Firms deny conspiracy in hiking rates. STATES SUE LIABILITY INSURERS

Tremors from a California-based lawsuit against the nation's largest insurance companies seem likely to cause legal aftershocks across the United States. The California attorney general's office has been ``besieged'' with calls from other states, as well as from private groups interested in taking similar action, says Thomas Dove, an assistant attorney general who has worked on the case for 25 months.

The suit, filed in federal district court by eight states (Texas has filed a similar motion in a state court), charges that 32 insurance companies, underwriters, and associations conspired to reduce or eliminate certain kinds of insurance coverage. The suit alleges that this action artificially created the ``liability crisis'' of four years ago during which many municipalities, nonprofit organizations, day-care centers, and others found their insurance doubling, quadrupling - or unavailable at any price.

Christopher Guidette, a spokesman for the Insurance Services Organization, which is named in the suit, says the allegations are ``meritless.'' He flatly denies that any boycott or conspiracy took place. The industry's policies ``were not the result of some closed-door, secret input'' from companies, Mr. Guidette says, but formulated ``in plain view,'' with public hearings and the input of independent state insurance commissioners.

The president of the American Insurance Association, Robert E. Vagley, called the suit ``a coordinated, political, public relations exercise by a few attorneys general.''

The industry defended the sudden jump in insurance rates by pointing to substantial cash awards being given by courts and the drop in double-figure interest rates, which had kept premiums low.

Four major US insurance companies were named in the suit: the Hartford Fire Insurance Company, the Allstate Insurance Company, the Aetna Casualty and Surety Company, and the Cigna Corporation.

``I have the best pre-filing set of facts that any antitrust attorney could hope for,'' says California assistant attorney general Dove. He contends that the big insurers ``not only agreed to a boycott, but they signed it and dated it.'' Mr. Dove says he will produce such a document, as well as witnesses from the insurance industry.

The 1945 McCarren-Ferguson Act exempts the insurance industry from most antitrust laws. The federal law does not, however, permit insurers to boycott a particular type of insurance or to coerce and intimidate others in the industry, actions the lawsuit alleges took place.

The controversy involves two types of liability insurance policies: ``occurrence'' and ``claims made.'' An occurrence policy covers any event during the effective dates of the policy. It also covers subsequent claims triggered during the policy dates. (For example, effects from exposure to asbestos may not appear for years, according to physicians).

``Claims made'' insurance applies only to those claims that occur during the life of the policy. The suit says that actions taken by the big insurers effectively wiped out one class of occurrence policies, leaving only less comprehensive ``claims made'' coverage.

In addition, pollution policies were boycotted, the suit charges.

It is unusual for such a suit to be brought by a group of state attorneys general, several industry observers noted. The United States Justice Department would be the more logical avenue. Some see this as evidence of the political nature of the charges.

Others, such as Massachusetts Attorney General James Shannon, say the states became involved because of the Justice Department's ``not very aggressive antitrust department.''

At least one consumer group, the National Insurance Consumers Organization (NICO), urged the federal government to investigate. It was told, in a letter from Douglas Ginsburg (recent unsuccessful United States Supreme Court nominee, who was then an assistant US attorney) that in light of a Federal Trade Commission (FTC) inquiry and ``the structure of the insurance industry,'' no further investigation was warranted.

NICO counsel Jay Angoff dismissed the FTC investigation as ``a literature search.''