FTCR Asks Quackenbush to Turn Over Reports on Insurance Companies’ Violation of Claims Laws

Published on

Insurers Made Donations to Quackenbush Foundations and Political Committees After Investigations Stopped

The Foundation for Taxpayer and Consumer Rights today requested, under California’s Public Records Act, that California Insurance Commissioner Chuck Quackenbush turn over information concerning his agency’s investigations of major insurance companies handling of homeowners insurance claims, particularly in the Northridge earthquake. The Commissioner has largely absolved insurers of misconduct in their handling of the claims. However, the contents of the “Market Conduct Investigations,” which the Insurance Commissioner is required by law to conduct, have not been made public.

The group acted in response to a report published in Sunday’s Los Angeles Times. The Times reported that the insurance companies agreed, in exchange for termination of the CDI investigations, to make donations to non-profit organizations apparently established and controlled by the Commissioner, and which he has used to pay for television commercials. And the same insurance companies subsequently gave donations to Commissioner Quackenbush, which he used to pay off campaign debts incurred by his wife.

“Commissioner Quackenbush has often been criticized for accepting money from the industry he regulates,” said Harvey Rosenfield, President of the FTCR and the author of Prop. 103, the insurance reform ballot measure. “These latest revelations raise serious issues that deserve thorough scrutiny by both law enforcement authorities and the state legislature. And it is essential that the Commissioner make public the Market Conduct Examinations and other documents, prepared by CDI civil service staff, which will indicate whether the Commissioner’s ultimate disposition of the investigations was appropriate.”

Public Records Show Donations

California Insurance Code §12975.7 specifies that “all moneys received by the commissioner in fines and penalties” must go to the state treasury. However, news releases and other records previously issued by Commissioner Quackenbush indicate that major insurers agreed to make relatively modest donations to one or more non-profit foundations as “settlement” of the agency’s confidential investigations, while paying little or no money in fines:

State Farm: Final Order finds State Farm acted in good faith in Northridge claims; paid $2,000,000 to foundation, $5,000 “costs” to DOI.

Farmers:$1,000,000 to foundation; $2,500 “costs” to DOI.

Allstate: Final order says Northridge created “extraordinary circumstances” for Allstate. Paid $2,000,000 to foundation.

20th Century: Allowed to resume selling homeowners insurance; MCE found “alleged deficiencies in claims files reviewed.” Paid $6,000,000 to foundation; $200,000 for “public education”; $100,000 fine.

Fireman’s Fund: $550,000 to foundation.

FTCR has requested copies of the investigative reports for each company to determine the fine or other penalty originally proposed by CDI staff.

Little information about the non-profit foundations is available; however, it appears that the foundations were established and are controlled by the Commissioner.

Some of the insurance companies also subsequently made donations to Commissioner Quackenbush‘s political campaign committee, which in turn transferred $175,000 to his wife’s campaign committee, which then repaid his wife for personal loans made by the Quackenbushes to her failed campaign for state senate in 1998.

Insurers Would Have Faced Millions in Penalties Under

Defeated Consumer Protection Legislation

The revelations come less than a month after out-of-state insurance companies, led by State Farm, Farmers and Allstate, defeated Propositions 30 and 31 — 1999 compromise legislation giving injured consumers the right to sue the insurance company of the at-fault motorist for failing to handle claims fairly. Under present court decisions, only the Insurance Commissioner has the authority to punish companies for such misconduct. Utilizing California’s referendum process, insurers placed the legislation on the March ballot, and then spent an estimated $60 million to win voter rejection of the referenda. According to pre-election FPPC filings, State Farm ($16.72 million), Farmers ($15.75 million) and Allstate ($8.87 million) donated over $40 million of the then-reported $50 million spent by the industry against the three measures.

These same companies were the subject of the CDI Market Conduct Examinations. Any pattern or practice of improper conduct in claims handling, as revealed by the examinations, would have become key evidence in litigation brought by injured consumers under Propositions 30 and 31.


PUBLIC RECORDS ACT REQUEST (footnotes do not appear in this version):

March 27, 2000

The Honorable Chuck Quackenbush

Insurance Commissioner

California Department of Insurance

300 Capitol Mall #1500,

Sacramento, CA 95814

Sent via facsimile [(916) 445-5280] and Certified Mail, return receipt requested.(No. Z — — —-)

Re: Public Records Act Request

Dear Commissioner Quackenbush:

Pursuant to the Public Records Act (Government Code § 6250 et seq), the Foundation for Taxpayer and Consumer Rights (FTCR) hereby requests the opportunity to inspect and copy public records in the possession or under the custody or control of the California Department of Insurance (CDI), as follows:

1. A list of market conduct examinations, including the name of the company examined and date of the examination, conducted or initiated by CDI between January 1, 1995 and the present pursuant to Insurance Code §730 et. seq.;

2. A list of CDI documents which constitute, or relate to, any interim, draft, preliminary and/or final documents pertaining to and/or containing the results of market conduct examinations, as referenced in item #1 above, between January 1, 1995 and the present;

3. A list of writings and correspondences between any CDI official and any insurance representative which constitute, or relate to, any interim, draft, preliminary and/or final documents pertaining to and/or containing the results of market conduct examinations, as referenced in item #1 above, between January 1, 1995 and the present;

4. Copies of all writings and correspondences between any CDI official and any insurer representative, during or after a market conduct examination, concerning such an examination, including, but not limited to, responses made by insurers to the CDI as required by stipulations entered into between CDI and an insurance representative;

5. Copies of any (a) interim, (b) draft, (c) preliminary and/or (d) final documents pertaining to and/or containing the results of market conduct examinations between January 1, 1995 and the present for the following insurers: State Farm Mutual Group, Farmers Insurance Group, Allstate Insurance Group, California State Automobile Association Interinsurance Bureau, Interinsurance Exchange of the Automobile Club, Mercury Casualty Group, Twentieth Century Insurance Group, United Services Automobile Association Group, Safeco Insurance Group and Progressive Casualty Group.

6. A list of the corporations, organizations, “foundations” or any other association, incorporated or otherwise, established by, or at the direction of, the Commissioner and/or any other CDI official for any purpose related to the activities of the Commissioner and/or the CDI between January 1, 1994 and the present.

7. Copies of all writings and correspondences relating to the establishment, conduct, operation or activities of each of the entities referred to in item #5 above, including, but not limited to the following:

a. Articles of Incorporation;

b. By-laws;

c. Applications for state and federal tax exemption;

d. Requests for grants or other assistance, financial or otherwise, submitted to the entity;

e. Grants or other assistance, financial or otherwise, provided by the entity;

f. Video, audio, or printed materials containing references to, or statements by, or appearances of, Commissioner Quackenbush;

g. Tax returns filed with state or federal agencies.

We are prepared to inspect these records, either personally or through a representative we may designate, at your office in Sacramento or at some other place which may be mutually agreed upon. At that time, we may designate certain of the public records which we wish to have copied, and we will be prepared to pay the legal fee for the copies.

Any public records withheld from production for inspection should be separately identified and should be accompanied by the claimed justification for withholding as provided by Government Code § 6255, stating the nature of the document withheld, the specific exemption under which the document is being withheld, and the public interest served by withholding said document.

Should you contend that a portion of a particular document is exempt from disclosure due to confidentiality, we also request, pursuant to § 6257, that the exempt portion be redacted and the remaining portion be produced for our inspection.

Consistent with § 6256, we expect to hear from you within ten days. If you have any questions concerning the scope of our Public Records Act request, please contact the undersigned at (310) 392-0522 ext. 309.


Douglas Heller

cc: Attorney General Bill Lockyer

Consumer Watchdog
Consumer Watchdog
Providing an effective voice for American consumers in an era when special interests dominate public discourse, government and politics. Non-partisan.

Latest Videos

Latest Articles

In The News

Latest Report

Subscribe to our newsletter

To be updated with all the latest news, press releases and special reports.

More articles