Documents published by the California Senate on this site

From Tue Jun 13 17:57:09 2000
Date: Tue, 13 Jun 2000 09:54:57 -0400
From: Jim Mooney 
To: Flash 
Subject: Re: Fw: Just FYI

Hot stuff.  CA market conduct exams were released and show SF a major
wrongdoer.  Go to the URL mentioned below:

20th Century Insurance and 21st Century Insurance had the highest number
of state insurance law violations, Burton said, with an average of two
citations for every claim. Forty-eight percent of State Farm Insurance
claims had possible violations, followed by Farmers Insurance with 45
percent, and Allstate with 25 percent, Burton said.



From Tue Jun 13 17:58:17 2000
Date: Tue, 13 Jun 2000 10:55:15 -0400
From: Jim Mooney 
Subject: More SF news

The CA market conduct exams show that SF did wrong not just in the quake
but in All cases:

Investigators found similar violations in nearly half of the files they
reviewed at State Farm -- the company hardest hit by the Northridge
earthquake. In that case, however, regulators suggested that the problem
wasn't limited to earthquake victims and might extend to all forms of
insurance provided by the company.

'94 quake payments attacked
Insurance probe: Confidential reports reveal `gross oversight.'
Mercury News

SACRAMENTO -- Victims of the 1994 Northridge earthquake received
``unreasonably low'' settlements, ``inadequate investigations'' and
``highly questionable'' treatment from their insurance companies,
according to confidential reports at the heart of the investigation of
Insurance Commissioner Charles Quackenbush.

The documents, released Monday, served as the cornerstone for
controversial settlement talks between Quackenbush aides and insurance
companies that ended with the companies avoiding huge fines in return
for much smaller donations to a non-profit foundation that has yet to
turn over any money to earthquake victims.

Democratic state lawmakers said the reports confirm their suspicions
that the Republican commissioner gave insurance companies that
contributed to his campaigns special treatment at the expense of

State Sen. John Burton, D-San Francisco, called the reports ``fairly
damning stuff'' that will make it more difficult for Quackenbush to fend
off growing calls for his resignation or impeachment.

``It indicates that there was a pattern and practice of bad faith and
deception on the part of major insurance carriers who may or may not
have been patrons of his re-election,'' Burton said.

State lawmakers have been trying for months to get their hands on the
market conduct exams performed by Insurance Department staff so they
could figure out if insurance companies got off easy in the settlement
talks. Quackenbush has said that state law prevents him from making the
reports public, and his aides have told lawmakers that most of the
violations were technical in nature.

But the reports released by state Sen. Martha Escutia, D-Montebello,
document much more serious problems, including low-ball payments to
victims, incomplete inspections and misrepresentation of the benefits
for which they qualified.

Escutia released the department's reviews of State Farm, 21st Century,
Allstate and Farmers Home Group. Of the four, Allstate and 21st Century
have contributed to Quackenbush's political campaigns.

Angry reaction

Release of the reports elicited angry responses from both the Insurance
Department and companies.

State Farm attorney and lobbyist James Mattesich said he was ``surprised
and dismayed'' that the senator had released the ``preliminary,
unrebutted'' report.

Ric Hill, a vice president at 21st Century, called the review of his
company a ``shoddy'' document that exaggerated minor problems -- such as
the failure to properly file documents -- and blew them up into serious
violations. ``Yeah, we didn't dot every `I' and cross every `T,' but in
the world's biggest disaster we couldn't be perfect,'' he said.

Of the four companies for which claims records were examined, 21st
Century had the highest percentage of problems. Investigators found
violations in three of every four files they reviewed. The problems
included claims that were ``grossly underestimated'' and settlement
offers that were ``unreasonably low.''

``There is substantial evidence to indicate insufficient investigations
and gross oversight on the part of the companies,'' the report states.

Hill challenged the findings, noting the company handed out $1.1 billion
to customers, and said the review looked at a fraction of the 46,000
claims 21st Century handled.

Investigators found similar violations in nearly half of the files they
reviewed at State Farm -- the company hardest hit by the Northridge
earthquake. In that case, however, regulators suggested that the problem
wasn't limited to earthquake victims and might extend to all forms of
insurance provided by the company.

Investigators also reached the same conclusion about Allstate, whose
review was cut off due to ``unforeseen circumstances'' neither the
company nor the Insurance Department would explain.

The Department of Insurance also expressed outrage after Escutia
released the documents.

``State law has no doubt been broken,'' said department spokesman Scott
Edelen. ``This is outrageous illegal behavior.''

Quackenbush and lawmakers have been fighting for weeks over this issue.
State law allows Quackenbush to release the reports in very limited
circumstances, and only when those receiving the exams -- such as law
enforcement and other insurance commissioners -- agree not to make them

Source undisclosed

Some legislators contend that Quackenbush can turn over the exams to
them as they investigate his regulation of the insurance industry. It
was on such grounds that Escutia, who declined to say where she got the
reports, released the documents.

``I do not believe that they are shielded,'' Escutia said. ``I also
believe that the Legislature has a higher duty that supersedes any
confidentiality statute.''

But Quackenbush has stood firm. Last month, he asked the California
Highway Patrol to investigate who in his department may have leaked the
secret exams to the Los Angeles Times.

The newspaper reports in April proved to be the first snowballs in an
avalanche of information now threatening to overtake the insurance

Last week, GOP lawmakers began to talk openly about asking Quackenbush
to resign after four days of hearings suggested that Quackenbush either
tacitly or deliberately set up the foundation to serve his political
ambitions. Quackenbush and his top aides used the reviews done in 1997
and 1998 as the basis for settlement talks last year.

The department at first threatened huge fines and even vowed to release
the exams if the companies refused to reach a deal.

State Farm attorneys walked out of a session after being presented with
a proposed $2.3 billion fine.

Paid foundation

Ultimately, the four companies avoided up to $3.7 billion in fines by
paying $10.6 million to a non-profit foundation created by the
Department of Insurance.

How that foundation -- the California Research and Assistance Fund --
spent its money has become the target of two legislative probes and an
investigation by Attorney General Bill Lockyer.

Members of the foundation board and groups that received money said
decisions on expenditures were made by one of Quackenbushs' aides even
though the insurance department was supposed to play no role in steering
contributions. Most of the money was spent on television commercials
featuring the commissioner. Some of the money was given to groups with
close ties to Quackenbush.

Quackenbush has denied playing any role in deciding how the money would
be spent.

For continuing coverage of Charles Quackenbush, go to:

Contact Dion Nissenbaum at or (916) 441-4603.


Jim Mooney, webmaster

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Created: June 15, 2000
Last Updated: June 15, 2000