Los Angeles Times
Arguing that former state Insurance Commissioner Chuck Quackenbush acted illegally, California Atty. Gen. Bill Lockyer asked the courts Monday to throw out agreements that allowed insurance companies to donate to foundations rather than face fines for mishandling Northridge earthquake claims.
In a surprise move that could reopen the state’s examination of the handling of insurance claims after the 1994 quake, Lockyer said the agreements should be dissolved because they required payments to foundations whose activities were unrelated to earthquakes and insurance.
Lockyer was joined in his petition to Sacramento Superior Court by Quackenbush‘s successor, Harry Low, who will decide whether to take action against insurers if the agreements are set aside.
A spokesman said Low had not decided what to do if the courts act in his favor, but he noted that one avenue would be to order new examinations of the companies’ handling of Northridge claims.
Lockyer’s move angered insurance company officials, who complained that the attorney general had decided to seek a ruling while they were in negotiations to reach an out-of-court settlement.
“We’re very disappointed and even more surprised because we had been meeting with the attorney general’s and the department’s representatives since August,” said Bill Sirola, a spokesman for State Farm Insurance. “We thought we were very close to reaching an agreement.”
He said that his company “fully complied” with the settlement that it had reached with Quackenbush and had not been willing to go back to “ground zero.” But he said it did offer to have an outside mediator review its handling of Northridge claims.
Quackenbush, the state’s second elected insurance commissioner, left office in July after the settlements that he reached with six insurance companies following the Northridge quake came under fire in a series of legislative hearings.
Four of the companies–21st Century, Allstate, State Farm and Farmers Home Group–entered the agreements after a preliminary examination by the Department of Insurance found numerous examples of mishandled claims. A state audit noted that the review of State Farm identified more than 1,300 violations of the insurance code, including low-balling of claims payments and inadequate investigation of damage. State Farm officials have disputed the findings.
Despite the examinations, Quackenbush allowed the companies to escape any enforcement action by contributing millions to nonprofit foundations he created.
Money from one foundation, the California Research and Assistance Fund, was used to make contributions to certain charities and to pay for television spots that featured the commissioner. At the time, Quackenbush was considering running for governor or the U.S. Senate.
” Quackenbush had no lawful authority to enter into settlement agreements with insurance companies that . . . permitted the use of settlement funds for purposes . . . unrelated to the regulatory responsibilities of the department,” Lockyer wrote the court.
He said foundation moneys were misused by former Deputy Commissioner George Grays, who controlled the distribution of California Research and Assistance Fund, and Ron Weekley, who sat on its board of directors.
The attorney general said Grays directed the fund to make contributions to Skillz Athletic Foundation, a Sacramento-based nonprofit group, and accepted $ 149,000 in kickbacks from the organization.
Weekley caused the fund to enter a contract with his business, Community Connections, and then “distributed to himself the sum of $ 18,000 in connection with that contract.”
A consumer advocacy group, the Foundation for Taxpayer and Consumer Rights, praised Lockyer’s action, saying it would allow Low to properly punish insurance companies for their handling of Northridge claims.
“It will undo Mr. Quackenbush‘s dirty deals and could set a precedent for the proper protection of insurance policyholders,” said Douglas Heller, a spokesman for the group.