Judge says State Farm owes no rollbacks, Commissioner says no way; $81 Million in rebates bagged at turkey shoot; Farmers to pay $36 million in Prop 103 refunds.

SACRAMENTO, Calif.--(BUSINESS WIRE)--Dec. 14, 1995--Insurance Commissioner Chuck Quackenbush has rejected a proposed decision from an Administrative Law Judge which concludes that State Farm Insurance Companies, the largest insurer in the state, has no rollback liability under Proposition 103.

"I am troubled and disappointed by the judge's finding that State Farm owes no Proposition 103 rebates," Quackenbush said. "I intend to examine the hearing record and this proposed decision with microscopic intensity to find a legally defensible way to deliver the rebates consumers voted for seven long years ago."

The Commissioner issued an order rejecting the proposed decision and circulated the 86-page opinion to the parties involved in the case for their comments. He must issue a revised rebate order before March 8, 1996 when the proposed decision would otherwise be deemed final.

Quackenbush also announced that the Insurance Department's pre-Thanksgiving case management conference produced nine Prop. 103 rebate settlements totaling $81 million. Farmers Insurance Group, the largest of the state's insurers to settle its rebate obligation so far, will refund $36 million to its 1989 customers.

Hearing dates and venues were set at the case management conference for the companies that have not yet settled their rollback obligations. Retired judges from the Judicial Arbitration and Mediation Service (JAMS) were available at the hearing to facilitate settlement discussions among insurance company representatives and attorneys representing the Department, and those talks continue with a number of insurers.

Six of the 53 companies subpoenaed to the hearing did not send an officer of the company as ordered, and lawyers representing the Department are scheduled to be in court today to seek contempt citations against those who did not comply with the subpoenas.

"These no-shows got bad advice from their lawyers," Quackenbush said. "For the price of a plane ticket these companies could have avoided the legal costs to defend against the contempt actions and any sanctions that may result. They might also have avoided a long and expensive administrative hearing, because for all intents and purposes we have cut off settlement discussions with those companies." The six insurers are: Amica, Allied, Capital Holdings, Hartford Steam Boiler, Mutual Services and Yasuda.

In addition to the Farmers Group, which will pay $35,978,041, the companies that settled their rebates are: Motors Insurance Corporation., $13,707,065; Republic Financial Services, $12,080,399; United States Fidelity & Guaranty Company, $10,961,508; Sentry Insurance Group, $6,020,872; CUNA Mutual Insurance Group, $1,955,709; Armed Forces Insurance Exchange, $604,543; Western Surety Company, $200,048; and American Livestock, $163,589. (Total: $81,671,774)

Three companies, American Fidelity, Clarendon Insurance and Legion Insurance submitted financial data to validate the companies' contention that no rebates are owed. One company, NAC Reinsurance, provided evidence that it had already complied with the law by rolling back rates in the amount of $2,480,000.

The hearing to determine State Farm's rollback liability began in May, 1992 and recessed in February, 1993 following a Superior Court ruling that the regulations used to calculate rollbacks were largely unconstitutional. In August, 1994, the California Supreme Court overruled the Superior Court (20th Century v. Garamendi), and in February, 1995 the U.S. Supreme Court denied an appeal by insurers (20th Century v. Quackenbush) to review the case.

Commissioner Quackenbush re-adopted the regulations promulgated by Commissioner Garamendi and ordered the State Farm hearing to resume in May. The judge who was originally assigned to the case, as well as the staff attorneys and the attorneys retained by Garamendi to represent the Department, were asked by Quackenbush to continue in those roles through the conclusion of the hearing. The Prop. 103 Enforcement Project participated as an intervenor.

The administrative regulations (RH-291) used to determine rebate amounts contain a formula which is applied to a company's verifiable financial data to determine its rate of return (profitability) for 1989, the year rates were to be rolled back under the initiative. Companies that made little or no profit from their California business in 1989 pay little or no rebates. The regulations ensure that rebate orders conform with the California Supreme Court decision in CalFarm v. Deukmejian, which upheld the constitutionality of most of Proposition 103, but said that rollbacks must not deprive an insurer of a fair rate of return.

When Commissioner Quackenbush took office in January, 161 companies had not yet settled their Prop. 103 rebate obligations. Since then, 64 companies have agreed to pay over $272 million. Thirty-one companies submitted data to prove they had already complied with the initiative's rollback provision, and 23 companies were determined to owe nothing because of their financial performance. Hearings are now in progress for two companies, and hearing dates have been scheduled for the 40 insurers that have reached an impasse with the Department.

A $9.4 million special budget appropriation has enabled the Department to hire ten outside law firms to augment Department of Insurance staff attorneys and prosecute the remaining rebate cases. Administrative law judges will also be hired from within state government to preside over the cases. The appropriation will be charged back to the insurance industry on a quarterly basis.

Available from the Sacramento or Los Angeles Press Offices:

o Administrative Law Judge decision (pick up, mail or

express mail only) o Worksheets showing rebate calculations o Prop 103 Rebates Paid in 1995 o Prop 103 Rebates Paid 1991-1994 o List of Companies with Zero Rollbacks o List of Companies that Previously Rolled Back Rates o List of Open Cases o Prop 103 Status Report o Fact Sheet: Factors that Affect Rollbacks o Fact Sheet: Long Road to Rollbacks (Legal Process)

CONTACT: Richard Wiebe, 916/324-2515

Candysse Miller, 213/346-6367