The Associated Press
SACRAMENTO: While the leading candidates for insurance commissioner say they don’t accept industry campaign contributions, campaign finance and public records show each has taken more than $50,000 from investors for insurance companies.
Influenced by Insurance Commissioner Chuck Quackenbush‘s resignation in disgrace two years ago, Democrat John Garamendi and Republican Gary Mendoza said they would not take industry money. Insurance companies had contributed heavily to Quackenbush‘s successful 1994 and 1998 campaigns, and he resigned amid allegations he waived up to $3 billion in industry fines in exchange for contributions to a nonprofit fund.
Despite their pledge, Garamendi and Mendoza each accepted $50,000 from Mercury Management Services LLC, run by financier Saul A. Fox, chief executive officer of Fox Paine and Co. The management services company and the private investment and buyout firm share an office suite in Foster City, south of San Francisco.
Fox Paine says it manages more than $1.5 billion in investments for more than 50 large corporations, “including major life and property and casualty insurance and reinsurance companies” like Aetna Insurance.
Aetna, for instance, spent more than $122,000 over 18 months to lobby lawmakers and two state agencies – including the Department of Insurance, according to state records.
MBIA Insurance Co. provided $300 million toward the firm’s investments in two energy companies, Fox Paine said. Records show MBIA spent more than $727,000 lobbying on energy issues over the last 18 months.
The matching $50,000 contributions should have been a tip-off to the candidates, said Douglas Heller of the Foundation for Taxpayer and Consumer Rights.
“It shows that they have a keen interest not in who gets elected, but in what that person does,” Heller said. “If you remove it by one degree, you still have the same problem in which the insurance industry is trying to gain influence in the next administration. … Candidates should take a conservative approach and not take insurance money or what looks a whole lot like insurance money.”
Fox Paine has other investors like law firms that represent the Insurance Department, the insurance industry and insurance claimants, acknowledged Kevin Spillane, Mendoza’s political consultant. Mendoza has called for a law banning contributions not only from insurers, but from personal injury attorneys he said benefit from the insurance system.
“We’re trying to screen out money from all those folks,” Spillane said, and have rejected similar contributions.
Mercury Management is an exception, Spillane said, because Fox is “a longtime friend” of Mendoza. In addition, “he may be invested in the insurance industry, but he’s not an agent or a broker. In terms of him benefiting from the department, I think it would be indirect.”
However, Fox, 49, personally gave Garamendi $1,000; it was his partner, W. Dexter Paine III, 41, who gave Mendoza $10,000, campaign records show.
Garamendi is rejecting contributions from brokers, agents, insurance companies, their top officers and directors and their spouses – even HMOs that are not directly regulated by the department.
Mercury Management Services doesn’t “fall into that category,” said spokesman Lee Fink. “They’re not regulated by the department, they’re not seeking to be regulated. They’re not an insurance company.”
But, Fink said, “we’ll take another look, and if there’s a problem we’ll give the money back.”
Fox did not turn repeated telephone messages over two days, nor did a New York public relations firm representing Fox Paine. When the partners began their business in 1997, however, they told the business press they intended to focus on deals including insurance. Fox Paine continues to tout its strength in insurance and other “important investment areas.”
“The big insurers are big investors in the buyout world” as they try to diversify their investments, said Rick Rickertsen, CEO of Washington, D.C.-based Thayer Capital and author of “Buyout.” Fox Paine, he said, “is viewed as being creative and a good firm.”
While at the New York buyout firm of Kohlberg Kravis Roberts and Co., Fox supervised the buyouts of American Reinsurance Co. Inc., the nation’s third largest reinsurer, and Canadian General Insurance Group Inc. Fox served on the boards of both companies and of Victoria Reinsurance Company.
Despite those connections, both Mendoza and Garamendi took Mercury Management’s contributions. Garamendi, who was California’s first insurance commissioner from 1991-95, criticized a Democratic primary rival for taking more than $1.5 million in industry money.
“Disgraced commissioner Quackenbush said it best: ‘Taking insurance company contributions will compromise me.’ Quackenbush did take their money and he was compromised,” Garamendi said in a statement on his campaign Web site.
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