CalFarm to Pay Rebates Under Prop. 103 : Insurance: The firm had led the attack on the initiative. In settling with the state, it will refund $18.6 million.
CalFarm, the insurance company that led the first legal attack against the Proposition 103 insurance reform initiative, has agreed to pay its customers $18.6 million in premium rebates and interest penalties, it was announced Thursday.
CalFarm is the fourth major insurance carrier to give up the fight and settle with state Insurance Commissioner John Garamendi on the delivery of automobile and homeowner insurance refunds ordered by the voters in 1988.
Garamendi has calculated that about $2.2 billion in refunds and interest penalties is still owed to Californians by the more than 700 insurance companies affected by the initiative’s rollback provisions.
CalFarm, and its affiliate Zenith Insurance Co., will refund an average of $168 to 110,800 policyholders, including motorists, homeowners, farmers and businesses with multi-peril coverage. Refund checks are expected to be mailed in March.
Stanley R. Zax, chairman of Zenith National Insurance Co., parent of the two firms, said he was pleased with the agreement, noting that the settlement also includes Department of Insurance approval of rate increases on two lines of coverage that had been pending.
Effective July 1, certain rural homeowner rates will rise 15.4% and commercial farm owner rates will increase 8%, said Deputy Insurance Commissioner Steven Miller. About 30,000 policyholders will be affected.
Zax said the agreement, which took more than a year to conclude, enables CalFarm and Zenith to avoid “cost, risk, uncertainty and inconvenience of protracted administrative and judicial proceedings.”
Garamendi, who as a candidate for insurance commissioner in 1990 had promised to deliver the long-stalled rebates to motorists and other insurance policyholders, called the settlement historic and renewed his demand for other insurers to “pay their rollbacks now.”
Shortly after Proposition 103 was enacted by the voters, CalFarm took the lead in challenging the law in the state Supreme Court. In a mixed decision, the high court in 1989 upheld the constitutionality of the statute but ruled that insurers were entitled to a fair rate of return instead of the 20% rollback in rates promised by the initiative.
Garamendi has set down a series of controversial administrative ground rules designed to establish the amount of rebates owed to policyholders. In turn, many major insurers have challenged those rules in court as unconstitutionally confiscatory. A court ruling is expected in March.
In an interview, Zax said that even though much time, money and energy had been expended in fighting Garamendi’s rebate rules, he considered them reasonable for establishing the rebates that will be paid by CalFarm and Zenith.
Garamendi originally demanded that the two insurance carriers pay up to $30 million in rebates, while the companies insisted they owed only about $2 million, said Garamendi spokeswoman Elena Stern. The final $18.6 million is what the settlement procedure produced, she said.
Other major companies that have agreed to rebate settlements include the Automobile Club of Southern California, $104 million; Progressive Insurance Co., $51 million, and Mercury Insurance Co., $46 million.
