‘Education’ Foundation Spent Mainly on PR

A second “educational” foundation created by Insurance Commissioner Chuck Quackenbush with Northridge earthquake penalties has so far spent most of its money on the public relations firm that came up with the idea and chose the foundation’s board of directors.

Representatives of the California Insurance Education Project said Wednesday that only a small percentage of the foundation’s $1.3 million has been spent on the minority outreach and earthquake-related projects it was designed for.

In a related development, the state Assembly has hired a former federal prosecutor as a special counsel to preside over a hearing on Quackenbush’s use of the insurance company penalties to set up the nonprofit foundations.

Former Assistant U.S. Atty. Matthew Jacobs, a longtime prosecutor who specialized in white-collar crime cases, has been named to guide an Assembly Insurance Committee inquiry into Quackenbush’s actions.

A spokesman for Quackenbush said the commissioner has agreed to appear at the hearing and “welcomes the opportunity to present these issues in a cooperative and comprehensive fashion.”

A larger foundation created by Quackenbush with earthquake settlement funds, the California Research and Assistance Fund, is the focus of an investigation by the state attorney general to determine whether it operated independently of the commissioner’s office. Investigators also are trying to find out if the $11.5-million foundation complied with the requirements of its charter.

Quackenbush announced that the foundation’s purposes were seismic research, promotion of earthquake preparedness and restitution for Northridge victims whose claims were mishandled. Groups that applied for grants from the foundation said their applications were routed through Deputy Insurance Commissioner George Grays, who resigned last week.

The Assembly’s decision to conduct its inquiry was announced as documents and interviews revealed that the second educational fund had been the brainchild of Stoorza, Ziegaus, Metzger & Hunt, a politically connected San Diego public relations firm, which pitched the idea for the foundation to the Department of Insurance in spring 1999.

Documents made available by the foundation show that Quackenbush agreed to finance the educational group with $1 million obtained from Farmers Insurance Co. in lieu of an investigation of its handling of Northridge earthquake claims. Another $286,000 for the foundation came from Pacific Life Insurance, which had reached a settlement with the department on an unrelated matter.

Quackenbush signed an agreement with Stoorza to pay the company $50,000 to help set up the foundation and recruit an unpaid board of directors.

As one of its first acts, the board of directors awarded Stoorza a two-year, $25,000-a-month contract to handle foundation activities. The board’s chairwoman, former California Health and Education Secretary Sandra Smoley, who already had a business relationship with Stoorza, excused herself from voting on the contract.

From March 1999 to January 2000, Smoley was a consultant to Stoorza, which required her to work for the firm and its clients about 16 hours a month.

Another board member, former state Sen. Lucy Killea, an independent from San Diego, said she agreed to serve on the foundation’s governing body after getting assurances that it would operate independently of Quackenbush.

“I told them, ‘If he’s calling the shots, this isn’t anything I want to do,’ ” she said.

Killea said she agreed to the two-year contract with Stoorza but made it clear to the other board members that “next go-round we should have open bidding.”

Mitch Zak, Stoorza’s director of communications, said officials from the firm suggested the idea of a foundation as a way to attract minorities, which often have difficulty getting insurance, to the insurance market.

“No existing nonprofits were doing this kind of work in California, so we undertook the task of recruiting an independent, nonpartisan board of directors,” he said.

All the foundation’s work, he said, has been subject to review by the foundation’s legal counsel.

Steven Lucas, the lawyer for the foundation, released financial documents showing that about $750,000 of its funds are still unspent. Lucas said its biggest expenditure so far has been for the work by the Stoorza firm, but it also has spent money to host a conference in Los Angeles last September on minority issues and to help finance a program that provides earthquake safety materials to grade-school children.

Lucas said he was making the foundation’s financial records public to demonstrate that it had operated independently of the commissioner’s office and in accordance with the law and the requirements of its charter.

Documents obtained by The Times show that Grays also asked the educational foundation to consider a proposal for TV public service announcements on earthquake safety that would feature basketball star Shaquille O’Neal. Internal documents from Stoorza show that it recommended strongly against the proposal by Strategi, a Long Beach media consulting firm. The board rejected it.

Stoorza’s internal memo complained that Strategi had proposed an “outrageous” fee and a contract that would not allow the foundation sufficient oversight. Strategi officials could not be reached for comment.

Strategi later made another, similar proposal to the research foundation, which approved it. Besides O’Neal, the public service announcements on earthquake preparedness include a brief appearance by Quackenbush.

Mark Savage, a San Francisco attorney who represents poor minorities in court cases, said he wondered whether either foundation was created to serve minorities and earthquake victims, or the political aspirations of the commissioner.

He said Quackenbush has had “an image problem” with minorities who complain that he has not done enough to eliminate redlining, a practice used by insurance companies that makes it difficult for people in certain high-risk areas to get insurance.

“So maybe you set up a foundation,” he said, “that appears to be helping the same groups that you have an image problem with.”

* QUACKENBUSH PROFILE

Insurance Commissioner Chuck Quackenbush’s image of independence is fraying. A3