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Insurance Czar Faces Industry Accusers
Witness ties Quackenbush to request for donation

Sacramento -- An executive with a major insurance company testified yesterday that Insurance Commissioner Chuck Quackenbush attended a meeting where the company was urged to contribute millions of dollars to nonprofit foundations rather than face huge fines over mishandled Northridge earthquake claims.

The allegations followed the long-awaited testimony by Quackenbush before the Senate Insurance Committee, which is investigating the legality of the foundations and why the money was distributed to groups not related to earthquake safety.

The statement by Farmers Group Inc. representative Steve Weinstein directly contradicted Quackenbush's repeated assertions that he had not taken any direct role in the negotiation.

"I recall at least one meeting with the commissioner," Weinstein said. "There may have been another that he stuck his head in, but there was at least one."

Earlier in the day, Quackenbush repeated that he did not recall taking part in the settlement talks.

"Was I in the building at the time these meetings occurred? It is possible," Quackenbush said. "I don't recall making any special appearances to dazzle those involved with my presence."

Weinstein and other insurance company officials said they went to the state Department of Insurance after receiving subpoenas. Those statements also appeared to contradict representatives of the department who said earlier in the day that they had no recollection of issuing any subpoenas.

"Then there was a misrepresentation by the Department of Insurance," said Hillsborough Democrat Jackie Speier, chairwoman of the committee, during the more than eight-hour hearing.

Among other things, lawmakers are investigating Quackenbush's decision to let a half-dozen insurers avoid the possibility of receiving up to $3 billion in fines for mishandled Northridge earthquake claims by giving about $12 million to a nonprofit foundation Quackenbush created.


The foundation, the California Research and Assistance Fund, was supposed to spend the money to help consumers with earthquake claims and finance quake-damage research.

Instead, much of the money went to public-service television ads highlighting the commissioner and to groups with no connection to quake issues, but direct links to people in the Department of Insurance. Other funds also were set up that have drawn critics' fire, and about $1.9 million in insurer payments went to political advertising in 1997 and 1998.

Quackenbush said his goal was to secure quick agreements rather than protracted negotiations that would have "locked up the department" for years.

Quackenbush did acknowledge yesterday that his department presented insurers accused of mishandling quake-related claims with mock news articles "reporting" that the insurance firms would be called to public hearings.

"The goal was to make sure they understood how serious" the department was about securing settlements, Quackenbush said. "We put our cards on the table. Some people have called that oppressive . . . government thug tactics. . . . We were trying to get our job done."

Weinstein said he was "stunned and outraged" at the mock articles.

His comment was echoed later by Steve Patterson, assistant counsel for State Farm, who called the tactics "heavy-handed."


Quackenbush, one of two statewide elected Republicans, walked out of a hearing called by the committee two weeks ago, accusing Speier of conducting a political ambush.

Back yesterday after a subpoena was issued, the commissioner again accused Speier of holding the hearings only because she has publicly expressed interest in his job.

``That is not justification for having this shameless witch-hunt,'' he told Speier.

Speier denied the charge, saying, ``We are here today not because we want to be, but because we have to be.''

Quackenbush, who altered at times among defiance, ignorance and contrition, acknowledged he would do some things differently and said changes in his top staff have tightened the regulatory process by which the Department of Insurance operates.

Speier, who dominated the questioning, reacted with disbelief and anger to many of Quackenbush's comments.

``Every hour, there is a something new that he doesn't know anything about,'' she said during a break in Quackenbush's six hours of testimony. ``These things are not out of the blue. I don't believe he didn't know.''

The Senate estimates about $19 million was directed to vendors or nonprofits instead of into the general fund, which is where state law says such corporate fines should go.


"I am stunned -- and object to a process where the insurance commissioner acts privately of the general fund, and the legislative oversight and budget process," Speier said.

Quackenbush angrily dismissed questions by Sen. Teresa Hughes, D-Los Angeles, on whether some Northridge quake victims had received no relief despite repeated pleas to the department for help.

"That's a crock, Senator," said Quackenbush, who was flanked throughout the day by six of his deputies, who often answered questions on his behalf.

He said Speier has "shamelessly disregarded" efforts his department has undertaken to obtain payments from insurers to victims of the 1994 Northridge quake.

Quackenbush acknowledged several times during the hearing that his department "dropped the ball" overseeing restitution and outreach to victims of the Los Angeles-area earthquake.

On some occasions, none of the seven department officials present yesterday could answer questions from committee members.

For instance, they were unable to say how a foundation created by his department to help quake victims chose to spend millions of dollars with Target Enterprises Ltd., a ``media-buying'' firm. Target arranged airtime for both earthquake-education commercials and Quackenbush's 1998 re-election campaign.

Quackenbush is also under investigation by the Assembly Insurance Committee, the Fair Political Practices Commission and Attorney General Bill Lockyer's office.

The Assembly committee plans to open three days of hearings today. It has issued at least 20 subpoenas for witnesses. Quackenbush, who testified once already before the committee, was not subpoenaed and is not expected to appear.

Also this week, Sacramento Superior Court Judge Joe S. Gray is expected to rule on whether confidential reports of insurers' practices, called market conduct exams, which were compiled by Quackenbush's department, should be turned over to the Legislature.

The exams reportedly detail alleged violations entailing more than $3 billion in potential penalties.


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