SAN FRANCISCO, April 3 (Reuters) – A consumer group on Monday asked the state’s attorney general to probe California Insurance Commissioner Chuck Quackenbush over a deal he made with three insurance firms to avoid stiff fines over their alleged underpaying of earthquake claims.
The consumer’s group, the nonpartisan Foundation for Taxpayer and Consumer Rights, asked for an investigation to determine if Quackenbush illegally shielded State Farm, 21st Century Insurance Group (NYSE:TW – news), formerly 20th Century, and Allstate Corp. (NYSE:ALL – news) from $3 billion in fines for low-balling claims from the devastating 1994 Northridge earthquake in exchange for contributions to an educational and research foundation.
That foundation later paid for public service announcements featuring the commissioner and six months later one of the insurance companies made a $50,000 contribution to Quackenbush‘s reelection campaign.
The taxpayer group said it was disturbed that Quackenbush opted not to fine the three companies, despite recommendations from his own legal staff. “There appears to be violations and that’s what we have asked Attorney General (Bill) Lockyer to look into,” said group spokesman Doug Heller. A spokesman for Lockyer was not available for comment.
Quackenbush spokesman and deputy insurance commissioner Dan Edwards denied allegations of any wrongdoing, saying the foundation was an effective way to get benefits to consumers.
He added the proposed $3 billion in fines were meant as a starting point for negotiation and that such massive penalties would have stirred a protracted court battle, which would have harmed consumers.
“If insurance companies are faced with those numbers they are realistically going to go after those numbers and you are not thinking of consumers first,” Edwards said in a telephone interview.
A state Assembly panel last week ordered Quackenbush — who has been among the the most aggressive U.S. officials in trying to force European insurers to resolve unpaid Holocaust-era claims — to appear at an April 26 hearing on the issue.
Confidential reports obtained by the Los Angeles Times on Sunday said Quackenbush disregarded the recommendations of his own legal team to levy the massive fines against the three firms for mishandling claims after the Northridge quake.
The team found that the three firms repeatedly low-balled claims, failed to inform policy holders of their benefits and forced some earthquake victims to sue to get full payment and improperly deducted the cost of wear and tear on possessions.
But an ensuing settlement resulted in the insurers contributing some $10 million to the nonprofit foundation created to educate the public on earthquake safety and preparedness instead of the more than $3 billion in fines recommended by department lawyers.
“To suddenly take a claim of hundreds of millions of dollars of suggested fines and to suddenly see them become merely a contribution to an educational and research foundation does raise questions,” said Democratic Assemblyman Jack Scott, who called the April hearing.
Quackenbush is also under fire for shifting funds he received as political donations to the campaign of his wife, who ran unsuccessfully for state Senate in 1998.
Records show the insurance commissioner used more than $79,000 in donations to repay his wife for a personal loan she made to her campaign.
“It is technically legal but extraordinary unethical,” said Heller, who added Quackenbush received more than $390,000 in donations in 1999 from the insurance industry.