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home / insurance / in the media

Sacramento Bee
Oct 21, 2002

by John Hill, Bee Capitol Bureau

Wanted: Insurance Watchdog Garamendi says that he has more to accomplish in his former position.

John Garamendi starred as an offensive guard on the University of California, Berkeley, football team, and stood out in wrestling as well. He developed health care clinics for the Peace Corps in Ethiopia, served for 16 years in the state Legislature, ran for governor twice and served in the Clinton administration as a deputy to Interior Secretary Bruce Babbitt.

His days continue to be full. Garamendi recently spent the morning with his wife and son at his Calaveras County ranch weighing, vaccinating and putting ear tags on newborn calves, then showered and hopped on a plane for a sumptuous Hollywood Democratic National Committee fund-raiser.

"It's been a good life," he says.

So why does Garamendi, 57, want to return to a position he held a decade ago, state insurance commissioner, an office that has been fraught with turmoil and controversy?

For the candidate, the answer is simple: "I know the potential and power of this office to help people."

Others, including his Republican opponent in the Nov. 5 election, see more complex motives. One of the hallmarks of Garamendi's long public career has been a restless ambition. Now, skeptics say, Garamendi sees his old office as a springboard for something bigger.

And as in the past, detractors say, Garamendi's aspirations are likely to cloud his judgment as a public servant.

"It goes back to the time he nominated himself to be president of the state Senate and no one seconded the nomination," said Kevin Spillane, political consultant for Gary Mendoza, the Republican attorney who is running against Garamendi. "Perennial candidacy for office. ... This is a steppingstone."

Garamendi says he has no political plans other than to serve as insurance commissioner for eight years, the maximum allowed under the term-limits law.

First and foremost, he says he wants to return the department to the aggressive consumer advocacy he claims as the legacy of his first stint from 1991 to 1995.

Garamendi sees new challenges - and potential.

He would like to stretch the influence of the office - proposing ways to cover the uninsured, for instance, despite the department's limited jurisdiction over health plans.

He even sees a role for the commissioner in finding ways to use the immense capital of the insurance industry to revitalize inner cities.

Garamendi said he is driven by a desire to help vulnerable people.

"I lived in Africa, where people had nothing and were screwed by their governments, by corporations, by colonialism and all that went with it," he said. "I watched people starve in my village. ...

"My reason for being in government is to help those at the bottom. Those at the top can take care of themselves."

Far from another run for governor, he said, his greatest desire after serving as insurance commissioner is to return to Africa and do what he did as a Peace Corps volunteer.

His first time in office, Garamendi did little to disguise his longing for higher office. He was known for his frequent press conferences and broadsides against the insurance industry.

Dan Dunmoyer, a lobbyist for the Personal Insurance Federation of California, recalls a famous, or infamous, Garamendi quote: If he wasn't in court with insurers by 8:30 a.m., it wasn't a good day.

"He referred to us as pigs at the trough, as a roach motel - the money comes in but it doesn't go out," Dunmoyer said. "He did a phenomenal amount of press - even more than the governor."

Garamendi moved aggressively to implement Proposition 103, the measure approved by voters in 1988 that called for consumer rebates and rate rollbacks. The industry took the initiative to court, arguing that it was unconstitutional, and the state Supreme Court rewrote the measure to ease the burden on insurers.

These days, Dunmoyer said Garamendi appears to be more intent on building bridges with the industry.

"We're cautiously optimistic that he's a kinder, gentler Mr. Garamendi," he said.

Garamendi received high marks from consumer advocates.

"He surrounded himself with brilliant people," said Harry Snyder, then-director of the West Coast office of Consumers Union. "He delegated well. He mellowed in office. I was very impressed by John."

As for Garamendi's ambitions, "he's a politician," Snyder said. "He should be looking ahead to the next office."

Harvey Rosenfield, the author of Proposition 103, also praised Garamendi for his consumer advocacy.

"As the first elected commissioner, he did a very commendable job of making sure the will of the people was implemented and enforced," said Rosenfield, president of the Foundation for Taxpayer and Consumer Rights.

"I think the guy tries to do the right thing. He's cognizant of his political career, but there are other politicians in California I believe are corrupt, and he is not one of those people. ... I don't think money drives him."

Snyder and Rosenfield, however, have very different takes on Garamendi's stance on one important issue of his tenure: no-fault auto insurance.

Garamendi spoke out against the idea during the 1990 campaign, but in his first year reversed course.

"We hammered Garamendi," Snyder said. The commissioner, he said, listened closely to the arguments and eventually saw that it was the only answer.

Rosenfield, who opposed no-fault insurance, puts it in a different light. Although Garamendi may have believed in the merits, he said, he also may have been driven by Republican Gov. Pete Wilson's endorsement of the idea.

Garamendi's critics say his political aspirations were at the heart of his most controversial action as commissioner: the seizure and sale of Executive Life Insurance Co.

Soon after he became commissioner, Garamendi used his powers to conserve Executive Life, which had invested heavily in junk bonds.

Many of the facts of the complicated case are disputed, but one thing is certain - some policyholders who depended on annuity payments ended up with substantially less money then they had received before the seizure and sale.

Garamendi's opponents in the Democratic primary criticized his handling of the case. Mendoza has done the same, and also arranged for some of the people whose annuities were slashed to join him on the campaign trail.

"There would have been plenty of money to go around if Garamendi had done his job," Mendoza said. "The best you can say is that he was grossly incompetent."

Garamendi said he was required by law to conserve the bankrupt company, given its precarious financial state and an extended "run on the bank" by policyholders. He often says that 92 percent of the policyholders were made whole, despite the company's junk bond portfolio and a high rate of default. He claims to have gone to great lengths to cover the other 8 percent, but says he was thwarted by court rulings that said holders of commercial paper - "big-time Wall Street investors" - had to be treated the same as policyholders.

"That's a good, good result in the nation's largest insurance bankruptcy at that time," he said.

Since his ill-fated run for governor in 1994, when he was beaten by then-Treasurer Kathleen Brown in the Democratic primary, Garamendi served in the Clinton administration, acting as lead negotiator in the preservation of the Headwaters old-growth redwoods, which the government purchased for $380 million.

In 1998, he left to become a partner in the Yucaipa Companies, a private investment firm based in Los Angeles. The company's chief executive officer is grocery magnate Ronald W. Burkle, a major supporter of Gov. Gray Davis.

Garamendi, who has an MBA from Harvard, set up an office in Washington, D.C., and looked for investment opportunities on the East Coast.

"I wanted the experience outside of government," he said.

Another formative experience, Garamendi said, occurred much earlier: digging fence post holes on the family ranch during summer breaks from college. It was done with a 20-pound steel bar, sharpened on one end. The first six inches or so were topsoil, but the next 30 inches consisted of schist, which did not give way easily to the steel bar.

"It was blue smoke and sparks," he said.

For better or worse, Garamendi seems to have taken away a steely determination.

As he puts it, "One thing that can be said about me is, I don't sit back and let things drift."
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John Garamendi
Party: Democrat
Age: 57, born Jan. 24, 1945, in Camp Blanding, Fla.
Occupation: Partner in private investment company
Education: Master's degree in business administration, Harvard University; bachelor's degree in business, University of California, Berkeley
Residence: Walnut Grove
Family: Married, six children
Background: Assemblyman, 1974-76; state senator, 1976-90; insurance commissioner, 1991-95; deputy secretary of the U.S. Department of Interior, 1995-98
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The Bee's John Hill can be reached at (916) 326-5543 or jhill@sacbee.com

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