Hearings on Insurance Fraud Enforcement

David Dietz

Saturday, February 6, 1999

The FBI and a passel of federal and state agencies got their man when Carlton Hagmaier, a former San Luis Obispo insurance agent and investment adviser, pleaded guilty in a Los Angeles court in December to an eight-year run of fraud that cost clients $2 million.

There was just one problem: The California Department of Insurance, which helped investigate Hagmaier, let him walk out of court without taking away his sales license, leaving him free to go about his business while awaiting sentencing.

Indeed, the 35-year-old Hagmaier already had shifted operations to Danville, where he manages a firm called Vista Financial Advisers and represents a number of life insurance companies, state records show.

With lapses like this as a backdrop, the state Senate Committee on Insurance said yesterday that handling of agent misconduct will be high on its agenda February 25 at a Sacramento hearing into Department of Insurance practices.

``It suggests to me that the department is not enforcing the law,'' Senator Jackie Speier, committee chairwoman, said of the Hagmaier case. ``Not taking action undermines the entire system of consumer protection.''

In a series of articles last fall, The Chronicle reported widespread breakdowns in disciplining bad agents, some of whom had swindled people out of millions of dollars. When agents were fired by insurance companies for cheating people or punished by civil juries, the state often took no action against them.

The Chronicle found that the department let major cases languish while pursuing minor offenders. A computerized review showed that the average fine for offenses ranging from faking credentials to selling phony insurance was $250, less than the cost of a traffic ticket.

At the hearing, Insurance Commissioner Chuck Quackenbush and top department officials will be asked to describe the department's disciplinary procedures and suggest any legislative remedies.

``We're going to be objective and hear from the commissioner,'' Speier said. `This is not a witch hunt, and we want the commissioner to tell us where there are flaws, to state his case.''

The senator nonetheless voiced her concern over lapses in consumer protection, not just at the Department of Insurance but at other state regulatory agencies. Some of it is the result of low staffing and spending, she said.

The committee also has asked Quackenbush for a progress report on reducing consumer complaints against companies and agents. A 1997 state audit found that scores of major cases had been sitting unassigned to investigators for at least two years.

Other issues on the agenda, some the source of major consumer complaints, are auto insurance rates, redlining and department spending on consumer education.

Dan Edwards, a Quackenbush spokesman, said the department was eager for the hearing to ``shed light on issues of mutual concern'' and to voice its budget needs, especially in enforcement.

In Hagmaier's case, the agent is scheduled to be sentenced in March for mail fraud, embezzlement and lying to a lender and on a federal income tax return. He faces a sentence of as long as 53 years in federal prison and a $2.1 million fine.

Hagmaier did not return Chronicle telephone calls.

The department last month moved to revoke Hagmaier's license -- the day after The Chronicle telephoned the agency to inquire about the case.

``The department has been very aggressive in this case,'' said spokesman Scott Edelen, who added that licenses are not normally lifted in such instances until sentencing.