Quackenbush’s Budget Held Up During Probe

Lawmakers Wednesday said they would hold up approval of the budget for Insurance Commissioner Chuck Quackenbush until legislative hearings and an attorney general’s probe into the commissioner’s handling of Northridge earthquake settlements are completed.

Quackenbush agreed to provide answers to written inquiries from the Senate budget committee, and in an interview defended an $11.5-million agreement with major insurance companies.

The unusual Northridge settlement, which required insurers to pay money into a nonprofit foundation for earthquake relief and educational programs, was struck despite findings by Quackenbush’s own staff showing a pattern of widespread unfair-claims practices by the companies.

“These were good settlements for the consumers,” Quackenbush said in a three-hour interview with The Times. “This was the best deal we could get at the time.”

Quackenbush acknowledged that he had collected large campaign contributions from some of the companies involved, but he insisted that his acceptance of political money from the insurers he regulates has never affected any decisions by his office. He estimated that of the millions in political donations he has accepted since his 1994 election as commissioner, 85% to 90% have come from the industry.

He also defended transferring of some of that money--$175,000 in 1999--to his wife’s failed 1998 campaign for the state Senate so she could retire a personal debt. He revealed that the $175,000 was used to pay off a mortgage his wife had taken on their family home to finance her campaign.

“I wouldn’t have done this if I thought there was anything illegal about it,” Quackenbush said.

He said it was both common and legal for candidates to transfer money to each other, though he was aware that some people had the “perception” that it is more questionable when money from the industry he regulates is used to pay a personal debt.

“People who worry about these things want campaign finance reform and [they] don’t like fund-raising . . . but that’s the way the system is set up,” he said. “I have the ability to help her out . . . and she’s my wife.”

On the Northridge settlement, Quackenbush said recommendations by staff of billions of dollars in fines against insurance companies were only negotiating techniques used to push insurance companies into giving money to the nonprofit foundation.

“The idea,” said Quackenbush, “was to bring them in and get their attention to show that we were serious.”

So far, none of the money in the foundation has been used for earthquake relief. But $3 million was spent on television ads on earthquake preparedness featuring Quackenbush and $500,000 was donated to the Greater Sacramento Urban League for a building project unrelated to earthquakes.

“I think the money in that foundation has not been spent on the intended purpose for which the foundation was created,” said Senate Insurance Committee Chairwoman Jackie Speier (D-Daly City).

“I cannot comprehend how the commissioner feels that he is doing a public service by spending $3 million of money that was set aside . . . for earthquake victims . . . on telling people that they live in earthquake country. That deserves a ‘duh.’ ”

Quackenbush, who is on the board of the Urban League, said he was not aware of the contribution until after it was made, though it was arranged by a member of his staff, Deputy Commissioner George Grays.

Said Quackenbush: “I was a little surprised at the time but I thought in the broad context of things it fit into what we were trying to do in outreach to underserved communities.”

Quackenbush said he would launch an internal investigation into the role played by Grays in disbursing money from the foundation, which was supposed to operate at arm’s length from the commissioner’s office to avoid the impression that its work was politically motivated.

Saying that he has nothing to hide, Quackenbush urged Atty. Gen. Bill Lockyer to “expedite” an investigation into the earthquake foundation.

The second-term commissioner, one of only two Republicans elected to statewide office, said he also would cooperate with legislative hearings called to probe his handling of the Northridge-related agreements.

However, he said that requests for confidential documents by Assembly Insurance Committee chairman Jack Scott (D-Altadena) were a major sticking point and blamed someone in his office for leaking documents to the press.

“The fact that a lot of material for whatever reason has walked out of this department and showed up in public hands is very serious for us,” Quackenbush said.

Quackenbush, 45, a former Army captain whose political life started in the Assembly in 1986, has remained silent until this week about his enforcement actions against the major insurers who had Northridge earthquake claims.

A confidential Department of Insurance study examined a random sample of claims involving three companies--Allstate, State Farm and 20th Century--and found numerous examples of low-balling settlements, delaying payments and failing to fully inform policyholders of their benefits. During negotiations, his department presented proposed settlements to the companies that called for hundreds of millions of dollars in fines.

Instead, the commissioner reached an agreement with the companies to establish the nonprofit foundation that would finance earthquake research and education services and provide restitution to earthquake victims who had not been fairly compensated for their damage.

At a hearing Wednesday on the department’s proposed $157.7-million spending plan, a Senate budget-writing subcommittee hit Quackenbush’s representatives with a flurry of questions. Members wanted to know whether he had the legal authority to “engage in a settlement to benefit a private foundation rather than levy fines and penalties that would have been deposited in the state treasury.”

The subcommittee’s chairman, Richard Polanco (D-Los Angeles), said he intended to delay approval of the insurance department’s budget until various probes of Quackenbush’s actions have been completed.

“Had these issues not been outstanding, we probably would have been able to get his budget approved,” Polanco said after the hearing.

Speier meanwhile said she is proposing a constitutional amendment that would let the voters decide if they want the insurance commissioner to be an elected or an appointed post. She said she also is sponsoring legislation making it illegal to establish a foundation as settlement of an enforcement action, unless the foundation is created by law or the courts.

“I think this [earthquake foundation] has been systematically constructed for the purpose of being able to retain control of the money,” she said. “There is an intention here to have this money diverted for purposes that will benefit the commissioner and his interests.”

But several of Quackenbush’s deputy commissioners, all longtime civil servants, said they endorsed the idea of the foundation as a way to get money back to consumers without engaging in a protracted legal battle with insurance companies. They argued that insurance companies have been quick to challenge in the courts any finding against them. As a result, they said, it has taken years before some enforcement actions have gone into effect.

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Times staff writer Carl Ingram contributed to this report.