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Nov 21, 2000
by Emily Bazar, Bee Capitol Bureau
Quake insurers taken to court
State wants to void Quackenbush dealsIn a move that could have implications for Northridge earthquake victims, California officials went to court Monday to void disputed insurance company settlements brokered during disgraced former state Insurance Commissioner Chuck Quackenbush's tenure.
The new insurance commissioner, Harry Low, and Attorney General Bill Lockyer filed papers in Sacramento County Superior Court to invalidate all of the settlements that resulted in donations to the California Research and Assistance Fund, a nonprofit foundation that, among other things, spent $3 million on advertising featuring Quackenbush.
The complaint also seeks at least $4 million in punitive damages from the foundation's two board members, Eric Givens and Ron Weekley, and a former Quackenbush deputy, George Grays. According to the complaint, Grays illegally funneled at least $149,000 of the settlement money to himself, up from a previous estimate of more than $90,000.
The complaint comes amid a continuing criminal probe into the actions of Quackenbush and others involved with the department and the foundation.
Though officials from the Department of Insurance have been negotiating with insurance companies for months to try to persuade them to voluntarily abandon the settlements, this marks the first time the state has taken the issue to court.
Quackenbush resigned in July amid a scandal over the department's handling of the settlements. Months of hearings and investigations disclosed that the department diverted insurer settlement money for his political benefit. Moreover, investigators learned that the companies, by paying into the foundations, avoided far larger fines and restitution payments. The fines were suggested by department lawyers after reviewing the companies' handling of claims resulting from the 1994 Northridge earthquake.
This spring, Lockyer filed the original complaint, which asked that the foundation be dissolved and at least $4 million in misspent funds be recovered. In response, a Sacramento Superior Court judge froze the foundation's ability to spend money.
The amended complaint filed Monday alleges that Quackenbush improperly brokered settlements in which insurers were required to contribute to charitable foundations that didn't support earthquake- or disaster-related activities.
"We believe he lacked the authority to enter into them," said Sandra Michioku, a spokeswoman for Lockyer.
No hearing date has yet been set, but should the court decide to void the agreements, at least one consumer group believes that Northridge earthquake victims will benefit.
"Finally, this is the opportunity to punish insurance companies that were bad actors after Northridge," said Doug Heller, consumer advocate for the Foundation for Taxpayer and Consumer Rights.
Heller believes that if the settlements are voided, it will give the Department of Insurance the opportunity to conduct new "market conduct exams" of insurers' conduct, and possibly levy appropriate fines against them.
"It may provide new evidence that policyholders after Northridge were low-balled by their insurer or improperly denied claims," Heller said.
Even though talks between insurers and the department have been stymied by the Legislature's recent approval of SB 1899 -- which will provide victims of the Northridge earthquake an additional year to file claims for their quake-related damage -- representatives from insurance companies say they weren't expecting the legal move.
"We're surprised and very disappointed that there has been a decision made to take this to the courts," said Bill Sirola, a spokesman for State Farm Insurance Co.
He said representatives from his company last met with department officials a few weeks ago.
"We thought we were approaching a very good agreement to go back and review the record of the market conduct exams and the settlements that resulted from the exams," he said.
Besides State Farm, the complaint seeks to void agreements Quackenbush made with three other insurance companies: 21st Century, Allstate and Farmers.
The complaint filed Monday also offers more details about Weekley, Givens and Grays and their dealings with the foundation. Notably, the complaint indicates that Grays personally cashed checks for more than $149,000 of insurer settlement money from the account of a nonprofit foundation for which he arranged a grant. Previously, the figure had been at least $90,000.
According to Grays'attorney William Portanova, the former insurance department official has been cooperating with the federal and state officials conducting a criminal probe into the department's handling of the earthquake claims.
Portanova acknowledged that Grays may benefit from cooperating with the government, but says that's not his client's motivation.
"George Grays was prepared and still is prepared to tell the truth with no break," Portanova said. "He's incapable of the type of long-term deceptive manipulation that's required to carry this fraud any further."
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