State Farm Sues to Upset Gillespie’s Prop. 103 Actions : Insurance: A victory, or a ‘peace treaty’ hinted at by the commissioner, could delay implementation of the initiative.

The State Farm Insurance Co. announced Wednesday that it has filed a lawsuit to invalidate Insurance Commissioner Roxani Gillespie’s actions that struck down sex and marital status in setting auto insurance rates, curtailed neighborhood-based pricing and capped rate increases.

Accusing Gillespie of mandating pricing methods that would lead to rates “inadequate for some drivers, excessive for others and unfairly discriminatory for all,” the State Farm suit also contends that the rate cap pegged to last year’s consumer price index would unconstitutionally deprive the company of a fair return on its California business.

“The consumer price index bears no relationship to the cost of providing insurance in California,” a company statement said.

State Farm lawyers expressed hope that San Francisco Superior Court Judge John A. Ertola, who was assigned the case, will grant an injunction barring Gillespie from implementing the regulations. A hearing on the suit, filed last Friday, is likely to be held within the next two weeks.

Karl Rubinstein, Gillespie’s special attorney for implementing Proposition 103, said Wednesday that the commissioner might seek a “peace treaty” with State Farm and other companies, under which she would delay her pricing regulations pending results of Proposition 103 hearings now under way in San Bruno, while the State Farm lawsuit was held in abeyance.

Fair Rate of Return

Rubinstein said it would be difficult for Gillespie to present a comprehensive argument supporting her regulations against the suit until she decides, after the San Bruno hearings, what fair rate of return the companies are entitled to.

Not until such a standard is set will it become clear that Gillespie’s pricing regulations are fair to the companies, Rubinstein said.

This was the first suggestion from Gillespie’s side that the “emergency” regulations she imposed with great fanfare Dec. 5 might be subject to new delays. Gillespie is already giving the companies 60 days to submit new pricing standards and 150 days before the regulations have to be implemented.

Rubinstein said he had not yet had any lengthy discussions on his peace treaty idea with State Farm or insurance industry attorneys but said he had broached the idea with a State Farm attorney Wednesday.

The suggestion of a new agreement between Gillespie and the insurers, following an agreement last fall, drew quick criticism from Harvey Rosenfield, head of the Voter Revolt organization and author of Proposition 103.

“We will fight any efforts by Gillespie to further negotiate the enforcement of Proposition 103 with any insurance company,” Rosenfield said.

“In passing proposition 103 more than a year ago, the public did not give Roxani Gillespie any right to bargain away rollbacks, diminution of territorial ratings or any of the deadlines contained in Proposition 103,” he said. “It seems quite clear that Gillespie is anxious to postpone any action on enforcing Proposition 103 until after the 1990 elections.

“She has followed a strategy of encouraging litigation by repeatedly issuing and then renegotiating and then litigating each of her regulations. She may be intentionally issuing defective regulations that would invite the legal challenges that will tie this up in court. I believe her actions are intended to protect the Republican Party and the insurance industry.”

Gillespie called Rosenfield’s comments nonsense. She insisted that any delay from an agreement with insurers would be only a few weeks. She said that finishing the hearings and establishing a fair rate of return would give her a far better legal argument in defending against the State Farm lawsuit.

Although State Farm sued on its own behalf, it is seeking a sweeping series of permanent remedies that would affect all of the several hundred companies selling auto insurance in California.

A legal victory for the company at the least would lead to new lengthy delays in implementing Proposition 103’s auto insurance pricing provisions and could result in a significant portion of the landmark initiative being held unconstitutional.

State Farm, the largest seller of auto insurance in California, with about 17% of the total market, seeks in the lawsuit to largely retain the status quo in the auto insurance pricing system, under which urban dwellers in Los Angeles and San Francisco pay far more for auto coverage than people in suburban and rural parts of the state, although it says it is ready to make some adjustments.

In the suit, the company strongly objects to the part of Gillespie’s regulations that requires insurers to lower prices for urban dwellers without being allowed at the same time to recoup losses by charging rural and suburban drivers equivalent increases.