Q & A : Where’s My Rebate? : Garamendi Wins--but Don’t Hold Your Breath

Auto and homeowners policyholders in California could get as much as an additional $1 billion in rebates thanks to the California Supreme Court’s ruling Thursday that upheld state Insurance Commissioner John Garamendi’s rules for refunds under Proposition 103.

But if you expect to get your rebate check in the mail tomorrow, you’d better slow down. The outcome of the court’s decision is more complex than that. The protracted legal fight over the proposition’s reforms--and the manner in which Garamendi is implementing them--may not be over.

Here are some answers to questions about what you can expect in terms of rebates and what you’ll pay for insurance in the future.

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Q: How many insurers have yet to pay Proposition 103-related rebates?

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A: Thirty-five companies so far have voluntarily paid more than $800 million to about 7 million auto and homeowners policyholders. That still leaves some 670 insurers in the state that have not, according to Garamendi’s office. These include three of the state’s largest insurers: Farmers, State Farm and 20th Century.

Garamendi’s staff estimates that the combined amount of the remaining companies’ rebate obligations is $1 billion. The industry, without being specific, contends the sum is considerably less.

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Q: How much might I get?

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A: The amount, of course, varies by company and the amount of insurance each policyholder carried. But Proposition 103’s author, Harvey Rosenfield, estimates rebates might average roughly $200 per insured policyholder. To date, the average rebates paid by some of the biggest companies have typically been between $100 and $300 for both auto and homeowners insurance.

The rebates are payable to those with policies in California between Nov. 9, 1988, and Nov. 8, 1989, as stipulated in Proposition 103.

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Q: So, with the court’s latest decision, why aren’t these insurers now putting rebate checks in the mail?

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A: The ruling itself doesn’t become official for another 30 days. Meantime, some of the state’s biggest auto insurers, including State Farm and 20th Century, declined to reveal their plans until they finish reviewing the 135-page ruling.

But they certainly didn’t rush to cut the rebate checks. Judith Mintel, a lawyer for State Farm--which Garamendi has ordered to pay $235 million in rebates, the biggest sum in the industry--noted that State Farm has always maintained it is under no such obligation and “we still believe we owe none” despite the latest ruling.

20th Century, which was the Proposition 103 test case on which the court ruled Thursday, said it was still “considering all available options.”

Both companies and other insurers fighting the commissioner contend that Garamendi’s rules amount to, among other things, an illegal confiscation of their assets.

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Q: Doesn’t 20th Century have financial problems stemming from the Jan. 17 Northridge earthquake, which could hamper its ability to pay the rebates even if it agrees to?

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A: Yes. The insurer is limping along with a thin reserve of cash after having paid $685 million in quake-related claims. Yet Garamendi has ordered 20th Century to pay $119 million (which includes interest) in Proposition 103 rebates.

Garamendi told reporters Thursday that he is aware of 20th Century’s struggle and that his office is working with the company to see “how and when they’ll be able to pay.”

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Q: If the industry appeals Proposition 103 further, how much more time might elapse before I get my rebate?

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A: It could be four or five months at the least, unless your carrier decides not to fight anymore and simply settles.

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Q: Is that likely?

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A: Certainly Garamendi and consumer advocates hope so, even if the insurers aren’t yet saying. The insurers could still appeal to the U.S. Supreme Court, and Garamendi said Thursday that he had “supreme confidence” that the industry would somehow try to further delay payment.

But Garamendi and Rosenfield also maintained that the state Supreme Court’s ruling so thoroughly upheld Garamendi’s rules for implementing Proposition 103 that it will persuade the industry to settle the matter quickly.

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Q: Are there any other potential delays ahead?

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A: Yes. Voters in three months will elect a replacement for Garamendi, either state Sen. Art Torres (D-Los Angeles) or Assemblyman Charles W. Quackenbush (R-Cupertino), who is considered more sympathetic to the insurance industry.

If Quackenbush is elected and junks key portions of Garamendi’s rules before the rebates are paid, the rebates could be further delayed--although Quackenbush on Thursday called on insurers to stop fighting Garamendi and start negotiating settlements immediately. Torres said Thursday he fully supports Garamendi’s approach.

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Q: A key part of Thursday’s ruling also upheld Garamendi’s ability to cap insurers’ profits. Does that mean my premiums will not rise as much?

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A: It could significantly limit how much rates will go up, assuming Garamendi’s rules are not dramatically changed by the next insurance commissioner. Garamendi noted that the insurers’ rate hike requests will “be analyzed against the most vigorous criteria” under his formula for keeping a lid on rates while maintaining a “fair” rate of return for the companies.

Paying Out

Thirty-five insurers so far have refunded about $800 million to 7 million auto and homeowners policyholders under Proposition 103. A look at what some of the state’s largest auto and homeowners insurers have done:

REBATES PAID

Company Rebate* When paid total paid avg per policyholder Aetna $31 million $182 Allstate $110 million $98 Auto Club of So. Calif. $81 million $202** California State Auto Assn. $72 million $292** GEICO $21 million $233 Mercury $46 million $173 Progressive Insurance $51 million $196 Safeco Insurance of America $40 million $111

Company total paid Aetna January, 1994 Allstate August, 1993 Auto Club of So. Calif. October, 1991 California State Auto Assn. March, 1993 GEICO May, 1993 Mercury May, 1992 Progressive Insurance June, 1992 Safeco Insurance of America August, 1993

** includes dividends

REBATES NOT PAID

Company Rebate Ordered* Farmers Insurance no specific amount ordered State Farm $235 million 20th Century Insurance $106 million United Services Auto Assn. $112 million

* for homeowners and auto insurance

Source: California Department of Insurance