The State Compensation Insurance Fund, the workers' compensation insurer, is shopping for 600 new hybrid vehicles for its automobile fleet — an expense that could top $14 million.

The fund is contemplating the major purchase at the same time it's hitting its own customers with a 5 percent increase in premiums in January, blaming that recently announced boost on "medical inflation."

The State Fund is negotiating with both Toyota and Ford to buy 600 gasoline-electric hybrid cars in 2010 to replace traditional gasoline-only cars in its fleet, State Fund spokeswoman Jennifer Vargen confirmed.

Vargen defended the purchase, saying the state-owned insurer is very careful about when it replaces its vehicles, adding that State Fund officials also are embracing Gov. Arnold Schwarzenegger's statewide plan to curb greenhouse gas emissions.

"We don't willy-nilly replace vehicles just because we want to drive something new," Vargen said. "We haven't replaced a car in four years, and green initiatives are very important to us."

The insurer had requested quotes from Toyota, Honda and Ford. Honda declined to participate, so State Fund is now negotiating with just the two suppliers, Vargen said.

"We haven't signed a contract yet," she added, declining to say how much will be spent, other than to call it "a substantial investment."

The Department of General Services bought 50 Toyota Prius sedans earlier this year for $1.2 million, state records show, so any deal for 600 cars could easily top $14 million.

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