Judge In Insurance Case Refuses To Change Ruling In Favor Of Lara Donor

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California Insurance Commissioner Ricardo Lara accepted tens of thousands of dollars in campaign donations from company named in complaint


October 4, 2019


For the second time in three months, a judge for the California Department of Insurance has refused to change or reconsider his ruling in a workers compensation case, despite direction from Commissioner Ricardo Lara or his special counsel.

The case involves a subsidiary of a company whose executives gave thousands of dollars to Lara’s political campaign.

Administrative Law Judge Clarke de Maigret, also known as an ALJ, wrote in a response to the commissioner last week that he is unable to abide by the commissioner’s Sept. 19 order to take additional evidence in a case that the judge first decided in July.

De Maigret said for a second time that there is no legal basis for the commissioner’s direction to consider ordering employers who bought less expensive “loss-sensitive” workers’ compensation policies to pay for so-called guaranteed-cost plans, which have higher premiums.

“What the commissioner (or his designee, the deputy commissioner and special counsel) seeks is a legal conclusion from the ALJ regarding the validity and enforceability of the guaranteed- cost policies — a ruling the ALJ cannot make,” the judge wrote in his response last week.

“Finding the guaranteed-cost policies enforceable would require determination of various common law claims beyond the scope of this appeal,” wrote de Maigret, who did not return calls seeking comment about his response.

The Sept. 19 order from the insurance department, signed by deputy commissioner and special counsel Bryant Henley, is at least the fifth time the department took positions in cases that benefited Applied Underwriters, an Oklahoma insurer whose California subsidiary sold what are called EquityComp policies, which have generated dozens of complaints to state regulators.

In April, an Applied Underwriters executive and his spouse donated tens of thousands of dollars to Lara’s reelection campaign. The company president also met privately with Lara several times this year as the department was weighing an application to sell Applied Underwriters’ subsidiary, California Insurance Co.

A department spokesman noted that the latest order — although it bore Lara’s name — was not signed by Lara himself. Spokesman Michael Soller said Lara has recused himself from any decisions related to Applied Underwriters in July.

“For the record — Commissioner Lara has not been involved in issuing decisions involving this company and will not be involved in them going forward,” Soller said by email.

An Applied Underwriters spokesman did not respond to a request for comment.

At issue are the premiums California Insurance charged for EquityComp, a product that was promoted to save employers money if they cut down on claims but instead cost more than a fixed- or guaranteed-cost policy would have.

EquityComp was deemed a “bait-and-switch” product by Lara’s predecessor, and sales were halted in 2016. Many of those policies were multi-year deals, and complaints from buyers of the policies are still winding through the department’s Administrative Hearing Bureau.

Attorney Larry Lichtenegger represents Van De Pol Enterprises, a Stockton fuel delivery company challenging premiums charged by Applied Underwriters. He said Lara is exceeding his legal authority in this case.

“The commissioner certainly seems bent on ignoring the legal advice he receives from the administrative law judges,” said Lichtenegger, who also represents other employers who challenged their EquityComp premiums. “That advice is based on solid interpretations of the statutes and controlling case law.”

Soller declined to comment on Van De Pol Enterprises because the proceeding is pending.

Two other companies that lost administrative complaints before the Department of Insurance after Lara or his designee intervened in their cases have taken their claims to court.

The lawsuits, which accuse Lara of exceeding his authority and issuing decisions beyond statutory deadlines, are pending in San Francisco Superior Court.

Lara said he recused himself from cases involving Applied Underwriters in July, after The San Diego Union-Tribune reported that he accepted more than $54,000 in political contributions from its executive and other insurers regulated by the California Department of Insurance.

Records released by the department also show that Lara repeatedly met privately with Applied Underwriters CEO Steven Menzies, who is awaiting state approval to sell California Insurance to an overseas buyer.

“One can only assume that the commissioner is being influenced by his recent personal meetings with Steve Menzies and the contributions he received from Applied Underwriters associates,” Lichtenegger said. “While he may have had to return those funds, he appears to be taking a course of action consistent with those influences.”

Jamie Court of Consumer Watchdog, the Los Angeles advocacy group that wrote the 1988 voter initiative creating the elected insurance commissioner position, said Lara still appears to be favoring donors over ratepayers.

“The commissioner is not willing to take no for an answer, and the administrative law judge is saying ‘I’m not going to do it’,” said Court, who last month called on state prosecutors to open a criminal investigation into Lara’s dealings with insurance executives.

“When the commissioner’s right-hand person tells a judge to do something that the judge says is illegal, it seems like, once again, the Department of Insurance has not learned its lesson about the appropriate process,” he said.

The California insurance commissioner is a powerful elective office, overseeing some $310 billion in annual policies each year and influencing premiums for everything from car and homeowners’ insurance to health care and workers’ compensation policies.

For nearly 20 years, state insurance commissioners — and candidates for the office — declined donations from insurers to avoid the appearance of any conflict of interest. Lara made the same pledge, but records show he broke that promise before and after his November election.

After the initial Union-Tribune report, Lara returned $83,000 in donations, according to campaign reports filed with the California Secretary of State.

But a closer examination of Lara’s campaign records showed he accepted at least $270,000 in political donations from 56 people and companies with ties to the department he now oversees, the Union-Tribune reported in August.

Lara did not respond to questions for that report, but early in September he publicly apologized for accepting meetings and campaign cash from insurance industry donors and announced he would suspend his fundraising practices.

“Even though no laws or rules were broken — and these interactions did not affect or influence my official actions in any way — I must hold myself to a higher standard,” Lara wrote. “I can and will do better.”

Two weeks later, Bryant ordered the judge in the Van De Pol Enterprises case to reopen the proceeding, to consider imposing the guaranteed-cost premium on the employer.

According to de Maigret’s Sept. 26 response, Lara can issue the decision he wants himself or refer the case to another hearing officer.

Answering critics who claim Lara’s office is intervening on behalf of Applied Underwriters, Soller said that is not how the process works. He said administrative law judges review evidence independently and make “proposed decisions” for the insurance commissioner or his designee, who make the final call in the insurance department.

“Department rules specifically provide for the Commissioner to adopt a proposed decision, make changes to it or decide it differently on the record,” Soller said. “The review and decision by the Commissioner or his designee is not an ‘intervention,’ it is the next step in the process.”

Soller said the application to sell the Applied Underwriters subsidiary, The California Insurance Co., is under review.

Consumer Watchdog
Consumer Watchdoghttps://consumerwatchdog.org
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