FGS Insurance Agency, which provides car insurance for nearly 200,000 Californians, labeled state accusations that it had engaged in fraudulent sales practices "absurd" at Tuesday's first day of a hearing on revoking the company's license.
The hearing before Administrative Law Judge Robert A. Neher in Los Angeles will determine whether State Insurance Commissioner Roxani M. Gillespie can revoke Irvine-based FGS' license.
The state Department of Insurance alleges that FGS engaged in fraudulent activities, including misuse of the beleaguered assigned risk plan, falsifying driver records, hiding commissions and fees and failing to disclose that it was being paid $20 per applicant by finance companies.
"The commissioner's accusation is a tawdry grab bag of allegations that invokes repealed statutes, misstates crucial facts and misconstrues the public interest," said FGS attorney Milford W. Dahl Jr. in an opening statement Tuesday.
The company has denied the accusations and last week filed suit against the state Insurance Department, asking for a court order to stop what it called harassment. FGS said department investigators entered company offices without permission and hassled customers there.
"In its zeal to nail FGS, the Department of Insurance has lied to the public," Dahl said in his opening statement. "The department has used a sloppy, dishonest investigation to cover up its own inefficiencies."
The investigation of FGS follows a larger state inquiry into Coastal Insurance Co., one of California's largest writers of high-risk auto liability insurance policies before it filed for bankruptcy in February, 1989. Coastal once owned FGS, whose officials now allege that the action against the company is a vendetta for the $66 million that Coastal's collapse will cost California consumers.
Department of Insurance spokeswoman Carey Fletcher denied the allegations.
"We did an excellent and thorough job, and the department is proceeding in a timely manner because we have a good case," she said in an interview.
One of the state's biggest complaints against FGS is that the firm put almost all of its automobile liability insurance through the California Automobile Assigned Risk Plan, which is intended for drivers whose driving records are so bad that they could not otherwise be insured.
Dahl said the department has focused on FGS to divert attention from widespread criticism about its performance in regulating the state's auto insurance business, including the deficit-ridden assigned risk plan, which has proposed a 160% rate increase so it can begin to break even.
Dahl argued that putting FGS out of business would only make California's insurance problems worse: "Revoking FGS' license inevitably would lead some of these drivers to drop their coverage, thereby exacerbating the uninsured driver crisis."
Farmers Insurance Group agent Dan Mills testified Tuesday that he had at least one client cancel insurance because the client could get a cheaper policy with FGS through the assigned-risk plan. Mills filed a complaint against FGS with the Department of Insurance.
However, David E. Kuizenga, head of Western Assn. of Automobile Insurance Plans, which oversees the state's assigned risk plan, testified Tuesday that about 50% of Californians enrolled in the assigned risk plan have perfect driving records and that FGS is not the only agency putting good drivers into the program.
FGS did this more than any other company, though, accounting for 141,000 of the 1.2 million drivers enrolled in 1989, the state said. The company enrolling the next-largest total signed up 29,000 clients.
The state alleges that FGS had applicants falsely claim that they had unsuccessfully tried to get auto insurance in California in the last 60 days, a requirement of the assigned risk plan.
The state also alleges that FGS engaged in "sliming," an industry practice in which "customer application records would be falsified so that people would qualify for insurance," according to a report about FGS that was recently released by the California Assembly.
"Many extremely bad drivers had their accident records and values of their cards misstated by the agents into the computer system, so as to permit the booking of many policies that would otherwise be rejected," the report says.
For instance, $40,000 cars were classified as $20,000 cars; a person with three accidents and two moving violations was listed as having no accidents, and a Corvette was listed as a Chevette.
Once an insurance sale was made, the agents could claim a commission on 12 months of payments, even though just one month was paid for, the state alleges.
Besides abusing the assigned risk plan, the state alleges that FGS failed to tell customers that they had to pay interest rates on premiums ranging from 21% to 40.75%.