The California Supreme Court has entered uncharted legal water as it attempts to determine the constitutionality of Proposition 103, the voter-approved measure slashing insurance rates.

The justices are pondering a case that has no direct legal precedent in a state where insurance rates have never been regulated, and the court hasn't decided whether it will hear the case or refer it to a lower court.But with many insurers restricting or eliminating California coverage in response to Proposition 103, and with the Legislature and Republican Gov. George Deukmejian's administration seemingly looking for direction, all sides want a quick resolution.

The court responded to insurers' lawsuits on Nov. 10 by blocking enforcement of a 20 percent rate reduction and other provisions of the initiative approved by voters two days earlier.

While the court has often been sympathetic to business concerns, it also advocates judicial restraint, which generally includes deferring to voters.

Insurers are challenging many provisions of the measure, an initiative sponsored by consumer advocate Ralph Nader that was the only one of five insurance-related measures to win voter approval Nov. 8.

The central features of the case are these:

- Proposition 103 requires that rates for motor vehicle, homeowner and other property and casualty insurance be rolled back to November 1987 levels and then reduced 20 percent and frozen until November 1989. Insurers could win exemptions only by showing a "substantial threat of insolvency." The companies contend the cut and freeze amount to confiscation of property.

- Starting in November 1989, the measure requires the state insurance commissioner to approve all rate increases for those same types of insurance, prohibiting any rates that are "excessive, inadequate or unfairly discriminatory." Although that language has been upheld in other states, insurers contend it is virtually meaningless in California because the expected volume of rate requests will make the process unworkable.

- A company will be allowed to refuse to renew an auto insurance policy only for non-payment or fraud by the policy-holder or a substantial increase in the insured risk. Insurers contend the provision would effectively prohibit them from withdrawing from the auto insurance business in California, in violation of their property rights.

Other provisions include an additional 20 percent cut in November 1989 for "good drivers" as defined by the measure; auto insurance rates based primarily on a driver's safety record, annual mileage and experience; conversion of the insurance commissioner's job to an elected office in 1990; repeal of the industry's exemption from state antitrust laws; and required disclosure of insurance company finances. Insurers contend those issues cannot be separated from the rate rollback and must also be thrown out.

The justices cannot consult any prior California cases on the rate rollback and freeze issue because the state has never regulated the prices of insurance or any similar commodity. Utility rates are controlled under a separate body of laws.

Some similar constitutional issues arose, however, in cases in 1976 and 1984 involving challenges by landlords to rent control measures in Berkeley. Both sides in the insurance case rely heavily on these rulings.

The court concluded in the two cases the government could roll back rates to earlier levels, but that property owners were entitled to rate increases giving them a "fair return on investment" under reasonably prompt administrative procedures.

The two sides in the Proposition 103 case disagree over whether state review of insurance rates will be cumbersome or prompt.