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Apr 17, 2000

Insurancegate How will the Legislature respond?

by Harvey Rosenfield
The corruption scandal now engulfing Insurance Commissioner Chuck Quackenbush will soon become a test of the California Legislature's own integrity.

That Mr. Quackenbush has betrayed his oath of office is beyond dispute. When Insurance Department staff recommended that State Farm and several other insurers pay over $3 billion for their mishandling of Northridge earthquake claims, the Commissioner made the companies an offer they could not refuse. Pay no fines and nothing to policyholders, but make tax-deductible donations to a non-profit foundation he set up. This money, a total of $12 million, was used to benefit Quackenbush personally, paying for $3 million in television ads promoting the commissioner and a $500,000 gift to an organization that placed him on its board. These and other insurers also gave the Commissioner $75,000 in political contributions, which he used to pay off campaign loans made from his wife's business and from a second mortgage on their home.

This is certainly enough evidence to justify an investigation under Article IV of the California Constitution, which authorizes the Legislature to remove a public official for "misconduct in office." Indeed, legislators have scheduled two hearings on Quackenbush's actions; another will review the insurers' claims abuses. But there are troubling signs that the Legislature lacks the political will to pursue a serious inquiry that may lead to impeachment.

The most disturbing indication is the proposal by some lawmakers that the Legislature put a measure on the ballot to return the office of commissioner to an appointed position. This is a profound insult to the voters.

After all, it was the insurance lobby's chokehold on the legislature, and the inaction of Roxanni Gillespie, an industry executive appointed commissioner by George Deukmejian, that led voters to pass Proposition 103 in 1988. To ensure that the insurance commissioner enforced its rate reductions and reforms, 103 made the post accountable to the voters by election. Under John Garamendi, the first elected commissioner, the industry paid $800 million in refunds, and a freeze on rate hikes saved California motorists $8 billion. Unable to block the law at the ballot box or in the courts, insurers decided to buy a commissioner who would stop enforcing it. Since first running in 1994, Mr. Quackenbush has collected over $6.4 million from insurers; he has consistently ignored or evaded Proposition 103's requirements.

Making the commissioner an appointed position now would simply reward the insurers for having corrupted the office. They would have just as much pernicious influence as they do today, only the money trail would be harder to follow: their donations would go to the Governor, who would then appoint an insurance executive loyal to the industry. This occurred routinely prior to 103.

The danger is that this retrograde proposal will become the legislature's sole response to Insurancegate. It would protect the insurance companies by diverting lawmakers from an investigation into Quackenbush's conduct -- and that of the insurers. It would provide cover for legislators who want to appear as if they are responding to the scandal without offending their insurance benefactors.

The industry would spend lavishly to win approval of the legislature's measure. Imagine television ads, sponsored by "Californians for Clean Politics," accusing the elected Insurance Commissioner of being bought and paid for by the insurance companies, and urging that it become an appointed post. In fact, the ads will be financed by the insurance companies themselves. Deeply cynical, but precisely the strategy they employed to repeal legislation giving consumers the right to sue them for failing to handle claims fairly. The same three companies that routinely low-balled and mishandled policyholders' claims, according to Quackenbush's staff, placed the legislation on last month's ballot. Then they spent $50 million to convince voters to reject the law.

Like so many other political scandals, Insurancegate has exposed profound flaws in the democratic process. But when democracy doesn't work right, the answer is not to get rid of democracy. It's to strengthen it: in this case, by prohibiting elected officials from accepting money from the industries they regulate. Lawmakers should also establish a consumer watchdog agency, supported by voluntary donations from policyholders, to act as a constant watchdog over the Insurance Commissioner. These reforms are pending in Sacramento. But they won't resolve the current crisis. The Legislature's first priority is to demonstrate to scandal-weary voters who have lost faith in government -- and to other officials who might contemplate breaking the law -- that the Legislature is competent and independent enough to root out and punish corruption.
A version of this commentary appeared in the Los Angeles Times on Sunday, April 16, 2000.

To respond, email For more about Insurancegate, read FTCR's news releases and request for documents from Quackenbush.

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