Insurers Accused of Political Blackmail

Insurance Commissioner John Garamendi accused California insurers Monday of trying to blackmail him in an attempt to block new regulations and said he planned to ask federal and state law enforcement authorities to investigate the matter.

Garamendi, who is running for lieutenant governor in a three-way Democratic primary election June 6, said the insurance industry offered to drop a planned $2-million “political attack” campaign against him if he agreed to postpone proposed auto insurance rate regulations opposed by the industry.

The commissioner said he learned of the alleged offer April 24 through an intermediary -- Los Angeles lawyer and longtime Democratic strategist Darry Sragow.

Garamendi said he told Sragow that he “would not give in to political extortion under any circumstances” and hoped to put the new rate plan into effect by late June.

Monday morning, an industry-backed coalition officially launched a statewide television and direct-mail advertising campaign to urge motorists to tell Garamendi “to drop this unfair plan now.” The campaign is being funded by five of the state’s largest auto insurance providers: State Farm Mutual Insurance Co., Allstate Corp., Farmers Insurance Group, Safeco Corp. and 21st Century Insurance Group.

Insurance industry executives acknowledged warning Garamendi that the campaign was in the works, but denied seeking a quid pro quo under which the media blitz would be axed if the commissioner shelved the new regulations.

Sragow said Monday he talked on two occasions last month with an insurance industry representative about the alleged offer to cancel the media campaign.

He declined to identify the industry representative.

Sragow, who worked for Garamendi on two previous political campaigns and served as deputy insurance commissioner in the early ‘90s, didn’t characterize the industry overture as attempted blackmail.

“This kind of dialogue is not unusual when it comes to affecting politics and government policy, but the approach the insurance industry is taking is unusually blatant,” he said.

However, Garamendi said he interpreted the industry’s overture as an effort to get him to back off the regulations and let the next commissioner do the job,” Garamendi said.

The commissioner is making “baseless and inflammatory accusations that are completely untrue,” said Rick Claussen, a political consultant representing the insurer-backed coalition, Californians to Stop Unfair Rate Increases.

Claussen said insurers contacted Garamendi, via Sragow, as a courtesy “to let him know we were going to do this, so he would not be caught completely by surprise.”

The industry indirectly contacted Garamendi through an intermediary simply out of curiosity “about what reaction we could expect from the commissioner,” said Bill Sirola, a spokesman for State Farm, California’s largest auto insurer with 14% of the market.

Garamendi said he would file complaints with state and federal law enforcement officials today. The U.S. attorney’s office in Sacramento declined to comment on Garamendi’s allegations.

A spokesman for state Atty. Gen. Bill Lockyer said his office would study any complaint it received.

The overture to Garamendi, if it occurred as described by the insurance commissioner, “is walking awfully close to criminal extortion,” said Robert Fellmeth, director of the Center for Public Interest Law at the University of San Diego.

Mounting a media campaign to protest an elected official’s actions is constitutionally protected as free speech, he said, but threatening an official with unfavorable publicity as a way of influencing policy isn’t.

The media campaign, which will hit the airwaves early next week, is strictly an educational outreach to policyholders, said Claussen.

He charged Garamendi with trying to distract insurance policyholders from learning that the new rating system would boost premiums by as much as 30% for rural and suburban motorists, who make up about three-fifths of California’s drivers.

Garamendi and his consumer advocate supporters contend that the proposed regulations are part of a long-running effort to fully implement Proposition 103, the landmark auto insurance initiative approved by voters in 1988.

Proposition 103 requires insurers to base auto coverage premiums primarily on a policyholder’s driving record, the number of miles driven each year and number of years behind the wheel.

Other criteria that are now weighed heavily by insurance company underwriters, such as the ZIP Code where a car is registered, would be downplayed.

Insurers contend that Garamendi’s regulations, by arbitrarily lowering rates for motorists in Los Angeles, San Francisco and other major cities, would be unfair to drivers in other parts of the sate.

Garamendi’s term as insurance commissioner ends Dec. 31. He faces state Sens. Jackie Speier (D-Hillsborough) and Liz Figueroa (D-Fremont) in the Democratic primary for lieutenant governor.