Supreme Court Ruling Sought on Rebates : Insurance: Petitions seek federal review on the Prop. 103 regulations imposed by California.

Insurance companies have asked the U.S. Supreme Court to review a California Supreme Court ruling that upheld rebate regulations imposed by the state insurance commissioner under Proposition 103.

If accepted for review, it would be the first case resulting from the 1988 insurance reform initiative to reach the nation’s highest court.

The insurers want the U.S. Supreme Court to decide whether the state court erred in finding that a regulated entity is not entitled under the 5th and 14th amendments to try to recover its cost of capital in rates it may charge.

The insurers filed their petitions with the U.S. Supreme Court on Friday, the Los Angeles Daily Journal reported Tuesday.

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One petition was filed by 20th Century Insurance Co. The other was filed by numerous other insurers, including Century-National Insurance Co.

“It doesn’t come as a surprise,” Elena Stern, press secretary for state Insurance Commissioner John Garamendi, said Tuesday. “We very seriously doubt that the U.S. Supreme Court will hear the case.”

California voters approved Proposition 103 in 1988. Its attempt at sweeping reform of the industry included a one-time rollback of auto, home and business insurance rates 20% below 1987 levels.

The state Supreme Court upheld the overall constitutionality of Proposition 103 in 1989, but it found that to be eligible for exemption from the 20% rebate, insurers were entitled to fair rate of return rather than having to meet a standard described as being a substantial threat to their solvency.

Garamendi issued regulations establishing fair profit at 10%. The state Supreme Court upheld Garamendi’s authority to use the 10% level, but insurers continue to challenge it.

20th Century’s petition to the U.S. Supreme Court claims that the state Supreme Court applied the wrong constitutional standard in finding that rate regulation does not need to permit a regulated company an opportunity to recover its costs of capital.

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The question is important to all regulated industries, the petition said.

“The constitutional standard governing confiscation claims does not vary from industry to industry, and the uncertainty generated by the growing conflict among the lower courts on the appropriate standard spans increased litigation over complex rate-setting issues,” the petition said.

A confiscatory level of profit refers to a regulated level so low it is considered unfair.

20th Century’s petition also claims the state court erred in ruling that a finding of confiscation required a showing of “deep financial hardship.”

“The interests of consumers may indeed be balanced against those of investors in setting rates, and investors have no constitutional claim so long as they are afforded an opportunity to recover their reasonable expenses and cost of capital,” the petition says.

20th Century’s attorneys also assert that the California Supreme Court’s reasoning ran counter to decisions by other state courts.

The Century-National petition argues that the state court was wrong in finding that confiscation analysis must focus on the “condition of the insurer as a whole,” rather than on separately regulated lines of insurance.