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Four years ago, Californians voted themselves a 20% cut in their surging auto-insurance rates. Unfortunately for motorists, Proposition 103, as it's called, was too good to be true. Numerous delays have bogged down implementation (table). Now, the rate cut is headed for yet another legal showdown that may end the saga--eventually.

On Nov. 30, Los Angeles Superior Court will hear an industry challenge to the rollback plan proposed by Insurance Commissioner John Garamendi. This would give Golden State motorists, who pay an average premium of $751 a year, an estimated $100 rebate per car.

The outlook for impatient motorists, though, remains murky. The court is likely to uphold Prop 103. But the informed betting is that the judge won't let Garamendi push through a blanket rollback in the country's largest ($12 billion) car-insurance market. Instead, it is likely that Garamendi will have to take on many of the state's 400 companies on a case-by-case basis before his agency's administrative tribunals and perhaps, on appeal, in the courts. Otherwise, says Terry J. Houlihan, a partner at McCutchen, Doyle, Brown & Enersen, a San Francisco law firm representing one of the insurers, there's a danger that "companies are being denied due process." The upshot: more delays in giving motorists Prop 103's bounty.

FLAT IRE. When Prop 103 was passed, in 1988, it sparked a nationwide revolt against spiraling auto premiums. Three states pushed through similar rollbacks: New Jersey, Pennsylvania, and South Carolina. But the insurgency has petered out. In 1990, Arizona voters turned back a Prop 103 look-alike, and after Nevada lawmakers approved a rollback initiative, a court struck it down. Nationally, the recession has cooled policyholders' ire by easing rate hikes from a double-digit pace in the late 1980s to 5.9% this year.

Prop 103 bogged down shortly after California voters approved it. In May, 1989, the state Supreme Court gutted the provision for a flat 20% rollback, ruling that insurers were entitled to a fair profit. The issue languished under a Republican appointed commissioner. But when Democrat Garamendi took over in 1991 as the first elected commissioner, he promptly froze rates and, as a start, required 14 big insurers to refund past premiums under a formula that he maintains is just. Any return on equity of more than 10% in 1989, the year after the Prop 103 vote, must go back to the policyholders.

The insurance industry derides the 10% ceiling as too low. Says August P. Alegi, a group vice-president at GEICO Corp., one of the state's top insurers: "That's less than what Pacific Gas & Electric gets." To insurers, Prop 13 is conceptually flawed, since it doesn't tackle the costs that drive up rates: lawsuit awards for injured drivers, medical care, and car repairs.

Spearheading the insurers' assault against Prop 103 is 20th Century Insurance Co., which is bringing the Nov. 30 suit. The Woodland Hills (Calif.) insurer argues, among other things, that Prop 103 says nothing about using return-on-equity in a rollback formula. "We don't owe one penny," insists 20th Century's crusty chairman, Louis W. Foster, 79, who delayed his retirement from the carrier, which he founded in 1958, to fight Garamendi.

The stakes are high. Feisty 20th Century, one of the state's lowest-priced carriers--because it relies on phone and direct-mail sales rather than agents--must cough up more than 11% of its $900 million annual revenue under the rollback. Garamendi brands 20th Century "an insurance outlaw" for opposing his ruling.

The endgame on Prop 103 still seems far away. Appeals in the 20th Century case could take years. Plus an additional suit, filed by nearly 100 other insurers, awaits a hearing. "Even if the commissioner were to win the 20th Century skirmish," says insurer lawyer Houlihan, "it's not over." If motorists thought their vote in 1988 would bring instant gratification, the drawn-out denouement of Proposition 103 provides a sobering education in a regulated industry's power of resistance.


NOVEMBER, 1988 California voters pass Proposition 103, to cut auto insurance rates by 20%

JANUARY, 1991 State's new Insurance Commissioner John Garamendi freezes all rates

OCTOBER, 1991 Garamendi orders 14 big insurance companies to refund $1.6 billion to customers

NOV. 30, 1992 Trial on insurance industry's challenge to the rollback, spearheaded by 20th Century Insurance, is slated to begin

DATA: BWAmy Barrett in Los Angeles

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