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NEWS RELEASE
May 07, 2000

Quackenbush and Me: Rosenfield Analyzes Orange County Register Article

By Harvey Rosenfield
Thursday's Orange County Register (May 4) decided that Chuck Quackenbush and I have a lot in common: we both set up non-profit foundations. Based on that, the article suggests, there's really very little difference between us.

Well, the Orange County Register really got me thinking. Here are some other comparisons that have come to mind since then:
    Cameron Diaz and James Cameron: In addition to their identical names, both are in show business!

    Spiders and chairs: both have legs.

    FDR and Hitler: both in charge of countries between 1940 -- 1945.

    Orange County Register and Quackenbush: both struggling to find an alternative to the Quackenbush scandal.
For those of you who read the article and may be scratching your heads, here is an analysis of the "similarities" uncovered by the Orange County Register's special investigative team.

OC Register Assertions QuackenbushFTCR
"The state insurance commissioner [dropped] misconduct charges against six insurance companies in exchange for contributions to private foundations he helped create.
One of Quackenbush's chief accusers, consumer advocate Harvey Rosenfield, has a similar… foundation of his own, also created with… $5 million donated by Allstate Insurance when Rosenfield agreed to drop a lawsuit against the firm."
Professional investigators with the California Department of Insurance recommended that insurance companies be ordered to reopen and pay disputed claims, along with fines of up to $3 billion.

Quackenbush ordered no fines and no restitution. Instead, insurance executives were called into his office and offered an alternative: make tax deductible donations totaling $12 million to non-profit "foundations" Quackenbush would then set up. Insurers have described the gambit as extortionary. But it was a deal they couldn't refuse.

Quackenbush subsequently absolved the insurers for any mishandling of claims. In fact, he officially stated that State Farm -- which his staff determined had broken the law in more than half of the claims reviewed -- had handled all claims fairly.
In 1997, FTCR attorneys filed suit against Allstate Insurance Company. Our suit led to an FBI investigation and a public outcry. Allstate then asked to resolve the case and a related class action suit by policyholders.

FTCR settled the lawsuit -- it was not "dropped" -- and in a manner very different than the approach taken by Quackenbush. As a result of the settlement:
  • Allstate Insurance Company agreed to notify and reopen the Northridge claims of policyholders who believe they are entitled to additional payments.

  • It established a process to make sure policyholders received full payment of claims.

  • It agreed to pick up the policyholders' legal costs and other expenses.

  • An independent panel of judges was established to review any instances in which policyholders disagreed with the results of the investigations.

  • Allstate further agreed to hire an outside consultant to review and improve its claims practices.

    Allstate estimated its total payments under the settlement between $50 and $100 million.

  • Finally, Allstate agreed to pay $5 million to consumer advocates to create a new consumer advocacy organization, which I helped organize and now direct, in addition to my work with FTCR. It's called the Consumer Education Foundation (CEF).
"More than a year after it was created, however, the [CEF] has little to show for its money. Like Quackenbush's foundations,[the CEF's] big plans have yet to be fulfilled." The Quackenbush foundations spent more than $6 million of their money within a few months of their creation, largely in ways that benefited only Mr. Quackenbush. Among them:
  • $3,000,000 was spent to produce and broadcast television commercials in which Mr. Quackenbush appeared to promote himself;

  • $500,000 was given to a Sacramento organization in exchange for Mr. Quackenbush personally obtaining a seat on the Board of Directors of the organization;

  • $263,000 was donated to a sports camp attended by Mr. Quackenbush's children.
CEF is to act as a consumer watchdog in three areas: loss prevention, conversion of mutual insurance companies to for-profit companies; and consumer protection generally. Like FTCR, CEF will be a strenuous advocate for consumer rights.

In its first meeting, the CEF Board of Directors agreed that the organization should first develop a blueprint for projects the organization will undertake. That's happening now.

Other than to pay me and a researcher to begin the projects,
and to pay bookkeeping and other expenses, the Consumer Education Foundation has spent none of its money. Thanks to the stock market, as of 12/31/99 there was more in the bank to be spent -- on worthwhile watchdog efforts -- then when it was created.
"Rosenfield, 47, is drawing a $100,000 annual salary from the nonprofit foundation, and will do so for life if he wants to…. The foundation's bylaws name Rosenfield as the group's "designator" for life, or until he quits or is incapacitated. As designator, Rosenfield sets the terms the board members will serve and may appoint and dismiss them for any reason." Wrong. There is no such "lifetime guarantee." California law requires non-profits to follow careful procedures for spending money. Compensation decisions are required by law to be made by independent majorities of the board of directors.

And the official by-laws of the organization approved at the first board meeting in April of last year state that board members are not appointed by me, but are elected and/or removed by the Board itself. (Because I was the incorporator of the CEF, I designated the initial board members).







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