Car Insurer Will Rebate $46 Million : Prop. 103: Mercury action will benefit 266,000 California customers. Some see it as a concession by the commissioner.

In a significant Proposition 103 rollback, Mercury Insurance Group on Thursday agreed to rebate $46 million to 266,000 California auto insurance customers, or about $172 per customer.

Mercury, a unit of Los Angeles-based Mercury General Corp., is the second insurer--but the first stockholder-owned one--to agree to a Prop. 103 rebate. The company has about 4% of the California car insurance market.

“This shows that the industry can respond to the vote of the people,” said Insurance Commissioner John Garamendi, referring to the 1988 initiative.

Some saw the agreement as a concession by Garamendi, however, since the rebate is 29% less than he initially ordered Mercury to pay last October. The rebate amounts to 10.2% of rates paid between November, 1988, and November, 1989.

Prop. 103 originally called for a 20% rollback in auto and homeowners insurance rates, plus wide-ranging regulation of the industry. The state Supreme Court has upheld the measure but said insurers cannot be denied a fair rate of return.

Most of the industry has strenuously opposed implementation of Prop. 103. But last October, the Auto Club of Southern California broke ranks and refunded $104 million to more than 500,000 policyholders. But as a mutual, or policyholder-owned entity, the Auto Club regularly returns surplus revenue to policyholders in the form of dividends. Its rebate essentially took the place of a dividend.

Other companies, notably 20th Century Insurance of Woodland Hills, continue to resist Garamendi’s attempts to implement the rollbacks. 20th Century filed an appeal Wednesday in Los Angeles Superior Court to Garamendi’s order that it refund $101.8 million under Prop. 103.

“The company continues to believe, and expects to prove, that a requirement to refund any substantial amount is confiscatory and therefore unconstitutional,” Richard Dinon, senior vice president, said in a statement Thursday.

Garamendi announced Thursday’s agreement at a news conference at Mercury’s Wilshire Boulevard headquarters with company Chairman George Joseph, a longtime industry leader and former head of the Assn. of California Insurance Companies, the state’s largest insurance trade group.

Under the agreement, Mercury will rebate the money to customers who originated or renewed their policies between Nov. 8, 1988, and Nov. 7, 1989. Mercury will also cut its rates for new policyholders by an estimated $10 million and refrain from requesting any new rate increases for at least a year.

Asked whether Mercury’s agreement represented a break in industry ranks, Joseph said: “Each company has got to decide for itself.”

He said his advisers estimated that it would cost $2.5 million--and an incalculable amount of the company’s time and attention--to fight the case through the courts, where the outcome is uncertain.

Harvey Rosenfield, chairman of Voter Revolt, the organization that sponsored Prop. 103, was jubilant at Thursday’s announcement, saying Mercury’s action caused “an enormous split in the monolithic insurance industry.” He said it will place great pressure on other insurers to follow suit.

But Thomas F. Conneely, president of the Assn. of California Insurance Companies, called the deal “a clear, major compromise by the commissioner.”

He noted that Garamendi had initially ruled last October that Mercury owed $65.2 million. The $46-million settlement was a 29% reduction.