Choice to Head Quake Agency Sparks Outcry


Just weeks before Democrats were to take control of the state, Republicans on the California Earthquake Authority locked into the $160,000-a-year director’s job a former GOP lawmaker vehemently opposed by consumer groups.

Former Assemblyman David Knowles, once described by consumer activist Ralph Nader as a lawmaker known for “obeisance to [the] insurance industry,” will start work as the agency’s executive director on Monday.

In a striking exercise of lame-duck power, he was given a four-year contract by the Republican-dominated governing board in a closed-door meeting Dec. 17, less than three weeks before two of the board’s three members would leave office.

“It would have been better to wait. That would have been more appropriate,” said Treasurer-elect Phil Angelides, a Democrat who will sit on the governing board beginning next week. “I think the right thing would have been to allow the new administration . . . to make a management decision on a going-forward basis.”


Calling the Republican action ill-timed, Davis’ press secretary, Michael Bustamante, concurred. “It’s unfortunate that they would take this action on the eve of a new administration. The hope is that the new administration would have the opportunity to make its own management decisions.” The authority, created by legislation that Knowles himself helped write, provides earthquake insurance for millions of Californians living in quake-prone areas. Its actions determine the price and extent of earthquake coverage sold in the state.

The group plays a critical role in California’s ability to recover and rebuild in the event of a catastrophic quake. It is run by a board composed of the governor, the treasurer and the insurance commissioner, who usually act through surrogates they appoint to attend meetings.

The selection of Knowles to run its day-to-day operations was made at the suggestion of Insurance Commissioner Chuck Quackenbush, whom the former assemblyman served as chief deputy and surrogate on the board. Knowles replaces Greg Butler, also a former Quackenbush deputy, who leaves the position Feb. 5.

Knowles, whose pay is just $5,000 a year less than the governor’s, earns one of the highest salaries in state government outside of the university system.

Angry consumer advocates, contending that Knowles’ close ties to the insurance industry made him a poor choice for the job, said they will encourage the new board to buy out his contract. As a lawmaker, Knowles collected more than $119,000 in campaign contributions from insurance interests and took their side in numerous legislative battles with consumer advocates.

“This is an appalling abuse of public office,” said Jamie Court of the Foundation for Taxpayer and Consumer Rights, a Santa Monica-based watchdog group. “It could doom earthquake policyholders to four years of artificially high insurance premiums. It’s a midnight appointment that puts the insurance industry in the driver’s seat over earthquake insurance.”

Spokesmen for the three Republican board members took issue with that contention, saying Knowles is uniquely qualified to run the authority and to provide the expertise that will enable the board to consider reducing rates in the future.

“What the commissioner looked for was the person with the best experience and expertise in this field,” said Deputy Insurance Commissioner Dan Edwards. “He was the natural person, with all those skills, to move into the leadership post. He [Quackenbush] thought it was imperative that we move quickly to get someone of his skill and talent in that position.”


A spokesman for Gov. Pete Wilson said that because the authority oversees billions of dollars in earthquake premiums, the governor thought it important to fill the executive director’s job quickly. “It is critical to have skilled leadership in that position, and it is not only appropriate but necessary to have that position filled to maintain continuity,” said press secretary Sean Walsh.

Stan Devereaux, a spokesman for Republican state Treasurer Matt Fong, said although the appointment was made behind closed doors, the board had announced in a public notice before its Dec. 17 meeting that it intended to name a new director at that time.

“There are no shenanigans here,” he said. “David’s legislative experience and his knowledge of the insurance industry make him uniquely qualified to head up such an important organization.”

Knowles, on vacation, could not be reached for comment. But Edwards said on his behalf that the former legislator felt he could work equally well with the Democrats and Republican Quackenbush.


Angelides said that although he does not intend to prejudge Knowles, he plans in January to join Davis in taking a look “at what’s best for the state and what’s best for the earthquake authority.”

He said he hasn’t seen the terms of Knowles’ contract, so it is premature to discuss any possible termination.

According to sources at the authority, the contract allows the board to fire the director for cause--acts of dishonesty or disloyalty or failure to perform. It also allows them to terminate without cause but requires a year’s salary as severance.

In the next four years, the director of the earthquake authority is expected to play a pivotal role in setting rates and coverage limits. Lawmakers approved the creation of the authority after heavy lobbying from the insurance industry, which said it was too costly to continue providing coverage after the Northridge earthquake forced companies to pay out an unprecedented $12.5 billion in claims.


For consumers, the government’s insurance has meant less coverage and higher deductibles.