Garamendi Ousts Two Top Officials in State Insurance Liquidation Unit

Insurance Commissioner John Garamendi has removed the top two officials of his department’s conservation and liquidation division, blaming them for making more than $200,000 in unauthorized payments to employees, exercising poor control over outside consultants and improperly letting employees purchase assets of failed insurance companies.

Garamendi’s action, announced Monday, follows a state audit report last July that cited the division for “significant weaknesses” in the way it manages assets and disburses money.

Although it has a low public profile, the conservation and liquidation division arguably has the largest financial responsibility of any unit in the Insurance Department. It is in charge of overseeing more than $750 million worth of assets of about 90 failed insurers.

Some Garamendi critics have been pushing for more oversight of how his department spends money and levies fees against insurers. The Personal Insurance Federation of California sponsored legislation--now on Gov. Pete Wilson’s desk--to order a top-to-bottom audit of the Insurance Department.

Garamendi said he reassigned division chief Ronald G. Rosen--a 20-year Insurance Department veteran--to a lower post and fired Rosen’s second in charge, General Manager Jan Brookes. Rosen did not return phone calls for comment Monday, and Brookes could not be reached.

The division, with 90 employees, reports to Gary Hernandez, deputy insurance commissioner for enforcement. Garamendi did not criticize Hernandez, saying that Rosen’s and Brookes’ actions were taken without his knowledge.

After the critical state audit report in July--the third such report since Garamendi took office in 1991--the commissioner said he had launched his own inquiry into the division’s operations.

On Monday, in a letter to Enrique G. Farias, chief of the Office of State Audits and Evaluations and author of the July audit, Garamendi disclosed the following problems that had surfaced since July:

* The division, on or about June 30, paid $89,808 in “severance” benefits to 26 employees, none of whom had actually left the department. While workers are entitled to severance benefits based on their seniority, they are supposed to be paid only in the event of a layoff, Hernandez, the deputy commissioner, said Monday. The payments ranged from $423 to $13,560.

* The division paid $68,507 in 1993, $40,073 in 1992 and $14,841 in 1991 in accrued compensatory time to a total of eight salaried employees who were exempt from collecting regular overtime. Department policy forbids making “comp time” payments in cash, Hernandez said.

One worker received more than $54,000 in such payments over two years, Hernandez said.

* Division employees were allowed to purchase such property as office furniture, computer equipment and plants from the premises of failed insurance companies, in violation of department policy.

Hernandez said 33 division employees bought property. The payments ranged from $6 for a picture frame to $175 for a personal computer.

Employees were allowed--in some cases, actually encouraged--to pick through such property before it was put out to public auction.

* The division exercised inadequate cost controls over the hiring of consultants. During the last two years, the division paid 39 consultants a total of $3.03 million for such services as computer programming, accounting and payroll auditing.

Garamendi plans to reorganize the division and place a permanent chief executive in charge. On an interim basis, however, he has installed insurance consultant Fred Buck to oversee the division’s day-to-day operations.

Buck is under a three-month contract to oversee the division, earning $250 an hour with a maximum total payment of $150,000, Hernandez said. Buck’s company has collected $266,000 in fees from the division during the last two years for managing several failed insurers.