20th Century to Pay Rebates and Drop Lawsuit Against Prop. 103 : Insurance: The settlement will pay policyholders up to $78 million but a consumer group says the refund should be more.

Twentieth Century Insurance Co., which has led the insurance industry’s six-year war on Proposition 103, threw in the towel Friday, agreeing to drop its legal challenge to the 1988 rate-cutting initiative and pay its policyholders rebates of as much as $78 million.

Insurance Commissioner Chuck Quackenbush, in his third week in office, claimed the settlement as a key victory and the first installment on his campaign pledge to deliver all remaining Proposition 103 refunds within the first six months of his term.

Woodland Hills-based 20th Century agreed to pay an initial $46 million in rebates, about $80 apiece to people who held its auto policies between November, 1988, and November, 1989, according to separate announcements Friday from Quackenbush and 20th Century.

But the earthquake-battered company will hold $32 million in reserve pending resolution of Northridge earthquake claims. If total claims exceed $950 million, the reserve will be tapped. Whatever remains from the $32 million after next Dec. 31 will be rebated to policyholders, according to the agreement.

“It’s a win-win-win situation,” Quackenbush said in a telephone interview Friday. “We have a solvent, low-cost carrier still doing business in California, policyholders get their rebates, and earthquake claims will be paid.”

However, a consumer group attacked the deal as too generous to 20th Century.

“Policyholders are getting as little as 38% of what they should,” said Gina Calabrese of the Proposition 103 Enforcement Project. She noted that former Insurance Commissioner John Garamendi had originally ordered 20th Century to pay $78 million, plus $44 million in interest penalties.

Calabrese said it is also improper to force auto policyholders to subsidize earthquake insurance claims.

Although 20th Century agreed to drop out of the Proposition 103 case, it is not necessarily the end of the legal fight. Industry giant State Farm Mutual Automobile Insurance Co. and numerous smaller carriers remain as intervenors in the case and have not yet decided whether to pursue it.

The California Supreme Court last August unanimously rejected 20th Century’s challenge to Garamendi’s Proposition 103 regulations. Several weeks ago, 20th Century petitioned the U.S. Supreme Court to review the California decision. State Farm and the others joined in the request.

“I think there’s a less than 10% chance the Supreme Court will hear the case,” Quackenbush said.

Twentieth Century’s most recent estimate of Northridge losses is $900 million, from about 46,000 claims. Quackenbush said he doubts the figure will climb past $950 million and that the full $32 million in additional rebates will ultimately be paid.

Neil H. Ashley, 20th Century chief executive, said in a statement Friday that dropping the lawsuit was “a very tough decision” because he thought there was a strong case.

“However,” he added, “the company was badly damaged by the Northridge earthquake, and we can certainly use the additional capital resources to provide a more secure insurance environment for all our existing customers.”