The Excuses Don’t Wash

Insurance Commissioner Chuck Quackenbush and five aides struggled for hours Thursday to explain why they allowed insurance companies to “donate” $12.8 million to foundations created by Quackenbush rather than face massive fines for mishandling claims from the 1994 Northridge earthquake. But it didn’t wash.

Quackenbush, in his fifth year in the office, still does not seem to understand his statutory responsibility to consumers as a regulator--to enforce the law and to punish insurers if they shortchange their customers.

Quackenbush insisted during an extraordinary 3 1/2-hour hearing before the Assembly Insurance Committee that his goal was to “do something to help consumers.” Yet most of the money spent by the two foundations had only a tenuous connection, at best, with helping people, especially Northridge victims. Much of it went into public service television commercials featuring Quackenbush.

Quackenbush insisted that fines were a bad idea because they would take years to collect, and they would not directly benefit consumers because the money would go into the state’s General Fund.

Quackenbush aides said a major benefit of the foundation deal was that the companies agreed to review claim files to see if policyholders were properly compensated. But why not just direct the companies to do the reviews? If the Department of Insurance does not have the authority to do that now, the Legislature should fix the law.

The best thing the department can do for policyholders is to make sure their damage claims are treated fairly and completely by the companies--not to negotiate friendly deals that have no real enforcement impact. Fines are supposed to punish companies that don’t follow the rules and to make them think twice about doing it again.

Six million dollars remain in one fund for compensation of Northridge victims, but none has been distributed pending development of a payout procedure. Considering the number of complaints of mishandled claims, it’s likely the $6 million will not go far.

The earthquake caused an estimated $40 billion damage. Quackenbush acknowledged “mistakes were made” by the two foundation boards in how they spent their money, but he said he is proud of the foundation concept. That’s in spite of a Legislative Counsel’s opinion that he did not have authority under state law to create the nonprofit groups.

Going into the hearing, Quackenbush claimed that he was the victim of a partisan attack by Democrats. At one point he said he was surprised by the hostile nature of the questions from one Democrat. In fact, at least one Republican expressed as much concern about the insurance department’s actions as the majority Democrats.

Perhaps the most distressing aspect of this hearing was Quackenbush’s passive approach to his job and his reluctance to challenge the industry on the Northridge issues. Also surprising was the degree to which Quackenbush claimed to be unaware of actions that were being taken in his name by department deputies.

Billions are at stake in the insurance industry in California. It takes a tough, involved commissioner to protect the consumers’ interest. The consumer doesn’t have that now.