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Calif. officials seek to void insurance settlements


SAN FRANCISCO (Reuters) - Two top California officials asked a court Monday to void controversial earthquake settlements with four major insurers and their affiliates in a move that could expose the firms to fines or penalties.

Attorney General Bill Lockyer and Insurance Commissioner Harry Low filed an amended complaint in Sacramento Superior County Court seeking to void the settlements at the center of a scandal that led former insurance chief Chuck Quackenbush to resign last June.

The complaint contends that Quackenbush lacked the authority to arrange deals that allowed State Farm, 21st Century, formerly 20th Century, Allstate Corp. and Farmers Insurance to avoid paying some $3.3 billion in fines from alleged mishandled claims stemming from the 1994 Northridge Earthquake.

Instead, insurers donated some $12 million to the nonprofit California Research and Assistance Foundation, described as a political slush fund that critics say ran advertisements that boosted Quackenbush's career.

"This opens the firms up to any kind of enforcement or regulatory review by the Department of Insurance if the settlements are voided," said Sandra Michioku, a spokeswoman for the Attorney General. "We are also pursuing the dissolution of the nonprofit corporation.

" Representatives of 21st Century did not return calls seeking comment but Allstate issued a statement saying it considered its deal with the Department of Insurance binding and noted the firm had paid $2 million toward the foundation.

"We believe strongly that the settlement agreement entered into between Allstate and the California Department of Insurance is a valid and binding contract and Allstate has complied fully with the terms and conditions of that contract," the statement said. "It's important to know that Allstate did not establish the fund and did not control its expenditures."

State Farm spokesman William Sirola said he was surprised at the attempt to void the settlements because his firm had been meeting regularly with California officials to work out a way to resolve the issue.

The complaint also seeks damages from a number of the controversial nonprofit's board members, including former Deputy Insurance Commissioner George Grays, for allegedly using the charity's assets for their own personal gain.

The alleged payments included $18,000 to one board member's consulting firm and at least $149,000 to Grays through the Skillz Athletic Foundation Sports Camp, the attorney general's office said.

The attorney general earlier this year asked a court to dissolve the foundation, alleging the organization was a sham nonprofit. Pending a decision, a judge froze the group's assets and subjected its expenditures to court review.

Quackenbush has resolutely denied any wrongdoing in his regulation of insurance companies. But he nevertheless stepped down on June 28 after months of revelations about how his office struck questionable deals with insurance and title firms.

By leaving his post, the two-term Republican avoided almost certain impeachment in one of the worst political scandals to hit California in decades.


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