2 Insurers Ordered to Make Rebates : Proposition 103: Gillespie tells Safeco and California State Automobile Assn. to return part of their 1989 premiums. The companies will fight the move.

Insurance Commissioner Roxani Gillespie on Wednesday notified two companies that they will be asked to return $133 million in 1989 premiums to customers in what could provide the basis for a court test of her provisions for rate rollbacks called for under Proposition 103.

Safeco was told to rebate $41 million, or about 11% of its premiums. The California State Automobile Assn. was told to rebate $92 million, or about 7% of its premiums. The companies will have the chance at a Sept. 17 departmental hearing to contest the amounts.

Spokesmen for both companies challenged the rebates as unjust and said they will go to court if the amounts stand as announced. Most California insurers have been fighting for two years to avoid rebating any money to customers as mandated by Proposition 103.

Wednesday’s action was based on Gillespie’s decision that any company found to have had profits exceeding 11.2% in 1989 premiums in auto, homeowner, commercial and other lines combined must rebate the difference to its customers, up to a maximum of 20% of the total premium.

In Safeco’s case, a customer who paid $1,000 in 1989 for auto insurance would get back approximately $110 under Wednesday’s ruling. A California State Automobile Assn. customer who had paid $1,000 would get about $70 back. The companies will also be required to add 10% annual interest on the sums owed since 1989.

Most companies have objected that the 11.2% standard is too low.

Almost a year ago, Gillespie tried to order rollbacks and rebates, notifying seven companies that they should return $305.3 million to their customers and scheduling hearings on her ruling. But she had to abandon those plans after insurers and consumers raised a number of procedural and other issues.

Gillespie then held hearings for more than four months on the concerns and is only now resuming her rollback efforts.

Meanwhile, Gillespie was stymied Wednesday in her efforts to hold hearings on future rates the companies can charge. The administrative hearing judge she had selected removed himself three hours after the first day of proceedings rather than file a financial statement listing payments he had received from insurance companies for hearing cases as a retired “rent-a-judge.”

James Scott, who formerly sat on the state Court of Appeal in San Francisco, disqualified himself in response to a conflict-of-interest challenge from Atty. Gen. John K. Van de Kamp. Scott said he had no records listing payments he received last year and that it would be too difficult to find the information.

Van de Kamp and various consumer groups have been filing challenges to Gillespie in an effort to stop the hearings on future rates. Gillespie has ruled that the companies should be granted up to 19% annual rates of return in the future. Under Proposition 103, the commissioner must give prior approval for a wide range of insurance rate hikes.

Gillespie named Frank Britt, a retired administrative hearing judge from Los Angeles, to replace Scott. Although the hearing is to resume today, Britt may be asked to make preliminary procedural decisions that could force a lengthy delay. The hearings on future rates involve State Farm, Safeco and Fireman’s Fund. Safeco and State Farm are simply asking the commissioner to validate their present rates, but Fireman’s Fund is asking for a 24% increase in personal auto insurance and other increases in commercial policies.

A State Farm representative said that if the companies’ present rates are validated, no rebates will be ordered for 1989 premiums.