant portion of these higher costs would be attributable to attorney contingency fees.  Opponents argued that the original intent of the underinsured motorist statute was to allow consumers to ensure that they are not at risk of out-of-pocket losses due to drivers who buy low limit policies, and that the law has worked well for over 25 years.

Regardless of the magnitude of increase, it is clear that the bill would result in cost increases for insurers as the expanded coverage would lead to higher compensation for policyholders.  Pursuant to the rate regulation laws as adopted by Prop 103, and implemented by regulations adopted by the Insurance Commissioner (IC), in order for an insurer to build these new costs into its rates, it would have to make a rate change filing with the Department of Insurance (CDI).  Under the regulations, this would have to be a complete rate filing, placing all rating issues before the IC.  Since there are several hundred insurers that sell automobile insurance, it is possible that the CDI would be inundated with filings, and it would be virtually impossible to process them all in a timely fashion, even if the CDI looked only at the underinsured motorist component (which is not what the regulations prescribe.)  Thus, absent a delayed implementation date, or streamlined rate review procedure (which would trigger a 2/3 vote requirement, and might not pass the "further the purposes" test for amendments to Proposition 103), adoption of the coverage changes required by the bill would create a situation where insurers are mandated by law to provide coverage when they have not had their rate filings approved.

Assemblyman Bradford and his supporters would not go down without a fight.  Initially, Bradford resisted efforts by the committee to hold the bill in committee; however, he ultimately chose to make the bill a two-year measure and work toward a bill to be heard again next session.