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Prospect Looms of More Proposition 103 Hearings

The state Office of Administrative Law may rule next month that a new round of hearings must be held on Proposition 103 regulations, a move which could add months to the wait for consumers hoping to receive millions in car insurance rate rollbacks.

The new hearings may be required because the meaning of the regulations may have changed since they were last put before the public, according to John Smith, deputy director of the OAL, the agency which approves new regulations issued by state departments.

For more than a year, the Department of Insurance and the OAL have been battling over the OAL's refusal to approve Insurance Commissioner John Garamendi's regulations on how Prop. 103 should be implemented.

Prop. 103, passed by the voters in 1988, mandates that insurance companies roll back millions of dollars that consumers were overcharged in auto insurance premiums for the fiscal year 1988 through 1989.

In order to force companies to pay rollbacks, regulations must be written and approved. But in the last year and a half the OAL has rejected the Garamendi regulations three times. He has charged that the OAL has been subject to influence from the insurance industry.

Michael McNamer, senior staff counsel of the OAL, said the OAL has previously argued that portions of the regulations submitted by Garamendi may violate the U.S. Constitution and has rejected those regulations.

In October, the Insurance Department resubmitted the regulations, but this time took out the portions in dispute, McNamer said.

John Smith, deputy director of the OAL, said the office has previously rejected the regulations for legal reasons. He said, "This is not a political agency. ... (State) agencies get bent out of shape when we disapprove their regulations. That's just human nature."

Michael Strumwasser, a lawyer for the Department of Insurance, said if the OAL requires a hearing, "it will only raise the question if the OAL has been dealing in good faith."

Strumwasser said that last month the Insurance Department resubmitted those portions to which the OAL did not object in order to meet a Nov. 19 deadline.

Under state law, if a regulation is disapproved, the state department has 120 days to resubmit the regulations or else a new hearing process is required, Smith said.

If the regulations were not resubmitted before that date, the OAL would again have to hold public hearings.

Last year these hearings took months as "literally hundreds of lawyers of the insurance industry" submitted objections, Strumwasser said.

But McNamer said now a public comment period may be necessary anyway on the regulations that have been resubmitted.

McNamer explained that since portions of the original regulations, which underwent the public comment process, were deleted, the meaning of the remaining regulations may have changed. That would necessitate another set of public hearings, McNamer said.

Strumwasser said it is common practice for state departments to submit portions of regulations which are not controversial for approval to the OAL and then controversial portions are argued later. In such cases, new public hearing periods are not required, Strumwasser said.

Smith said it is true that new public hearings often are not required for resubmitted regulations. But sometimes new hearings are required, he said.

The Insurance Department hopes a court will decide on disputed regulation provisions soon, Strumwasser said.

That could come in rulings in a case filed against the Insurance Department by 20th Century Industries. Any decision in that case could begin an avalanche of rollbacks to consumers, Strumwasser said.

On Nov. 30 Los Angeles Superior Court Judge Dzintras Janavs is scheduled to hear a case in which Prop. 103 regulations will be attacked on a number of fronts by 20th Century, Strumwasser said.

Janavs will hear 20th Century's appeal of an order by Garamendi that it pay consumers $102 million in rollbacks, said Rick Dinon, senior vice president of the Woodland Hills-based insurer.

"Our arguments are focused on the commissioner's method and rationale in determining rollbacks," Dinon said. "For example, whether or not the Department of Insurance can hold hearings and establish a broad based average and use that to apply to a company specifically."

Dinon added that 20th Century expects to prevail in the case. "We think we have the force of logic, law and the Constitution on our side," he said, adding that the U.S. Constitution prohibits the taking of a company's profits without due process of law.

But Strumwasser said the Insurance Department expects the ruling will go its way some time in December, hopefully causing other insurers to negotiate with Garamendi and start paying rollbacks.

But the latest problems with the OAL may quash those hopes, Strumwasser said, adding it would not be the first time.

Strumwasser said in the past two years different insurers have stepped forward to negotiate terms with the Insurance Department of the insurers issuing a rollback. But whenever the department begins negotiating a rollback, the OAL issues a negative opinion on Commissioner Garamendi's regulations, and it appears that Prop. 103 is unenforceable, Strumwasser said.

"Every time the OAL throws in a monkey wrench and the people we're talking to get cold feet," Strumwasser said. "Insurers pull back from discussions of settlement."

He declined to name the insurance companies which had pulled out of negotiations to pay Prop. 103 rollbacks.

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