LOS ANGELES (AP) _ Batus Inc. sued the California Insurance Department Wednesday, seeking to reverse the department's ruling that Batus cannot take over Farmers Insurance Group Inc.

The suit, filed in Los Angeles Superior Court, alleges that state Insurance Commissioner Roxani Gillespie misinterpreted the law in denying Batus permission to operate a California insurance company.

Ms. Gillespie found the Louisville, Ky., company unfit because a significant amount of the stock of its parent, BAT Industries PLC of Britain, is held by government entities.

The suit also alleged that if Ms. Gillespie's interpretation of the law were correct, the law would be unconstitutional.

California is one of nine states where Batus' hostile $4.5 billion takeover effort must be approved by insurance regulators. Arizona, the only other state to rule, has approved the takeover.

A spokeswoman said Ms. Gillespie was unavailable to comment on the suit.

On Friday, after she issued her ruling, Ms. Gillespie said the ruling on government ownership was in keeping with previous commission decisions.

Farmers' management is resisting a merger with Batus, which is offering stockholders $63 a share for Farmers stock.

About 13 percent of BAT stock is owned by more than 100 government and government-related entities, including city councils and government pension funds in Britain, Batus said.

Batus noted the commissioner's report didn't find any indication the government shareholders ever had attempted to influence business decisions of BAT or Batus.

The commissioner found Batus met other criteria for ownership of a California insurer. The commissioner ruled a takeover would not substantially lessen competition in the industry and that Batus did notintend to sell Farmers' assets or make substantial management changes.

The commissioner discounted arguments that Batus, a tobacco company, might discontinue non-smoker discounts at Farmers and that cigarette product liability suits might drain its resources.

Batus owns paper, tobacco and retailing operations, Saks Fifth Avenue stores and the maker of Kool cigarettes.

Farmers is the nations third-largest home and auto insurer and seventh- larges t property and casualty insurer.