Insurance Firms Win Review on Rollback : Courts: Ex-Gov. Deukmejian, arguing before justices he appointed, persuades panel to take up issue of legislative mandates for consumer rate relief.

SAN FRANCISCO —  On the urging of former Gov. George Deukmejian and the insurance industry, the California Supreme Court agreed Thursday to review a case that tests the Legislature’s ability to exempt certain insurance companies from voter-approved rate rollbacks.

Deukmejian, who appointed most of the court’s justices, urged them to review the case on behalf of a surety insurance company whose owner contributed heavily to his political campaigns.

The company wants the high court to overturn a lower court decision striking down a state law exempting part of the insurance industry from the rollbacks imposed by Proposition 103.

Insurance reform advocates contend that four of the six Supreme Court justices have a conflict of interest in the case because Deukmejian appointed them.

Chief Justice Malcolm Lucas is a former law partner of Deukmejian, and Justice Marvin Baxter served as his appointments secretary. The seventh seat on the high court has been vacant since Justice Edward Panelli retired earlier this year.

“I think it is gravely disturbing that the insurance industry was able to convince the court to take this case by using the influence of the governor who appointed a majority of the court,” said Harvey Rosenfield, the chief author of Proposition 103.

Rosenfield said his group, the Proposition 103 Enforcement Project, is considering “options” to ensure the case gets an impartial review. “I think the public is going to be revolted by this,” he said.

Voting to review the case were Justices Lucas, Baxter, Joyce Kennard, Armand Arabian--all Deukmejian appointees--and Justice Ronald George, who was appointed by Gov. Pete Wilson. Deukmejian represents Northridge-based Surety Co. of the Pacific, which is supporting the main litigant in the case, Amwest Surety Insurance Co. Neither Deukmejian nor Surety Co. could be reached for comment.

The high court will review a 2-1 decision by a Court of Appeal striking down a 1990 state law, signed by Deukmejian, that exempts surety companies from the rollbacks required by the 1988 insurance initiative.

Surety companies provide bonds to contractors, movie studios and others so they can guarantee that their projects will be completed. The surety industry could be liable for as much as $100 million in rebates.

A spokeswoman for the high court, asked about a potential conflict of interest, noted that the governor has been a principle litigant in other cases before it. She said the court has no official comment on the conflict-of-interest charge.