Investigation: Committee’s first public mention of possibility comes from the commissioner’s own party

Los Angeles Times

SACRAMENTO–The senior Republican on the state Assembly committee investigating California Insurance Commissioner Chuck Quackenbush said Wednesday that evidence “points in the direction” of impeachment of the state’s chief insurance regulator.

Assemblyman Tom McClintock (R-Northridge), the first committee member to talk openly of impeachment, made the comments following dramatic revelations that a consulting company had presented Quackenbush with a plan to use public money to pay for a political image campaign.

Witnesses testified that within weeks after receiving the proposal, Quackenbush‘s Department of Insurance put a strategy into effect that mirrored the firm’s recommendations, particularly its suggestion that nonprofit foundations be created with settlements obtained from insurance companies.

 “If it’s proved that he [Quackenbush] directed or approved the tactics used to compel contributions to these foundations,” McClintock said, “that would constitute an impeachable offense under the state Constitution.”

During the hearing, McClintock referred to Quackenbush‘s actions as evidence of “misconduct in office,” the constitutional standard for impeachment. He said later he intentionally used that phrase to raise the specter of impeachment.

McClintock’s comments were a blow to the Republican commissioner’s efforts to combat multiple probes of his conduct by labeling them Democratic witch hunts.

Other Republican members on Wednesday also distanced themselves from Quackenbush, once a potential candidate for governor or U.S. senator. They repeatedly expressed frustration at the inability of his top deputies to remember events or who made critical decisions about setting up foundations.

“There has been an incredible amount of memory loss,” complained Assemblyman Rico Oller (R-San Andreas).

For the second consecutive day, testimony before the state Assembly committee probing the commissioner’s handling of $12.8 million in settlements related to the 1994 Northridge earthquake featured the release of an explosive document.

This time it was a memorandum from the Sacramento office of the public relations firm Stoorza Ziegaus Metzger & Hunt, outlining a strategy for using insurance department fines in a campaign to reverse a perception that the commissioner “is too closely aligned to insurance companies.”

By following the plan, the memorandum said, Quackenbush could transform this liability into an asset. “All of these issues can be resolved–and the negative perceptions reversed–through an aggressive, targeted and proactive outreach campaign,” it said.

Stoorza CEO David DePinto said in a statement Wednesday that the memorandum was a preliminary proposal “in large part based upon information provided by the California Department of Insurance.”

Assembly Insurance Committee Chairman Jack Scott (D-Altadena) said the memo was sent to the commissioner in February 1999, and two months later the first of three foundations was created. Its initial act was to award a contract to Stoorza, calling for payments of $25,000 a month over a two-year period–a total of $600,000.

“This document lays out a course of action that is consistent with the events that actually took place,” said Assemblyman Fred Keeley (D-Boulder Creek). “In fact, in my view, this looks like a precise blueprint of the events that unfolded.”

The memo suggested that the foundations give grants to charitable organizations and that forums be held in communities “underserved” by the insurance industry, to show that Quackenbush was pushing insurers to serve them.

“We want the insurance commissioner to be a prominent participant in all advertising and . . . media from these forums,” the firm wrote.

The foundations have sponsored one forum in Los Angeles attended by Quackenbush, paid for television spots featuring the commissioner and donated more than $1 million to nonprofit groups, primarily in Oakland and Sacramento. The largest contribution–$500,000–went to the Sacramento Urban League, where Quackenbush serves on the board of directors.

Although Quackenbush and his deputies have repeatedly insisted that the foundations operated independently of his office, the committee produced copies of a July 13, 1999, letter to the commissioner from the CEO of the Urban League. The letter said: “Thank you for your gift of $500,000. . . . Chuck . . . I thank you again for your contribution.”

Throughout the day, committee members grilled Quackenbush‘s top deputies about their decision to seek settlements rather than to assess penalties against insurance companies for mishandling earthquake claims.

A preliminary examination of four companies by the department had uncovered numerous claims-handling violations. But the Northridge-related actions of two other companies that were required to enter settlement negotiations had never been reviewed.

Subpoenas were sent to officials at all six companies, requiring them to appear in Sacramento in March 1999 for settlement negotiations. Company officials testified that they were herded into a small room where blow-ups of mock newspaper stories were pinned to the wall. The fake stories, which purported to show what would happen if the companies didn’t settle, reported the commissioner was ordering public hearings into their claims practices.

When asked who in the department had devised the strategy for the negotiations, Deputy Commissioner David Langenbacher said it had been former general counsel William Palmer.

But when Palmer took the stand, he said Langenbacher was incorrect, although he said he could not remember exactly who pushed the idea.