NEWS ANALYSIS : Pugnacity Is Garamendi’s Strength--and Weakness : Politics: His tactics won more coverage for Oakland fire victims but backfired in Executive Life takeover.

As California’s first elected insurance commissioner, John Garamendi sometimes seems to operate on the principle that there’s no point in knocking on a door when a lowered shoulder gets it open just as quickly.

Brute force has been an element of Garamendi’s style in the courtroom and in his dealings with the powerful industry he regulates, and he makes no apologies for it.

“My predecessors kissed the insurance industry’s butt here for 100 years, and consumers got screwed for it,” Garamendi said. “Damn right I’m confrontational. I’ve kicked butt instead of kissed it.”

The commissioner wins praise from admirers for his energy, his intelligence and his work ethic, but if any single trait recurs in descriptions of Garamendi by friend or foe, it’s his combativeness.

Sometimes the sledgehammer works spectacularly, as in the aftermath of the 1991 Oakland firestorm, when Garamendi’s pounding--through critical press statements and the record $1-million fine he handed giant Allstate Insurance Co.--got insurers to provide an extra $300 million in coverage beyond the limits of the fire victims’ homeowners policies.

Fear of “another Oakland” may have inspired insurers to do a better job in subsequent catastrophes, such as last fall’s Laguna Beach and Malibu wildfires and the Jan. 17 Northridge earthquake.

Sometimes the all-out approach backfires, however, as in litigation over the failed Executive Life Insurance Co., when an appeals court rejected Garamendi’s attempt to provide nearly $2 billion more for traditional policyholders by cutting a large class of investors out of his rehabilitation plan.

“He bulls his way through, never giving up even a losing position,” says Mark Oberhofer, a portfolio manager at the brokerage firm of Smith Barney Shearson in Los Angeles, some of whose clients held securities backed by Executive Life. Oberhofer sees a legacy of Garamendi’s days as an all-conference guard on the UC Berkeley football team: “He was a lineman. I would rather that he had been a quarterback.”

Without question, Garamendi has made the commissioner’s job highly visible, to the point where it has become a sturdy springboard for his current campaign for governor. He faces state Treasurer Kathleen Brown and state Sen. Tom Hayden of Santa Monica in the June 7 Democratic primary.

Making the job politically attractive was exactly what lawyer-activist Harvey Rosenfield had in mind when he included in Proposition 103--his 1988 insurance rollback initiative--a provision to make the insurance commissioner an elective post instead of an appointive one.

“We created this job hoping that ambitious people would apply, knowing that if they wanted to move on to higher office, they’d have to deliver on Proposition 103,” Rosenfield says.

He did not support state Sen. John Garamendi’s candidacy in the 1990 election. Garamendi, a Harvard Business School graduate and veteran of a Legislature that had long been friendly to insurance interests, didn’t fit Rosenfield’s picture of a likely consumer champion.

But today Rosenfield thinks Garamendi has done “pretty damn close to as good a job as could be done under the circumstances.”

True, policyholders have yet to receive the bulk of the premium rebates expected under Proposition 103, but Rosenfield says the shortfall has been more than offset by the savings consumers have realized from Garamendi’s refusal to approve most rate increases.

Other consumer activists and fellow regulators praise Garamendi for cracking down on unfair claim-handling practices, fighting suspected urban redlining or discrimination in insurance sales, improving consumer information and showing leadership in workers’ compensation and health reform.

Many of Garamendi’s ideas for revamping the nation’s health system were adopted by the Clinton Administration for its national health plan.

He recently won approval of new anti-redlining regulations that will require insurers to file annual statements--similar to those filed by lenders--on their inner-city sales practices. Garamendi says the regulations will enable him to identify and punish discrimination.

Texas Insurance Commissioner J. Robert Hunter, former head of the National Insurance Consumer Organization, calls Garamendi “one of the best insurance commissioners nationally in recent years.”

It should be no surprise that the insurance industry’s assessment is far less complimentary.

Companies and agents blame Garamendi for needlessly polarizing every debate by scapegoating them. They question his competence as an administrator, citing state audit reports that criticize the Insurance Department’s accounting and asset management. They say he ignores the law in refusing to consider some legitimate rate increase requests.

“There’s a good reason why John Garamendi doesn’t want a second term,” said James A. Snyder, president of the Personal Insurance Federation of California, a lobbying group that represents several of the state’s largest property-casualty carriers.

“What he’s built is a house of cards that his successor is going to inherit,” Snyder adds, predicting that the next commissioner will have to either approve unpopular but necessary rate increases or watch the availability of some lines of insurance dry up.

Garamendi counters that he did the industry a favor by clamping down on rates. When companies were confident of regular increases, he says, they lacked the incentive to control overhead or undertake creative risk-management or anti-fraud measures to reduce what they paid in claims. Without rate increases, they became more cost conscious, which improves profitability.

On rates, Garamendi was the unintended political beneficiary of an action by his predecessor, Roxani Gillespie. Just before leaving office, Gillespie approved a slew of rate increases. That, plus low inflation and a weak economy, kept the pressure off Garamendi to grant new increases.

When he arrived in office two years ago, Garamendi’s primary charge was to deliver on Proposition 103, particularly on an expected $2.5 billion in rebates.

Garamendi has pressured more than a dozen large companies to provide rebates totaling more than $700 million. Allstate Insurance Co., for example, agreed in August to pay $110 million. That is the largest rebate so far, but it came to less than half the $244 million Garamendi ordered the firm to pay in 1991.

To criticism that that settlement and others have been overly generous, Garamendi says his original rebate order was based on incomplete information. The deals he has struck are the products of more accurate information and, he says, tough negotiation.

Garamendi had promised that no company would receive a new rate increase unless its Proposition 103 liability was settled. Several months after the Allstate settlement, Garamendi granted the company a 6% increase in its homeowners rates. He continues to be tougher on such rebate holdouts as 20th Century Insurance Co. and State Farm Group.

Lately, nothing upsets Garamendi more than the continued criticism of his handling of the Executive Life insolvency.

The Los Angeles-based insurer had fueled its explosive growth in the 1980s by selling attractively priced insurance products and buying high-yielding but risky junk bonds. When the junk bond market crashed at the end of the decade, Executive Life reported a series of huge losses, sparking a run by worried policyholders who cashed in their policies.

In April, 1991, three months after taking office, Garamendi seized Executive Life in what was then the largest U.S. insurance failure, jeopardizing 350,000 policyholders. During 2 1/2 years of litigation, Garamendi engineered the firm’s sale--completed in September--to a group led by French insurer Mutuelle Assurance Artisanale de France.

But while in control, he took some steps that have been second-guessed ever since on Wall Street, in the news media and in court.

He insisted on selling most of Executive Life’s junk bond portfolio as one package rather than in pieces over time. The price he got--$3.25 billion--was barely half the bonds’ $6.1-billion face value and, critics say, hundreds of millions of dollars less than a more deliberate sale would have reaped.

Garamendi argues that junk bond markets were so shaky at the time that nobody could have predicted the strong recovery they eventually made. Holding the bonds to sell them gradually--as New York regulators successfully did after seizing sister Executive Life of New York--would have meant exposing policyholders to risk of further losses, he says.

The California bond sale is the subject of an ongoing court appeal by a group of Executive Life investors who want it rescinded.

The same investors--holders of municipal guaranteed investment contracts, called Muni GICs--rebuffed Garamendi’s effort to cut them out of the rehabilitation plan by putting them in the creditors’ line behind the traditional insurance policyholders. When the courts ruled against Garamendi, the potential recovery for the rest of the policyholders suddenly dropped by nearly $2 billion.

“Our analysis was that those (Muni GICs) were not insurance products,” Garamendi says in defending his legal strategy. “My charge was to take care of the policyholders.”

Some policyholders who once supported him have become critics, accusing Garamendi of bumbling in court and of overstating the value of the deal they finally got from the consortium that took over Executive Life.

Accident victim Tony Griffiths of Solvang, for one, saw his monthly check from an Executive Life annuity--received in a legal settlement--shrink to 57% of its former value when the sale closed.

Anticipating retirement, Reuben Goldman of Hemet bought $235,000 worth of single-premium whole life insurance policies from Executive Life in the mid-1980s.

Under the rehabilitation plan, if he stays in for the full five years, his estimated recovery will be $150,000. If he had cashed out immediately, he would have gotten only $36,500.

“Garamendi sold us down the creek,” Goldman says.

Garamendi maintains that 92% of the policyholders will eventually be made whole. As he was taking office, he adds, Gillespie warned him he would have to “figure out a way to bury” Executive Life.

“We didn’t bury it,” he says, “we resurrected it.”

The cost of legal fees has been a lightning rod for criticism of Garamendi’s handling of Executive Life. As of March 17, Garamendi had paid out $34 million in such fees.

He is now under attack in Sacramento for his practice of bypassing the attorney general and hiring outside lawyers to represent the Insurance Department.

Garamendi won the authority to hire outside counsel as a result of 1992 legislation. But state Sen. Quentin Kopp (I-San Francisco) is carrying a bill to revoke that right. Kopp’s bill, which has cleared one legislative hurdle, would require the commissioner to obtain approval from the attorney general before hiring private attorneys, as was the practice before 1992.

Kopp says that Garamendi has paid about $60 million to outside law firms, including some that have donated to his gubernatorial campaign. The money, as much as $350 an hour to some outside lawyers, comes from the assets of seized insurance companies, such as Executive Life.

The law firm of Orrick, Herrington & Sutcliff has received $8.7 million for its work in the liquidation of First Capital Life Insurance Co. of San Diego. The firm and its lawyers have contributed $33,500 to Garamendi since he took office.

“This just boggles the mind,” Kopp says. “It is outrageous to hire outside lawyers for $250 an hour when the attorney general has people who have been doing this for 20 or 30 years and charge $90 an hour.”

Garamendi defends the practice, saying he has fiduciary obligations to policyholders and should be able to hire his own lawyers. He contends that the attorney general cannot move quickly in some instances and does not have enough attorneys to handle complex cases.

Insurance specialists in the attorney general’s office say they willingly hire outside attorneys when necessary, have the expertise, and note that the system worked for 60 years before Garamendi’s election.

There is still plenty of legal work to do. Garamendi remains embroiled in numerous court and administrative wrangles, including battles with 20th Century and others over Proposition 103, with the Muni GIC investors in the Executive Life case and with State Farm over his broad allegations that they engage in overcharging and other illegal practices.

“He was given a difficult job because of the attitude of the insurance industry, which would not be brought to heel,” one prominent consumer advocate says. “They’ve gone at each other like gladiators. The bad news is the industry hasn’t been brought to heel, but the good news is, Garamendi hasn’t backed away either.”

Times staff writer Dan Morain contributed to this story.