It Was Mismanagement, Not a Plot : Ex-Chief of Coastal Insurance Co. Accepts Blame for Firm’s Failure

The former chief executive officer of the failed Coastal Insurance Co., in sworn testimony Tuesday to a legislative panel, admitted mismanaging the company but denied “any plot or conspiracy” to skim funds from it, as charged last month by executives of Coastal affiliates.

Harry O. Miller ascribed Coastal’s bankruptcy to undercharging its customers in Los Angeles and other urban areas, allowing the company to grow too rapidly, letting claims costs get out of hand and, finally, accepting financial reports he said were inaccurate and gave little warning of trouble.

Miller said he gave or loaned more than $5 million in company funds to a losing insurance initiative campaign last year before he became aware in the fall that the company was threatened with going broke. The initiative, Proposition 101, got only 13.3% of the vote.

Coastal, well known in 1987 and 1988 for its advertising slogan, “It’s no problem,” was placed into conservatorship by the state Department of Insurance in February and later ordered liquidated.

$60-Million Surcharge

Paying off the claims of its 200,000 policyholders, many of them previously uninsured or high-risk drivers, will result in a $60-million surcharge on other California auto insurance policies.

When Assemblyman Patrick Johnston (D-Stockton), who has been chairing a lengthy investigation into the Coastal insolvency, asked Miller on Tuesday whether it was the result of “incompetence, greed or something worse,” Miller responded:

“If the question is, ‘Was there any plot or conspiracy?’ there was not. If the question is, ‘Was there mismanagement?’ I think the answer is clearly yes.”

The main problem, he added, was that he should have charged more to insure drivers in congested urban areas such as “Beverly Hills, Watts, parts of Santa Ana, parts of the San Fernando Valley, parts of Oakland, the densely populated urban areas.”

During Tuesday’s hearing, meanwhile, Ray Bacon, deputy state insurance commissioner, disclosed that the Insurance Department has put the FGS Insurance Agency Inc., a major seller of insurance to high-risk drivers, on notice that the state will revoke FGS’ operating license unless the firm severs all connection with its owner, Sidney Field.

Field’s own insurance license was revoked in 1987 for failure to file required reports with regulators. His company sells insurance under the valid license held by one of his employees.

State officials said that Field must sell the company, headquartered in Orange County, and both Field and an FGS attorney said at the hearing that he is attempting to do so.

FGS was a wholly owned subsidiary of the Coastal holding company, Advent, during the period just before the Coastal bankruptcy. Just before Coastal’s collapse, FGS was sold back to Field, its original owner. It has continued to do business, this time selling assigned-risk policies, advertising a down payment of only $100 without mentioning heavy payments later.

Added to Problems

There was testimony last month from former FGS executives that FGS had contributed in a major way to Coastal’s financial problems. The executives said FGS sales agents had tried to boost their commissions by misstating driving records to qualify bad drivers for coverage, miscalculating premiums, allowing many customers to pay premiums with canceled credit cards and enabling drivers to afford coverage by misstating the makes of their cars.

The president of FGS, Alan Greenberg, told Tuesday’s hearing that he has retained the accounting firm of Deloitte, Haskins & Sells to do an internal investigation of these allegations and that its full report will be made available to legislators next week.

In the meantime, however, both Greenberg and Field testified that the problems reported in the testimony are isolated, and they accused the former executives of being disgruntled employees, some of whom had been fired for cause.

The suggestions of skimming that Miller denied Tuesday partially involved accusations that Field had made a huge profit by selling a debt-ridden FGS to Coastal for $17.5 million and then buying it back just before the Coastal bankruptcy for a pittance.

Both Field and Miller, however, depicted the transactions as sound at the time.

Field, who was supposedly banned during this period by the loss of his agent’s license from holding an executive post at FGS, denied Tuesday that he had. However, Greenberg testified that he reported to Field and considered him his boss.

Johnston said he felt that one lesson of the Coastal insolvency is that the state Insurance Department ought to be given more authority to keep people whose licenses it has revoked truly out of the insurance business.