Emergency Insurance Rebate Plan Blocked : Prop. 103: A newly appointed state official says there must be more hearings on Commissioner Garamendi’s proposal for $2.5 billion in payments.

Insurance industry rebate checks to California policyholders may be delayed for months, after a new state administrative law official refused Tuesday to go along with Insurance Commissioner John Garamendi’s emergency plan to order companies to send out more than $2.5 billion in rebates.

Marz Garcia, appointed by Gov. Pete Wilson to be director of the state Office of Administrative Law, said that emergency rebate regulations are not appropriate, and that there must be more public hearings. His action reversed a subordinate’s Aug. 13 decision to approve emergency action on rebates of 1989 premiums.

Garamendi, saying that this could delay Proposition 103 rollback checks by at least four months, said he will appeal Garcia’s decision to Wilson.

As the insurance issue turned once again to partisan politics, Garcia, a Republican, accused Garamendi, a Democrat, of trying to abuse regular administrative processes, and Garamendi accused Garcia of “carrying out the wishes of the insurance companies to have Proposition 103 go away.”

“And you wonder why the public is disgusted with government, why they lose faith and lose confidence with this kind of stuff going on,” Garamendi said.

The commissioner said he will ask Wilson to overturn his appointee’s decision and “allow us to continue our efforts to get the rebate checks to the millions of California consumers who have waited more than two years for them.”

A spokesman for Wilson, who will have 29 days to decide on the appeal, had no comment.

Garcia, a former state senator, denied that he is in league with the insurance industry. He said Garamendi had threatened in a telephone conversation Tuesday to attack him as a tool of the companies.

“He said he would use that argument,” Garcia said. “In essence, he’s trying to politicize this and embarrass me and anyone else he can.

“I told him the basis for our not approving this is that there’s no emergency, and that he should not use emergency processes to circumvent the law. The law requires a particular public hearing process, according to the Administrative Procedure Act, and Garamendi has not been following it.”

The fireworks erupted on a day when several insurance companies, including Fireman’s Fund, Safeco and United States Fidelity and Guaranty, filed actions in federal and state courts to block Garamendi’s orders for the massive rebate of a portion of 1989 premiums on auto, homeowner, commercial and other types of property and casualty insurance.

Industry lawyers said constitutional scholar Laurence Tribe, a professor at Harvard Law School, has been retained by Fireman’s Fund to argue its case in U.S. District Court in San Francisco. It is the first time that the industry’s long fight against implementation of Proposition 103 has been carried to the federal courts.

One target of the suits is Garamendi’s determination that rebates should be calculated on the basis of an annual rate of return of 10% for the companies in 1989. The companies say that they are entitled to 16% to 30% returns.

Kent Keller, an attorney for USF&G;, said of the new lawsuits: “We have said before that the 10% annual rate of return is inherently too low. But he has also done certain other things--such as giving individual insurance companies no chance to say the formula shouldn’t apply to them--that gives us new arguments.”

Garamendi warned Aug. 15, when he revealed his calculations that the industry owes more than $2.5 billion in rebates, that many insurance companies would take court action to try to block his orders.

When he announced his plan for emergency regulations to expedite the refunds, Garamendi had the backing of John Smith, deputy director of the Office of Administrative Law.

Garcia reported for duty one day before the agreement between Smith and Garamendi was made, but was not in the office when the decision was made. The new director said Tuesday that had he been there, he would not have agreed.

Garcia on Tuesday further questioned whether Garamendi has the authority to issue any kind of rebate regulations. However, Garamendi noted that the state Supreme Court, in its 1989 decision upholding Proposition 103, gave the insurance commissioner the responsibility for such regulations.