State Agency Sues Another in Turf Battle

The California Insurance Department Tuesday sued a sister agency in a fracas over Lloyd’s of London and allegations that the British insurance giant defrauded California investors.

Insurance Commissioner Chuck Quackenbush filed a complaint in U.S. District Court in Los Angeles to block the state Corporations Department from freezing Lloyd’s U.S. assets.

Quackenbush said that freezing the assets would disrupt the California insurance market by halting claims payments to thousands of people and invalidating insurance contracts held by more than 19,000 businesses and individuals.

The turf battle broke out after the Corporations Department filed a lawsuit Feb. 21 in state court accusing Lloyd’s of defrauding 500 Californians by inducing them to invest in the London insurance market without disclosing the likelihood that they would suffer huge losses from industrial pollution and asbestos disease claims.

Lloyd’s denies wrongdoing.

The Corporations Department, which regulates securities, sought to place a hold on a huge Lloyd’s account at Citibank to ensure that money would be available to reimburse investors for losses of $100 million.

Insurance regulators reacted hotly, criticizing the Corporations Department for not giving them advance notice of the suit. They said the Corporations Department failed to understand the impact on the companies and individuals that do business with Lloyd’s.

Lawyers for both agencies tried to reach a compromise, and the Corporations Department modified its legal petition to try to address the Insurance Department’s concerns.

But the changes “went nowhere near far enough” for Quackenbush, spokesman Richard Wiebe said.

Lloyd’s was “appreciative” of Quackenbush’s intervention, a spokeswoman said, adding: “We believe it shows consideration for the rights of the policyholders.”