U.S. Justices Uphold Prop. 103 on Rebates : Insurance: Supreme Court refuses to hear challenge by industry. Action clears way for refunds of $2 billion.

In a climax to the six-year legal struggle over Proposition 103, the U.S. Supreme Court on Tuesday rejected the insurance industry’s challenge to California regulations implementing the 1988 rate-cutting initiative.

The action, upholding a unanimous California Supreme Court decision last August, clears the way for California auto insurance policyholders to receive rebates of more than $2 billion--about $200 apiece--for premiums paid in 1988 and 1989.

“No more excuses. No more delays. Let’s get it done,” Insurance Commissioner Chuck Quackenbush said in a statement Tuesday. He called on insurers to meet with his staff, determine the amount of rebates they owe and send out the checks.

While the decision settled once and for all the commissioner’s authority to implement rebates, it may not end the long-running legal wrangling between insurers and consumer advocates.

Insurance industry observers said that the decision would add to the uncertainty of operating in California and could provoke more litigation.

Proposition 103 author Harvey Rosenfield hailed the Supreme Court action but questioned Quackenbush’s will to enforce the initiative.

For instance, Rosenfield attacked Quackenbush’s Jan. 27 settlement with 20th Century Insurance Co. under which the Woodland Hills-based insurer--the lead plaintiff in the Proposition 103 challenge--may pay as little as $46 million of the $120 million in rebates and interest ordered by former Insurance Commissioner John Garamendi in October, 1991.

Battered by an estimated $915 million in losses from the Northridge earthquake, 20th Century agreed to pay an initial $46 million in rebates, plus up to $32 million more, depending on how much larger its earthquake claims grow.

Rosenfield said the deal was illegal because Quackenbush wrongly applied a state statute meant to keep insurers from voluntarily endangering their solvency. By reducing its rebate liability, Rosenfield said, the commissioner “effectively protected the company’s shareholders at the expense of its policyholders.”

Rosenfield’s group, the Proposition 103 Enforcement Project, demanded a hearing on its objections to the settlement.

Insurance Department spokesman Richard Wiebe said that Quackenbush remains “very proud of his agreement with 20th Century and is confident that it played a large role in the (U.S.) Supreme Court’s decision to reject the challenge.”

When 20th Century withdrew from the lawsuit after its settlement, the lead plaintiff role was assumed by giant State Farm Mutual Automobile Insurance Co., which faces Proposition 103 rebates and interest of about $230 million.

State Farm attorney Judith Mintel said the company was dismayed by Tuesday’s decision because it failed to clarify what kind of regulation insurers can expect in California. The U.S. high court, without comment, declined to review the state Supreme Court’s decision.

The insurers had argued that Garamendi’s regulations for implementing the rebates resulted in unconstitutional confiscation of their property. The California Supreme Court agreed with Garamendi that insurers were not entitled to any profit but simply to be free of “undue financial hardship.”

The guideline is more restrictive than those allowed in other states, where carriers are granted a “fair and reasonable” rate of return, based on their expenses and cost of capital, Mintel said. She added that in failing to define what constitutes undue hardship, the courts have left such decisions to the discretion of elected insurance commissioners.

“There will be continued uncertainty and continued litigation,” Mintel predicted.

Steven Goldstein of the Insurance Information Institute, an industry organization, said, “This could have a very negative effect on companies considering relocating to California.”

But Wiebe, Quackenbush’s spokesman, said: “I think there’s more certainty in the market now, because the legal question of the commissioner’s authority is settled.”

The regulations that were the subject of the court challenge are currently on hold. As one of his first actions upon taking office last month, Quackenbush ordered a review of all pending Garamendi regulations.

Garamendi reached Proposition 103 settlements with several dozen insurers, including No. 2 Allstate Insurance Co. All told, policyholders have received about $830 million in rebates, by Rosenfield’s estimate, and are owed another $2 billion. Rosenfield also criticized several of those settlements as inadequate.

During his campaign, Quackenbush promised to have delivered all remaining Proposition 103 rebates within the first six months of his term. State Farm and other insurers have responded to Quackenbush’s earlier invitation to discuss rebate settlements, but except for 20th Century’s, no agreements have yet been reached.

Quackenbush renewed the invitation Tuesday. “My door is open to insurers that want to discuss their rollback payments,” he said. “No appointment necessary.”