Hayward insurance agent Thomas Brewer allegedly fleeced a frail, 81-year-old San Jose woman out of much of her life savings.

James Hawes, an agent in Butte County, reportedly sold worthless liability coverage that drove several trucking companies to the brink of bankruptcy, and left badly injured accident victims without insurance money.

San Jose agent Alan Cerf enriched himself by persuading hundreds of policyholders, many of them elderly, to buy costly new life insurance they did not need, court records show.

In each case, the agents apparently violated state law. But they are still in business because the state Department of Insurance failed to take action against them.

Brewer, Hawes and Cerf are just three of hundreds of insurance agents accused of swindling Californians out of millions of dollars in recent years by stealing premiums, selling phony products or ``churning'' policies to pocket new sales commissions.

Yet despite formal complaints, criminal investigations and multimillion-dollar civil judgments, the Department of Insurance often lets them off with little or no punishment, even when the agents are fired by their own insurance companies.

``The public is not being adequately protected,'' said Elliott Rothman, a Los Angeles insurance agent who has testified in agent misconduct cases. ``I have run across many situations where policyholders are being ripped off and it never leads to disciplinary action.''

The California Insurance Code bans improper conduct by agents, including misleading sales practices. The Department of Insurance is responsible for investigating complaints about agent misconduct and has the authority to revoke or suspend licenses or levy fines.

After several years in which the department's policing of agents seemed to improve, the agency's disciplinary record has deteriorated under current Commissioner Chuck Quackenbush, department records show.

A former Republican assemblyman from the Silicon Valley, Quackenbush was elected insurance commissioner in 1994 with broad support from insurance industry interests. Critics blame lapses in the department's commitment to disciplining dishonest agents largely on Quackenbush's controversial decision two years ago to reduce staffing in the department's agent enforcement bureau by a third.

``Before Quackenbush came in, the department showed signs of ramping up, and now it has gone back on that,'' said Judith Bell, director of the West Coast office of Consumers Union, the nonprofit group that publishes Consumer Reports.

``The department is going back to the days of `Sorry we can't be of more help,' and the consumer is left out in the desert,'' Bell said.

Quackenbush, in an interview, defended the department's record during his term in office and said his agency works hard to crack down on unscrupulous agents. Since April the department has hired 23 investigators.

``There has been no letup in enforcement,'' he said. ``Enforcement is one of our key goals. We had to take some hits in that (enforcement) division. We had to make some cuts early on because the Legislature cut our budget. (But) we worked very hard to get that budget money restored and hire people as quickly as we could.''

But in a five-month investigation that included a review of more than 1,000 agent misconduct cases, The Chronicle found that:

-- License revocations have dropped in the Quackenbush administration, and complaints about serious agent misconduct have increased.

-- High-priority cases involving egregious misconduct such as stealing from the elderly sit unassigned for months and even years.

-- The department,fined only one of every four agents it disciplined in the past two years. The average fine was about $250, less than the cost of a ticket for illegally driving in a carpool lane.

-- The department's enforcement record is inflated by rubber-stamp discipline for relatively minor infractions that require little investigative work.

``If consumers knew what was going on, they'd be furious,''said Scott Obrand, a former state insurance investigator.

The department's top managers in charge of pursuing consumer complaints counter that they are doing everything they can to protect the public. Mark Lowder, the deputy commissioner for enforcement, said the department has ``more going on in enforcement than we ever have in the department's history.''

``The records don't reflect the amount of work we do,'' said Dennis Ward, the chief of the enforcement division. ``It's a matter of bodies, not a matter of desire or will on our part.''

But consumer advocates see it otherwise, saying that enforcement has languished because of Quackenbush's close political relationship with large insurance companies and agent groups. Both provided major financial support

--about $2.4 million worth -- when he ran for the office in 1994 and have contributed more than $3 million to the commissioner since then.

Those critics charge that Quackenbush is more concerned with protecting insurance carriers from fraudulent claims than protecting consumers from bad agents.

``He has left consumers without an advocate,'' says state Senator Herschel Rosenthal, a Van Nuys Democrat and persistent critic of Quackenbush. ``There has been a breakdown in the enforcement of existing laws and regulations.''

GROWING INVESTIGATIONS BACKLOG

California is the richest insurance market in the nation. Every year, life and casualty underwriters alone collect more than $65 billion in premiums in the state -- as much money as Intel, the Bank of America and Xerox take in combined.

And millions of Californians depend on the state's 150,000 agents, most of them honest, for counsel on arcane products and competing coverages.

But the Department of Insurance's investigations bureau has failed to keep up with a mounting number of consumer complaints about agents, some of whom work for reputable companies.

In 1996, a review of the department by state Auditor Kurt Sjoberg found that 170 major investigations had gone unassigned for at least a year, 122 of them for at least two years.

``We have concerns about the impact of not assigning all higher-priority cases promptly,'' the audit said. ``Delays ... place the public at more risk.''

According to department records, it has taken the agency years to bring charges against serious offenders, many of whom continued in business while investigations lurched along.

By 1995, for example, the agency had received more than 60 complaints alleging that Michael Flynn, a Hollywood agent, had sold policies but never bought the insurance and pocketed nearly $9,000 in premiums. Yet the department did not revoke his license until 1997.

Quackenbush and other department heads said the license revocation process simply takes time.

``Some of these cases are complicated,'' he said. ``They are hard to work through. It's not like we can just cavalierly sit in my office and say, `Suspend that license.'''

NO PENALTY

Although department regulators insist that they work closely with insurance carriers to halt abuses by agents, The Chronicle found the department has failed to discipline a number of agents who were fired by companies for allegedly swindling clients.

Brewer, a onetime Metropolitan Life agent and licensed investments dealer, is a case in point. The 43-year-old Brewer was fired by Metropolitan in 1993 and later thrown out of the investment business by securities regulators for selling phony overseas investments.

Yet Brewer was never disciplined by the Department of Insurance, even though it received complaints about his conduct as recently as 1996.

One of his victims was Letty Hollowell, 81, who lived in a San Jose trailer park. According to her son, Donald Butler, Brewer knocked on Hollowell's door one day and before long persuaded her to give him a total of at least $27,000 to invest.

``He was smooth with the old folks,'' said Butler, a retired airline pilot who lives in New Jersey.

When his mother told him of her investment, Butler got suspicious and investigated. He said he could find no evidence of the securities and complained to Metropolitan Life and authorities.

``It was a scam,'' said James Simonson, who looked into the case as an investigator for the Alameda County District Attorney's Office. ``It didn't look like anything existed.''

Metropolitan Life subsequently reimbursed Hollowell and the other victims. The National Association of Securities Dealers, with whom Brewer was licensed, filed a complaint against the agent. When he failed to answer it, the regulatory body banned him from the business.

Simonson said his office decided not to prosecute when the Internal Revenue Service began investigating possible tax violations. Simonson said the district attorney's office considered the alleged tax law violations the most effective way to pursue the case.

Brewer is now working for a Southern California-based insurance agency and represents prominent companies such as Aetna and Travelers, according to state records.

He told The Chronicle that he did nothing illegal and was cleared by state insurance investigators. The department said they have never spoken with Brewer about the matter.

``It's something that's unfortunate,'' he says. ``I lost money and other people lost money. Everybody knew what they were getting into. It's over and done with.''

Butler expressed shock when told that Brewer is still in business.

``How in the hell did he stay out of jail?'' Butler said.``If that doesn't take the cake.''

Department officials said they had never received word of Brewer's violations from the NASD, and that they would look into the matter.

SCAMS BY AGENTS

State law prohibits insurance agents from misleading clients about their policies, yet the department has failed to crack down on a number of agents accused of selling worthless or unnecessary coverage.

James Hawes, for example, still has his insurance business in the Butte County town of Gridley, even though he and his brother, George, drove several trucking companies to the brink of financial ruin by selling them worthless insurance.

In the early 1990s, J.W. Hawes Insurance Services sold at least 25 policies offered by an offshore insurance company called First Assurance and Casualty Co. to California trucking firms. FACC was based in the Caribbean, and its policies, as it turned out, were not worth the paper they were printed on.

When some of those firms' trucks had highway accidents, the companies found themselves financially responsible for huge damage claims for coverage offered by FACC that had proved to be worthless.

The people injured in the accidents were left without insurance money for medical bills, lost time at work or pain and suffering. Policies sold by the Hawes agency left more than $1.7 million in unpaid claims.

``It was pretty devastating for these people,'' said San Francisco attorney Dan Kelly, who represented one of the accident victims. ``Your whole life has been changed. Then you find out this (insurance) carrier has gone tapioca ... and you're left with two tulips and a thank-you note.''

One of the accidents left two teenage sisters with severe injuries, and cost a family its trucking business.

In May 1993, Celeste and Collette Davis were driving with a friend near Chowchilla (Madera County) when their car plowed into a truck from Burke and Son Trucking, Inc., a Salinas-based company that had purchased a $1 million liability policy from the Hawes agency in 1992. The truck had turned in front of the girls' car, and investigators ruled that the truck driver was at fault.

The accident left the sisters with horrible injuries, including severe head trauma, brain damage and a broken jaw. The family filed a personal injury suit against the trucking firm. Six months later, the Burkes found out that their coverage, which had cost them $52,000 a year, was worthless.

Burke found himself liable for eventual damages of about $3 million. With no other way to pay, Burke sold his trucking firm, a business he had run for 23 years -- and gave the Davis family everything that was left, about $20,000. In total, he said, the FACC disaster cost him almost $200,000.

``I trusted these guys, and I really took it on that one,'' said Burke. ``They shouldn't only be shut down, they should be locked up. This was as crooked as you can get, crooked to the bone.''

The Davis family is now suing Hawes for professional malpractice. The Burke family moved to Idaho and is trying to start a new business.

Former insurance commissioner John Garamendi barred FACC from selling any more insurance in the state in 1993. The company filed for bankruptcy that year, leaving $16 million in unpaid claims.

But J.W. Hawes Insurance Services is still in the insurance business. Although George Hawes has moved to Montana, state records show that James Hawes represents 11 carriers. The company's official record with the Department of Insurance makes no reference to the First Assurance case.

Hawes, contacted through his attorney, declined to comment.

Department officials said outdated state laws do not hold retail agents such as Hawes accountable to the department when they sell policies from unauthorized insurers such as First Assurance. Those agents may be sued in civil court, however. The department said it has gone to the Legislature to try to get the laws changed.

`CHURNING' THE MONEY PIT

The Chronicle also found that the state has failed to take action against some agents accused repeatedly of the illegal practice of ``churning'' -- switching coverage for the purpose of generating new commissions.

Alan Cerf of San Jose, for example, was fired in 1992 by Central Life Assurance for allegedly improper policy replacement. He also has been dismissed by at least two other companies for apparently improper practices.

But Cerf is still in business.

Cerf sued Central Life after his firing, alleging wrongful discharge and defamation. In the case, the company accused the agent of persuading about 500 of its policyholders to switch to coverage underwritten by another company that cost more or provided fewer benefits.

``While Cerf has reaped quick and easy profits, many of his clients have suffered financial losses and now hold inferior or inappropriate coverage,'' CentralLife asserted.

One of Cerf's alleged victims, 71-year-old Edwin Weeks, complained in court papers that Cerf misled him when he switched his coverage from Central Life to another company, never telling him he would have to pay a $10,000 surcharge if he changed.

A Santa Clara County judge later ruled that the company owed Cerf $146,899 in back compensation but denied him damages and raised questions about Cerf's sales practices.

In a similar case involving Central Life, two partners in an East Bay roofing company sued Cerf in 1996, accusing him of misrepresentation in a policy switch. The partners asserted in a letter to the company that Cerf either forged the conversion forms or had the two partners sign blank forms so Cerf could make the shift without their knowledge.

``He just churned the pot,'' one of the partners, George Bean, said in an interview. ``I kept hearing all the horror stories of who this guy screwed. He should have been thrown in the slammer.''

The case was settled out of court.

In an interview, Cerf defended his sales practices and claimed victory in his dispute with Central Life. He would not discuss the roofing case, citing a confidentiality agreement.

Department of Insurance officials declined to discuss Cerf. But in general, they said, it can be difficult to prove churning cases because of the need for cooperation from victims and insurance companies and a requirement for a detailed financial analysis showing wrongdoing.

CRIMINAL RECORDS

In other cases, the Department of Insurance has allowed people convicted of crimes ranging from narcotics trafficking to armed robbery to continue to sell insurance in the state.

The California Insurance Code requires agents to conduct their business in an honest manner, as well as to follow all other laws. State rules give the department wide latitude in disciplining agents convicted of criminal activity, including the authority to revoke or suspend licenses or levy heavy fines. .

But The Chronicle found many cases where the department merely placed agents convicted of major crimes on probation or levied relatively minor fines.

Steven Hanna, for example, was convicted of importing 2,000 pounds of hashish. But in 1996, the department gave a probationary license to the new agent, from Elk Grove in Sacramento County.

That same year, the department let Stockton agent Hazem Al-Hindi keep his license, although on probationary status, even though he was found guilty of helping a friend commit armed robbery.

At the same time, California insurance regulators have given licenses to agents who lied on their applications about offenses they committed in other states.

Last year, regulators allowed Richard and Silvine Patierno of Charleston, S.C. to sell life insurance in the state, even though the couple had been fined $2,000 in South Carolina for selling insurance investments without telling clients that the investments carried a 35 percent up-front sales charge.

The Patiernos did not disclose that fine on their application, an offense that alone could keep them from getting a California license. Instead, the Department of Insurance fined them $100 each and gave them a license anyway.

The department said its policy when reviewing licenses is meant to protect consumers rather than punish agents for non-insurance-related illegal activity. Court decisions have forced the department to grant licenses to agents with criminal records that include drug dealing and manslaughter.

POLITICAL REFORMS

Until 1988, California's insurance commissioner was appointed by the governor. But voters enacted a watershed change in department operations that year, making the job elected.

Behind the decision was long-simmering dissatisfaction with department indifference toward consumer interests. The situation got so bad during the term of Roxani Gillespie, the last appointed commissioner, that department staff handled consumer complaints by simply tossing them out.

First to be elected, in 1990, was Democrat John Garamendi, who is widely credited with improving regulation, particularly of agents, but also has been criticized for politicizing the office.

The Garamendi administration took on more agent misconduct cases than it could handle. While agent license revocations and other disciplinary actions increased, the department got so overburdened with consumer complaints that a backlog of approximately 6,500 cases developed. When Quackenbush was elected in 1994, he promised to give insurance companies greater leeway to do business in the state and told consumers the increased competition would mean lower rates and better service.

But his term in office has been plagued by allegations that he has been influenced by the major insurance carriers and agents groups that contributed approximately $6 million to his campaign for office and are now supporting his run for re-election this year.

Quackenbush denies he has been influenced by the industry interests that have supported him.

``Every elected official ... is taking contributions from interested parties,'' he said. ``When you look at our record, I don't think you can see any bias in favor of anybody. None of these people who contributed were given any slack.''

Quackenbush and other department managers also said they has reduced the case backlog inherited from Garamendi by 27 percent, and point to the reduction as proof of greater investigative efficiency.

``We've seen some very positive results,'' said Ward. ``We've achieved that 27 percent reduction in less than a year.''

Critics, however, say the reductions are the result of brushing some complaints aside.

``Complaints are being rebuffed, with staff taking consumer calls being coached to talk consumers out of filing a complaint at all,'' said Philip Roberto, research director of the Foundation for Taxpayer and Consumer Rights. The group is frequently critical of Quackenbush.

Critics also charge that many of the disciplinary actions taken by the department involved agents who committed relatively minor offenses. Department records show that about 80 percent of the 282 agents whose licenses the department revoked in the past two years committed non-insurance-related crimes or simply lied on their license applications.

The department needed only routine computer checks to catch them. Meanwhile, higher priority cases requiring extensive investigative work have gone unassigned for months or even years.

Department managers said they get more than 20,000 license applications a year, and the sheer volume of applications means a higher number of administrative cases. They also said serious cases do not pushed aside by minor ones.

``It really depends on the case, and its merits,'' said Patricia Staggs, head of the department's producer compliance bureau, which oversees legal matters involving agents.

In 1996, a $16 million budget shortfall for the department led Quackenbush to cut the agency's staff by 95 people, most of them from the consumer services, audit and investigative divisions.

The investigative staff was reduced from 46 to 31. Quackenbush also gave remaining investigators additional non-investigative duties that hindered their ability to pursue complaints about agent misconduct. With the recent staff additions, though, the investigative bureau now has 60 agents.

The $16 million budget shortfall was largely the result of two lawsuits against the department won by the insurance industry. The suits forced the department to pay $14 million in fee rebates to industry organizations. The Legislature also trimmed the department's budget that year by about $2 million.

The suits, which were filed against the department while Garamendi was commissioner, challenged the use of insurance company fees to finance consumer service activities, including pursuing complaints against agents accused of misconduct.

The department said it fought the cutbacks at every turn, and has since worked hard to find reliable sources of money for consumer protection services. Department managers blamed partisan political infighting in Sacramento for their failure to secure consistent funding.

But consumer groups contend that even with budget cutbacks, Quackenbush could have preserved the investigative staff through such measures as raising agent licensing fees or cutting other services.

But Quackenbush points to state rules that limit the ways the department's money is allocated and spent, and said insurance interests have blocked his efforts to raise fees.

``We could clear up a lot of this backlog in enforcement if I had the ability to move funds from other areas of the department and hire more quickly,'' he said.

Still, some state lawmakers question the department's commitment to fully funding -- and providing -- consumer services.

``There are a range of potential remedies,'' a Senate Insurance Committee report said in 1996. ``The question is whether Commissioner Quackenbush and the insurance industry will agree to cooperate with the Legislature to protect and preserve the Consumer Services Division.''

ABOUT THE SERIES

-- TODAY: Some insurance agents have swindled

Californians out of millions of dollars and the state Department

of Insurance often takes little or no action against them

-- TOMORROW: Hundreds of Californians were victimized by

two huge insurance scams in the 1990s, and the Department of

Insurance has done little to discipline the agents who cheated

them

-- THURSDAY:In Florida, the state insurance commissioner

places a high priority on prosecuting dishonest agents.

THIS SERIES IS RESULT OF 5-MONTH PROBE

The Chronicle investigation originated in an agent's complaint to the newspaper about another agent's misconduct and that regulators did not discipline him.

During a five-month investigation, reporters David Dietz and April Lynch interviewed scores of industry experts, regulators, victims of swindles and agents.

They also reviewed thousands of pages of court and regulatory records, including all of the insurance department's disciplinary actions in 1996 and 1997 -- more than 1,000 files.

Under the state Public Records Act, The Chronicle sought more extensive disciplinary information from the department. After initially agreeing to provide the information, the department resisted.

The newspaper sued the department in San Francisco Superior Court to obtain the records. The court ordered the department to provide the records. As this issue went to press, the department had not complied with the court order.

CONSUMER CHECKLIST

In California, more than 150,000 insurance agents and brokers sell policies to the public.

Use this checklist to make sure your agent or broker has a good record, check on your insurance carrier's status, or protect yourself if you think you have been treated unfairly.

-- AGENTS

If you think you have been treated unfairly or illegally by your agent or broker, you may file a ``Request for Assistance'' from the State Department of Insurance. Forms and an explanation of the procedure can be obtained by calling the department's consumer hotline 1-800-927-4357 or going to http://www.insurance.ca.gov/docs/Idconsum.htm.

The department can tell you about your agent's or broker's license status and record. Licensing information can be obtained by calling the department's consumer hotline or going to the license section of the department's Web site. There you will find the agent's license number and a summary of their record.

-- INSURANCE COMPANIES

You can check the insurance company's status by calling the department's consumer hotline above or going to the authorized insurer section of the department's Web site.

-- DEPARTMENT OF INSURANCE

Consumer advocacy groups can also provide advice on how to deal with the with the department, as well as how to handle problems with an agent or broker.

The Foundation for Taxpayer and Consumer Rights, a group with a long history of trying to reform the insurance industry in California, can be reached by calling 310-392-0522. The group's Web site at http://www.consumerwatchdog.org contains a wide range of insurance information.

In the Bay Area, the advocacy group Consumers Union can be reached by calling 415-431-6747 or visiting http://www.consunion.org.

RELATED COVERAGE ON TV AND INTERNET

For more about dishonest insurance agents, watch NewsCenter 4 at 6 p.m.

Chronicle staff writers David Dietz and April Lynch will discuss the series on ``Take Issue'' with Pete Wilson on BayTV at 8 p.m. The stories can also be found by logging onto www.sfgate.com.

AGENTS AND INSURERS

The different types of insurance sellers and insurance companies that operate in California:

-- INDEPENDENT AGENT: An insurance seller who has contractual ties to several insurance companies. Insurance companies employing such agents must file a guarantee with the state.

-- CAPTIVE AGENT: An insurance seller who has contractual ties to one insurance company. The insurance company employing a captive agent must file a guarantee with the state on the agent's behalf.

-- BROKER: An independent insurance seller who may try to place insurance coverage with many different companies on a client's behalf. Brokers must file a $10,000 bond as a guarantee with the state.

-- BROKER-AGENT: The term used by the California Department of Insurance when licensing people who sell the most common types of insurance. A broker-agent license allows the holder to work in either capacity, depending on the licensee's contracts with insurance companies.

-- ADMITTED CARRIER: An insurance company with full authorization from state officials to offer insurance in California. Policies from admitted carriers are covered by state guarantee funds if the company defaults on a claim.

-- NON-ADMITTED CARRIER: An insurance company that is eligible to offer insurance in California, but without full state backing. State guarantee funds do not cover claims if the company defaults. Brokers and agents are supposed to sell coverage from such companies only if no coverage is available from an admitted carrier.