FGS Insurance Agency, which provides car insurance for nearly 200,000 Californians, labeled state Department of Insurance accusations that it engaged in fraudulent sales practices as "absurd" Tuesday at the outset of a hearing on revocation of the company's license.
The hearing in Los Angeles before Administrative Law Judge Robert A. Neher will determine whether state Insurance Commissioner Roxani M. Gillespie can revoke Irvine-based FGS's license.
The state alleges that FGS engaged in a series of fraudulent activities, including misusing the beleaguered assigned risk plan, falsifying drivers' 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"The commissioner's accusation is a tawdry grab-bag of allegations that invokes repealed statutes, misstates crucial facts and misconstrues the public interest," said FGS attorney Milford W. Dahl Jr.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 his opening statement Tuesday.
The company has denied the accusations and last week filed a lawsuit against the state Department of Insurance, asking for a court order to stop what it said was harassment. FGS said department investigators entered company offices without permission and harassed customers there.
"In its zeal to nail FGS, the Department of Insurance has lied to the public," Dahl said as the department's hearings got under way. "The department has used a sloppy, dishonest investigation to cover up its own inefficiencies."
The probe of FGS follows a larger state investigation 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 claim 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.
One of the state's biggest complaints against FGS is that it put almost all of its automobile liability insurance through the California Automobile Assigned Risk Plan, which was intended for drivers whose driving records are sp bad that they cannot get insurance anywhere else.
Dahl said the department has focused on FGS to divert attention from widespread criticism of its performance in regulating the state's auto insurance business, including the deficit-ridden assigned risk plan, which has proposed a 160% rate hike so it can break even.
Dahl argued that putting FGS out of business would only worsen California's insurance situation. "Revoking FGS's license inevitably would lead some of these drivers to drop their coverage, thereby exacerbating the uninsured driver crisis," he said.
On Tuesday, Farmers Insurance Group agent Dan Mills testified that he had at least one client cancel insurance because the client said he could get a cheaper policy with FGS through the assigned risk plan. Mills filed a complaint against FGS with the Department of Insurance.
David E. Kuizenga, head of Western Assn. Automobile Insurance Plans, which oversees the state's assigned risk plan, testified Tuesday that about 50% of Californians enrolled in the assigned risk plan had perfect driving records. He said FGS was not the only agency putting good drivers into the program.
But FGS did this more than any other company, the state said, accounting for 141,000 of the 1.2 million drivers enrolled in 1989. The company with the next-highest number of clients enrolled had 29,000.
The state charges that FGS urged applicants to falsely claim that they had tried unsuccessfully to get automobile insurance in California in the last 60 days, a requirement of the assigned risk plan.
Also, the state says FGS was engaging in a practice known as "sliming."
"Sliming was a practice whereby 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 state Assembly. "Many extremely bad drivers had their accident records and values of their cars misstated by the agents into the computer system so as to permit the booking of many policies that would otherwise be rejected."
For example, $40,000 cars were classified as $20,000 autos, 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 were able to claim a commission on 12 months of payments, even though only one month was paid for, the state contends.
Besides abusing the assigned risk plan, the state charges that FGS failed to inform customers that they had to pay interest rates ranging from 21% to 40.75% on premiums.