State Farm Owes No Rebates, Judge Rules : Insurance: State commissioner vows to get Prop. 103 refunds for policyholders anyway.

State Farm Insurance Cos., California’s largest insurer, does not owe rebates to policyholders under Proposition 103, an administrative law judge has concluded. But state Insurance Commissioner Chuck Quackenbush on Thursday rejected the finding and vowed to secure refunds for drivers and homeowners insured by the big carrier.

In an 86-page proposed decision, dated Nov. 29 but released Thursday, Judge Elizabeth D. Laporte concluded that State Farm is not obligated to make rebates because it made relatively small profits on its California operations in 1989.

That is the benchmark year used in calculating refunds owed consumers under Proposition 103, the 1988 insurance rate rollback initiative that was designed to give policyholders relief from high prices but that has resulted in seven years of raucous legal wrangling.

Separately, in another Proposition 103 matter, the California Supreme Court ruled that the state Legislature may not exempt certain insurers from voter-imposed rebate requirements. Harvey Rosenfield, the author of Proposition 103, praised that decision as bolstering the concept of voter-proposed ballot initiatives.

Quackenbush, generally a friend of insurance companies, expressed disappointment at the judge’s finding about State Farm and said he intended “to find a legally defensible way to deliver the rebates consumers voted for seven long years ago.”

He is not bound by Laporte’s proposed decision and has until March 8 to issue a revised order. As part of the Insurance Department, Laporte conducts hearings on insurance-related matters and offers recommendations to the commissioner.

State Farm, with more than 3 million auto policyholders and 1.5 million homeowner policy customers in California, has been the biggest, most vocal holdout on Proposition 103. It has been embroiled in a heated battle with the Insurance Department since 1992. Forty-one other insurers also have balked at making payments.

“State Farm views itself as the mother church and will gladly throw millions of dollars at [a legal issue],” said Michael Strumwasser, an outside attorney for the Insurance Department who has worked on the case.

Consumer advocates voiced relief that Quackenbush decided to challenge the judge’s conclusion. But they noted that Quackenbush also revealed Thursday that he had reached a settlement with Farmers Insurance Group in which that insurer will pay $36 million to its 1989 customers, far less than advocates had hoped.

That led Rosenfield and others to speculate that Quackenbush might propose that State Farm pay an amount far smaller than the $229 million, including interest, that he has contended the insurer owes.

“This might be a lot of sound and fury signifying nothing,” said Gina Calabrese, an attorney for Rosenfield’s Proposition 103 Enforcement Project in Santa Monica. “It might not take much to satisfy him.”

However, a spokesman for State Farm Mutual Automobile Insurance Co. and its affiliate, State Farm Fire & Casualty Co., indicated that the companies have no interest in settling. “We don’t owe a rollback,” said Bill Sirola, the Sacramento-based spokesman. “We have to stand on principle.” His comments suggested that the company would challenge any dollar settlement proposed by Quackenbush.

State Farm could appeal an order from Quackenbush to Superior Court and, if necessary, to the state Supreme Court and even the U.S. Supreme Court. In February, the U.S. high court refused to hear a Proposition 103 case, thus upholding a 1994 California Supreme Court decision that rules being used to enforce the initiative were legal.

Since Proposition 103 was passed, about 100 insurance companies have issued about $1 billion in rebates to more than 6 million California customers.