New law could nix Garamendi's ploy to coerce Prop. 103 rebates.

California Insurance Commissioner John Garamendi's drive to get auto insurance companies to send policyholders rebate checks, as required under Proposition 103, is likely to lose some horsepower when a new law takes effect next year.

The new law, AB 2875, requires the California Insurance Commission to act on insurance companies' petitions for rate changes within 180 days of receiving such requests.

Garamendi found a way under the pre-existing law to delay granting such rate-change requests as a means of pressuring California insurers to comply with Proposition 103, the 1988 ballot measure that was to have provided $2.5 billion in rebates to California drivers.

Prop 103 rebates are based on total premiums paid by policyholders between November 1988 and November 1989. But hardly any of the rebates have yet been paid.

Under the new law, which takes effect July 1, 1993, insurers will automatically be granted their requested rate changes if Garamendi's office fails to take action within 180 days.

Under pre-existing state law, the insurance commissioner merely has to schedule a hearing or grant the request within 60 days of receiving such a request. No provision exists under pre-existing law that requires the insurance commission to bring a rate-change hearing to a close in a timely fashion.

Due to that "loophole," Garamendi has been extra stubborn about resolving rate-change requests submitted by insurers that haven't sent Prop 103 rebate checks back to their car insurance policyholders.

After July 1, 1993, however, Garamendi will lose that delay tactic as a tool to pry Prop 103 rebates loose.

"The bill (AB 2875) takes away the commissioner's 'pocket veto,' and makes him act on all new rate-change requests more quickly," said Don Lewis, a partner and director of the Western Region Insurance Service for Arthur Andersen & Co., an accounting and consulting firm.

However, Mark Rakich, Garamendi's senior counsel and chief of his legislative bureau, insisted AB 2875 does not take away the commission's power to delay rate changes for insurers who haven't complied with Prop 103.

"It says the commissioner has to act on the request within 180 days," Rakich pointed out. "The commissioner can still say no."

Insurance companies that haven't gone through the Prop 103 review process, and still have not sent rebate checks, are eagerly awaiting the outcome of an appeal filed by Los Angeles-based 20th Century Insurance Co. on the constitutionality of Proposition 103.

Last May, Garamendi ordered 20th Century to repay a total of $101.8 million in Prop 103 rebates to some 650,000 policyholders statewide. Shortly thereafter, 20th Century filed a lawsuit in Los Angeles County Superior Court that challenges the constitutionality of Prop 103. The trial started Nov. 30.

"That will keep additional auto insurers from taking action until the suit is settled," Rakich said.

Officials at 20th Century wouldn't return calls to discuss the pending lawsuit.

Other car insurers still working out Prop 103 settlements with the California Insurance Commission include: State Farm Group, Allstate Insurance Group, CSAA Insurance, Aetna Life & Casualty and Transamerica Insurance Co., to name a few.

Though AB 2875 requires Garamendi's office to act on rate-change requests within 180 days, it retains Garamendi's office as the ultimate decision maker on insurance rate increases and decreases.

Despite the argument over whether or not the insurance commissioner's Prop 103 enforcement powers will be diluted by AB 2875, Garamendi's enforcement-by-delay tactic has already backfired in at least one case. At the end of 1991, Los Angeles-based Farmers Insurance Co. took the commissioner to task, recounted John Millen, a Farmers' spokesman.

"We had applied for a rate decrease on our homeowner insurance policies," he explained. But that rate-reduction request was "stalled," Millen continued, because Farmers hadn't been through an insurance department hearing to ascertain its Prop 103 liability.

The commission ultimately granted the rate decrease after an Orange County newspaper drew attention to the situation nearly a year ago, Millen said.

"The Farmers' issue has been an eyesore for us," conceded Rakich of the commissioner's office. "We have no record of that rate-reduction request. Even so, we blew it on that one."

When Prop 103 passed in November 1988, most California insurers balked at the idea of refunds, except for the Auto Club of Southern California. As of last month, another five companies had mailed out rebate checks, meaning some $279.3 million worth of Prop 103 refunds have now been mailed out to 1.07 million policyholders.

Like the Auto Club, Mid-Wilshire-based Mercury Insurance Co. settled with the state insurance commission and sent out $44 million to policyholders last summer, said Bruce Norman, Mercury's vice president of marketing.

"We didn't want to get involved in endless litigation," Norman said. "Whatever decision the court makes on the 20th Century case, it will have no impact on us. We're concentrating on expanding our market share."

Other insurance companies that have sent out Prop 103 rebate checks include: NORCAL Mutual Insurance Co. ($19.9 million), Southern California Physicians Insurance Exchange ($30.7 million), the Doctors Co. ($18.5 million), and Progressive Insurance Co. ($51.2 million).