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Associated Press
Aug 21, 2000

by Jennifer Coleman

Legislative report: Quackenbush `broke faith with the public'

Then-Insurance Commissioner Chuck Quackenbush improperly used his office to further his political ambitions and help his friends financially, then tried to cover it up, legislative investigators said Monday.

Quackenbush ``broke faith with the public,'' the Assembly Insurance Committee concluded in a 98-page report summarizing its findings.
The committee recommends several changes in state law, including greater legislative oversight of the Insurance Department.

Quackenbush let six insurance companies accused of mishandling Northridge earthquake-related claims settle with his department by donating about $19 million to two nonprofits funds he created. The insurance department had threatened the companies with penalties up to $3.7 billion.

Quackenbush was accused of using at least $6 million from the settlement on television ads aimed at benefiting him politically, and on spending with no relation to the funds' purposes of earthquake research and consumer aid and education.

State and federal prosecutors are investigating. No charges have been filed.

The state Assembly on Monday approved a bill that would give Northridge victims an additional year to file insurance claims.
Assemblyman Tom McClintock, R-Simi Valley, a supporter, said Quackenbush's department failed to properly regulate the industry to protect the victims in contracts with their insurers.

``There was no organization within government that was functioning to make sure their promises were honored,'' he said.
However, Assemblyman Tom Calderon, D-Montebello, said the bill could be unconstitutional because it is retroactive and could be tied up in courts for decades.

The bill by Senate President Pro Tem John Burton, D-San Francisco, was approved 49-21. It returns to the Senate for a vote on amendments.
The Assembly Insurance Committee completed its investigation in June after holding five hearings featuring dozens of witnesses. Quackenbush resigned June 28, a day before he was scheduled to testify.

``It became increasingly clear that Chuck Quackenbush, the insurance commissioner, had abused his public trust,'' said committee Chairman Jack Scott. ``He had twisted the powers of his own office so it served his own political interests, instead of the public that elected him.''
The Assembly hearings uncovered ``glaring stories of greed and misconduct by other officials in the department,'' said Scott, D-Altadena.

Quackenbush has denied any wrongdoing, although he has said he made mistakes in judgment. He has maintained that the intent was to get money to consumers quickly and avoid years of litigation with insurers.
Quackenbush's attorney, Don Heller, did not immediately respond to a message left at his office Monday afternoon by The Associated Press seeking comment.

Department of Insurance auditors completed surveys of insurers' handling of claims filed after the 1994 earthquake in Los Angeles. The audits say insurers low-balled claims, delayed payments and gave false information to policyholders.

The companies deny the allegations. The idea to divert the insurers' donations to CRAF and other nonprofit funds came from former Deputy Commissioner George Grays, the Assembly committee found.
There is evidence ``Mr. Grays actually controlled and ran CRAF, frequently from his DIO office next to the Commissioner's,'' the report states.

Grays resigned in April. He refused to answer questions at an Assembly committee hearing, invoking his Fifth Amendment protection against self-incrimination. Grays' attorney, Wayne Ordos, did not immediately return a phone call from the AP seeking comment.

The committee's report recommends strengthening legislative oversight of the Insurance Department and any settlement funds it receives from insurers.

It also recommends giving the Legislature greater authority to compel testimony from state employees and expanding whistleblower laws.

The recommendations are a good start, but the committee should have drawn conclusions about insurers' conduct or misconduct in Northridge, said Jamie Court of the Foundation for Taxpayer and Consumer Rights.
``It remains to be seen whether or not this will produce reforms and translate into protections for policyholders or result in the downfall of just one man,'' Court said.

The Senate Insurance Committee also investigated. It will release a report Monday ``similar in tone'' to the Assembly conclusions, said Richard Steffen, the committee's staff director.
2000 Associated Press

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