The California governor's office said a new legislative measureexpected to gain passage shortly should end a regulatory disputethat led to court action between the State Compensation InsuranceFund and state insurance department.

Asked about the legal battle, Daryl Ng, a spokesman forRepublican Gov. Arnold Schwarzenegger, said it was anticipated thatthe legislation worked out with Democratic Insurance CommissionerJohn Garamendi would end his conflict with the quasi-publicworkers' comp insurer.

The legal tilt has been going on for two years over whether ornot the commissioner has the authority to regulate SCIF.

Under the agreement, which will be enacted as amendments to anunrelated insurance bill by State Assemblyman Juan Vargas, D-ChulaVista, the SCIF would be subject to much of the same regulatoryoversight as other insurers in the state.

The process of using an existing bill and changing its languagein the closing days of a session is known in California as "gut andswitch," or "gut and amend." This year's session ends Aug. 31.

Under the proposed measure, although SCIF is required to reportits financial condition to the commissioner, neither Mr. Garamendinor his successors will have the authority to place the fund intoconservation or liquidation. Instead, the commissioner would reportthe problem to the governor and the state legislature, along withproposed solutions.

"A legislative resolution to this issue is essential in avoidingfuture litigation," Mr. Garamendi and Gov. Schwarzenegger said intheir letter. "It will also help ensure that the SCIF will continueto be available as a market for employers, so that all ofCalifornia's workers can be protected by workers' compensationinsurance."

Mr. Garamendi, in going to court seeking more regulatory powerover SCIF, criticized the fund for strengthening its reserves whilefailing to pass along cost savings to policyholders that resultedfrom legislative reforms.

In response to the agreement over the coming legislation, StateFund Acting President Jim Tudor said that SCIF "supports thelegislation submitted today by Gov. Schwarzenegger and InsuranceCommissioner Garamendi and welcomes the resolution of the criticalissues between State Fund and the Department of Insurance."

The bill, including the agreement, will likely be moved throughthe Assembly insurance committee, which Assemblyman Vargas chairs,in the near future.

Portions of the measure would set limits on what sort ofinvestments SCIF could make while at the same time widening itsauthority to make them.