Garamendi Tells Farmers to Pay $183.5 Million : Rebate: Commissioner also orders insurer to stop offering earthquake insurance with 20% and 25% deductibles.

Insurance Commissioner John Garamendi on Friday ordered Farmers Insurance Group to pay $183.5 million in rebates to policyholders under Proposition 103, the 1988 insurance rate-rollback initiative.

In a separate action, Garamendi also ordered Farmers to stop offering earthquake insurance with 20% and 25% deductibles, claiming that such high deductibles are illegal. In a cease-and-desist order, Garamendi told Farmers to roll its deductibles back to 15%.

“Merry Christmas from the commissioner,” joked Farmers spokesman John Millen, in a less-than-jolly tone of voice.

Farmers--which faces Northridge earthquake claims of at least $1.35 billion--believes that it was within its rights last July to raise earthquake deductibles to 20% for commercial policies and 25% on residential ones, Millen said.

“We disagree entirely that our action was illegal, and we will immediately seek a stay from (Los Angeles) Superior Court,” he said.

Farmers also contends that it owes no rebates under Proposition 103 and will fight the rebate order, as have such other large insurers as State Farm Mutual Automobile Insurance Co. and 20th Century Insurance Co. State Farm has hearings on its dispute scheduled with the Insurance Department early next year.

In August, in a legal challenge by 20th Century, the California Supreme Court upheld Garamendi’s method of implementing Proposition 103. Facing payment of $120 million in rebates, 20th Century obtained a court stay in order to appeal the case to the U.S. Supreme Court. After originally ordering rebates from insurance companies in 1991, Garamendi withheld new rebate orders while the 20th Century case was pending. Shortly after the California Supreme Court’s August ruling, he started issuing new rebate orders.

The proposed $183.5-million rebate, including 10% annual interest dating back to May, 1989, is the third highest of the 42 that Garamendi has ordered so far, reflecting Farmers’ No. 3 position in the California market.

However, few of the companies that have settled their Proposition 103 liability have paid anything close to the amount they were ordered. No. 2 Allstate Insurance Co., for example, last year agreed to pay $110 million of the $243.6 million it had originally been assessed in October, 1991.

“Clearly, Garamendi is playing politics with these numbers, since he had offered our member companies a substantially lower settlement number” in negotiations with Farmers representatives, Millen said.

He declined to give the number, but sources close to the negotiations said that under one proposal on the table before the talks broke down, Garamendi would have granted Farmers most of the earthquake insurance rate increase it is seeking in exchange for Farmers agreeing to a substantial Proposition 103 rebate.

Garamendi, who leaves office Jan. 2, considers his defense of Proposition 103 as one of his administration’s strongest accomplishments.

Farmers applied for an earthquake rate increase averaging 174% statewide. The application is scheduled for hearings in January, under incoming Commissioner Charles (Chuck) Quackenbush.

In the meantime, Farmers, like most other large insurers, continues to maintain a moratorium on writing new homeowners and earthquake insurance in California, fearing additional earthquake exposure.