Key Issue Is Industry’s Backing of Quackenbush

A year ago, Insurance Commissioner Chuck Quackenbush fined an Orange County insurer $325,000 for employing unlicensed agents to sell auto policies.

Two weeks ago, Quackenbush was the guest of honor at a small fund-raiser at the home of the company’s founder and owner. The event attracted about $15,000 for the Republican’s reelection campaign against Assemblywoman Diane Martinez (D-Monterey Park).

The executive has “always been a supporter of Chuck Quackenbush, way before the fine and now,” said a spokeswoman for the company, Eastwood Insurance Services Inc., which previously had donated at least $1,100 to the commissioner’s campaigns.

The episode points to a central issue in the Nov. 3 election: Is Quackenbush’s relationship with the $65-billion-a-year industry so friendly that it has hurt his ability to safeguard the interests of the public he was elected to serve?

“The conflict of interest is clear,” said Martinez. Quackenbush taking donations from the industry “is like bribing a judge just before a trial,” she said.

Quackenbush said there is no connection between the millions of dollars he has received from the industry and the way he handles his regulatory duties.

The recent fund-raising event, he said, shows how he can be tough on even his political supporters in the industry. His campaign said that since taking office in 1995, he has imposed $24.7 million in fines on 29 insurance companies that have donated more than $1 million to his campaigns or to campaigns controlled by him.

“Some continue to contribute [but] others are pretty sore at me,” Quackenbush said.

Altogether, his office reports that it has fined insurance companies $36 million, a sixfold increase over his predecessor, Democrat John Garamendi.

“Voters created this office to be held by an elected official,” Quackenbush said in an interview. “Elected officials have to raise money for their campaigns. Everyone has a right to make contributions, and that includes the insurance industry.”

Critics, however, maintain that the fines are relatively small when measured against profits that companies made while breaking the rules.

Robert Fellmeth, director of the Center for Public Interest at the University of San Diego School of Law, said, “The amount of discipline being meted out by Quackenbush is virtually nil. Has he wounded them? Has he affected their profits even 1%?. . . . No.”

While Quackenbush claims that premiums have dropped on his watch, Martinez charges that insurance industry prices and profits are too high and that its activities need to be more tightly monitored by the commissioner.

But this year, Martinez has raised about $125,000 to Quackenbush’s $2.3 million and has struggled to press her challenge.

With campaigns so lopsided, she has been unable to force a showdown debate in the low-key, down-ballot contest that has been a study in contrasts.

Quackenbush, 44, is a crisply starched, Notre Dame-educated, former Army captain who maintained a low profile during eight years representing the Silicon Valley in the Assembly.

The commissioner and his wife, Chris, who is waging her own campaign for a Sacramento state Senate seat, both employ TV commercials and other costly campaign tactics to get their message out.

Low-Tech Campaign

On the other hand, Martinez, a former school board member from Monterey Park, is touring the state in a Ford station wagon with her husband.

As an example of her low-tech methods, Martinez said she once did a live radio interview from a roadside phone booth near Bishop.

“I kept getting interrupted by the operator: ‘Another 75 cents, please,’ ” she said. “Then there was the clunk, clunk of me putting the money in, all of it being broadcast over the air.”

Martinez, 45, uses campaign funds for gas, food and occasionally lodging, but she and her husband usually stay at the homes of local Democratic officials.

She is a community college-educated daughter of East Los Angeles, whose father is Democratic Rep. Matthew G. Martinez. One of the Assembly’s most combative members and a harsh critic of the insurance industry, she defeated Marin County Supervisor Hal Brown last spring to win her party’s nomination for commissioner.

If elected, Martinez said she would lower rates and be a consumer advocate. “My boss would be the people who voted for me,” she said.

Also on the ballot are Natural Law Party hopeful Barbara Bourdette; Libertarian Dale Ogden; Peace and Freedom’s Gary Ramos, and Merton Short of the American Independent Party.

Referendum on Policies

With the latest Los Angeles Times poll showing Quackenbush holding a 46%-38% lead over Martinez, the election is turning into a referendum on whether his policies have been good or bad for the pocketbooks of California insurance buyers.

The commissioner licenses and regulates insurers and their agents and brokers and is responsible for investigating consumer complaints. The Department of Insurance has a $127.5-million annual budget and 1,177 staff positions. Quackenbush is paid $98,280 a year, which will increase to $132,000 in December.

Against the backdrop of complaints that the department was too close with the insurance industry, voters in 1988 approved Proposition 103, designed to reduce auto insurance rates and establish the insurance commissioner as an elected post.

Opponents, including the president of the California Chamber of Commerce, argued in the ballot pamphlet that the commissioner would become an insurance czar who “would be a politician first, and a regulator second. As a politician, this official would be preoccupied with raising campaign money from special interests all too willing to ‘buy influence.’ ”

Even as he was dogged by accusations of being too close to insurance interests, Quackenbush four years ago defeated state Sen. Art Torres (D-Los Angeles) to succeed Garamendi to become the second elected commissioner in California history.

Insurance interests had given Quackenbush at least $1.7 million from 1987, shortly after he started his career in the Assembly, to the end of 1997, according to an analysis for The Times by the Virginia-based Campaign Study Group.

One consumer watchdog group, the Proposition 103 Enforcement Project, estimates that before this year Quackenbush has raised at least $6 million from the industry, including donations to Proposition 213, his successful 1996 initiative to make auto insurance mandatory.

This year, Quackenbush received $752,000 from all sources during the first nine months. But in the past four weeks alone, he has amassed another $1.5 million. Records show that at least three-quarters of his 1998 contributions are from the insurance industry.

In the first nine months of 1998, Martinez has attracted $106,000 in donations, with $30,000 coming from trial lawyers who often sue insurers and are at odds with Quackenbush. In recent weeks, she has received more than $16,000. Martinez said she has turned down all insurance industry money.

In addition to his own contributions, Quackenbush said he has raised some insurance industry contributions for the California Republican Party. Records show that so far this year the party has received at least $700,000 from insurers--and the party has donated $118,000 to Quackenbush.

Quackenbush’s stock has remained high with the industry, even among some companies he has fined. Records show that at least three companies or their officials have contributed a total of $41,000 to him since they were fined.

Bill Packer, a spokesman for the Assn. of California Insurance Companies, said insurers view the commissioner the way the public views police: “You may get a ticket once in a while, but you support the police.”

The association, representing 29 property casualty companies doing business in California, supports Quackenbush although “we don’t always agree with what he has done,” Packer said. “But at least he gives you a fair hearing.”

Among large companies, Allstate both has been fined $200,000 by Quackenbush for “unlawful sales” of policies and has contributed at least $266,000 to his campaigns since he took office in 1995, according to records from the Quackenbush campaign.

Lisa Wannamaker, spokeswoman for Allstate, said Quackenbush has “an overall record of fairness to the industry and to us.” When he levied the fine against Allstate, she said, the commissioner “was just doing his job and we would expect no less.”

Among Quackenbush’s top 1998 contributors is Fidelity National Title, which earlier this month gave $25,000 to Quackenbush. Fidelity was fined $14,000 in 1996 for improper rebates.

A Fidelity spokesman said, “We must still think he’s the best candidate if we are contributing to him.”

State Sen. Quentin Kopp (I-San Francisco), who has pushed for legislation making the commissioner’s job appointive, contends that it is improper for any insurance commissioner to solicit funds from the industry.

“It’s illogical to permit the regulator . . . to receive campaign contributions from the very companies and persons the commissioner regulates,” he said.

Under his stewardship, Quackenbush says, the insurance industry has thrived in a healthy, competitive marketplace, resulting in fair profits and lower insurance costs for consumers.

His critics complain that he draws a misleading portrait of his accomplishments.

For instance, he maintains that auto insurance rates have dropped an average of 5.5% for the average driver. His aides describe this as “an unprecedented reduction.”

Critics at the Proposition 103 Enforcement Project say the rates could have come down much more dramatically if Quackenbush had properly enforced limits on profits required by the initiative.

He also has been criticized for backing the creation of an earthquake insurance authority after the 1994 Northridge quake. Consumer activists opposed the agency as a bailout for the insurance industry.

$50,000 Fine Levied

In 1997, Quackenbush agreed to pay a $50,000 fine to the California Fair Political Practices Commission for 31 violations of the campaign reporting laws. The violations included failure to properly identify donors.

The state’s top auditor issued a scathing appraisal last year of the Department of Insurance, saying that it had exhibited a “limited effectiveness” in protecting consumers from illegal or unfair insurance practices. Quackenbush aides acknowledged a number of shortcomings but blamed them on his predecessor.

Recently Quackenbush has won plaudits for helping Holocaust survivors collect World War II era claims from insurers. Quackenbush held hearings and backed a measure, signed into law, that penalizes insurers who hold out on paying such claims.

Chris Quackenbush, a millionaire businesswoman and avid water skier, is in a hotly contested Senate campaign against Assemblywoman Deborah Ortiz (D-Sacramento).

A third of her nearly $1 million in contributions have come from the industry, records show.

But she scoffs at suggestions by critics of her campaign that insurance companies are being generous to curry favor with the commissioner.

“To imply that these people [insurance companies] are somehow trying to bribe him through me is a real stretch,” she said. “Why don’t they just give the money to him directly?”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Chuck Quackenbush

Quackenbush is running for a second four-year term.

* Age: 44

* Residence: Rio Linda

* Education: University of Notre Dame, BA in history, 1976

* Career highlights: U.S. Army veteran. Founded Q-Tech, a Silicon Valley consulting firm, then Q-Bit Software. Both were sold in 1989. State assemblyman, 1986-94

* Family: Married, three children

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Diane Martinez

Martinez, who was forced out of the Assembly because of term limits this year, is the Democratic nominee.

* Age: 45

* Residence: Monterey Park

* Education: Attended Los Angeles Community College.

* Career highlights: Worked 12 years in communications industry. Served on an East Los Angeles school board; elected to Assembly in 1992.

* Family: Married, one child

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Top Donors

Major contributions to the two leading candidates:

CHUCK QUACKENBUSH

California Republican Party: $118,600

Assn. of Calif. Life & Health Insurance Companies PAC: $102,000

Zenith Insurance Co., Woodland Hills: $100,000

McGraw Insurance Services, Menlo Park: $51,000

TIG Insurance Co., Irving, Texas: $50,000

United Service Automobile Assn., San Antonio: $50,000

Chicago Title Co., Pasadena: $30,000

Fidelity National Title Insurance Co., Tustin: $25,000

Progressive Benefit Managers, Irvine: $25,000

Trans World Assurance Co., San Mateo: $25,000

****

DIANE MARTINEZ

Consumer Attorneys, Sacramento: $30,000

Agua Caliente Band of Cahuilla Indians, Palm Springs: $15,000

California Cable Television Assn., Oakland: $8,000

United Teachers of Los Angeles PAC: $7,000

Furtado, Jaspovice & Simons law firm, Hayward: $2,000

National Women’s Political Caucus: $1,500

EMILY’s List, Washington, D.C.: $1,000

Sukhbinder S. Sidhu, transportation company owner, El Sobrante: $1,000

Los Angeles County Employees Assn.: $1,000

State Senate leader John Burton (D-San Francisco): $1,000

Sources: Finance reports filed with the secretary of state

Compiled by Times staff writer Max Vanzi