QUAKE AUTHORITY CLEARS ASSEMBLY : SENATE VOTE ON $10.5 BILLION AGENCY SET FOR TODAY.

Byline: Mark Katches Daily News Sacramento Bureau

The Assembly passed landmark legislation Wednesday creating a new $10.5 billion state agency that would put California in the earthquake insurance business.

On a bipartisan 55-17 vote, the bill received the two-thirds majority required to get the California Earthquake Authority up and running within two months.

But first the measure must be approved by the Democratic-controlled Senate, where a two-thirds majority may be tougher to get. The bill also needs the signature of Gov. Pete Wilson.

The Senate is set to vote on the state agency today. If it passes, Wilson, whose staff was involved in drafting the compromise, is expected to sign it.

``This is not a perfect solution,'' said Assemblyman David Knowles, the principal co-author of the legislation. ``But it is by far . . . the most needed solution. It's based on real facts, not on wishes and prayers, and it works.''

But the legislation, drafted by a joint-house conference committee, was opposed by San Fernando Valley Democrats, whose districts include areas hardest hit by the Northridge Earthquake.

Assembly members Richard Katz, D-Panorama City, Sheila Kuehl, D-Encino, Barbara Friedman, D-Sherman Oaks, and Wally Knox, D-Los Angeles, all voted against it.

``I wasn't willing to vote for something where people could pay premiums and end up without any coverage if there is a big earthquake,'' Friedman said.

The Valley lawmakers said they wanted more time to draft a better deal for consumers and considered the new state agency to be a bailout of the insurance industry.

``There are a number of very serious flaws in this plan, and they are serious flaws for homeowners,'' said Kuehl.

The controversial legislation to set up the state agency has been viewed by supporters as a way to end a crisis in the homeowners insurance market.

``We cannot afford to fiddle while Rome burns,'' Knowles said.

But opponents contend the plan offers more protection to the industry than consumers, who could see premiums skyrocket 20 percent in the event of a major earthquake. Policyholders also could face pro rata payouts if the fund is wiped out.

The legislation was prompted by insurance company threats to cancel up to one million homeowner policies this year, citing their statewide overexposure. Insurers have been reluctant to write any new homeowner policies. By joining the new agency, they would escape any liability to pay claims when the next big earthquake hits.

``Right now we are in a very expensive game of chicken with the insurance commissioner and insurance companies,'' said Assemblyman Kevin Murray, D-Culver City, who has been pushing an alternative plan.

The new state agency would offer no-frills policies with a 15 percent deductible, $5,000 for contents coverage and up to $3,000 for living expenses, depending on the financial health of the pool.

The compromise plan was drafted by Knowles, R-Cameron Park, and Sen. Charles Calderon, D-Montebello. Both lawmakers had written vastly different versions of the state authority that were ironed out by the conference committee.

Calderon said the passage in the Assembly will help matters in the Senate today.

``This now increases significantly the chance of a successful Senate vote,'' Calderon said.

But the legislation has been opposed by Senate President Pro Tem Bill Lockyer, D-Hayward, who also has raised questions about the impacts on consumers.

Calderon said, however, that Lockyer is not pressuring other lawmakers to vote against the bill.

``Even though Sen. Lockyer has expressed his own doubts, I haven't seen him imposing his will on other members,'' Calderon said.

The bill fell short of the required two-thirds majority on the first roll call vote in the Assembly. But Knowles asked for more time to lobby members. When the call was lifted, he picked up five additional votes, including four Democrats.

The passage was greeted warmly by insurance industry officials.

``We just went over a major hurdle,'' said Dan Dunmoyer, who represents State Farm Insurance. ``I think members realize the CEA, even with its warts, is still the best alternative.''

The plan was first proposed last year by Insurance Commissioner Chuck Quackenbush.

``The commissioner is very pleased the measure passed with the two-thirds vote,'' said Quackenbush's spokesman, Richard Wiebe. ``We hope the Senate will follow suit and help California avert a crisis in the homeowners insurance market.''

Wiebe said that if the state agency is approved, it could be functioning within 60 days of Wilson's signature.