Quackenbush Concedes Mistakes in Judgment

In three hours of aggressive questioning from legislators about his handling of Northridge earthquake penalties, California Insurance Commissioner Chuck Quackenbush on Thursday admitted “mistakes made in judgment” about how money from controversial foundations he created was spent.

“Some may have expected me to come here today angry or resentful,” Quackenbush said. “I have not. I am not. Mortified might be more the word.” Quackenbush said members of his staff never gave him details of a confidential agreement they signed on his behalf with Farmers Insurance absolving the company of wrongdoing in Northridge claims actions. In exchange, the company donated $1 million to a foundation run by Quackenbush political associates.

Democratic members of the Assembly Insurance Committee led the questioning, grilling the Republican Quackenbush and his staff about negotiations in which the Department of Insurance threatened to levy billions of dollars in fines against insurers--but instead accepted a relatively modest $12.8 million in “voluntary donations” to nonprofit foundations.

Committee Chairman Jack Scott (D-Altadena) described the settlements as a pittance that amounted to less than 1 cent for every $1 in potential fines.

Four major insurance companies faced disciplinary action after a Department of Insurance survey of settlements with policyholders after the Northridge earthquake found numerous examples of mishandled claims.

One of Quackenbush’s harshest critics was a fellow Republican, Assemblyman Tom McClintock (R-Northridge) who repeatedly took the commissioner to task.

“Either [insurance companies] violated the law and should have been fined or they were innocent and should have been left alone,” he said.

McClintock, whose district was the site of the worst damage in the 1994 quake, said that by threatening insurance companies with large fines to get the foundation donations, Quackenbush was really saying: “Contribute to this worthy cause or we’ll make your life a living hell.”

The Assembly Insurance Committee has legislative oversight of the Department of Insurance. It monitors the commissioner’s performance in regulating the industry.

If the commissioner were to face impeachment for his acts--something that has not been suggested publicly, even by Quackenbush’s severest critics--the Assembly Judiciary Committee would hold hearings.

Donations to Football Camp

Quackenbush, a tall former Army helicopter pilot, stood during most of the hearing, held before a large crowd in the Capitol’s largest auditorium. He appeared most tense when questioned about two former senior aides, former Chief of Staff Bill Palmer, a lawyer who drafted most of the foundation papers, and George Grays, a former campaign manager who resigned earlier this month.

Under questioning from committee member Fred Keeley (D-Boulder Creek), Quackenbush said it was Grays who introduced him to the operator of a Sacramento football training program that received $263,000 from one of the foundations, which Quackenbush said in press releases was for earthquake research. Two of Quackenbush’s sons attend the football training program.

Lawmakers asked Quackenbush repeatedly if he knew if Grays had played a role in determining how foundation money would be spent. Nonprofit groups that applied for foundation grants have said their requests were routed through Grays.

“Did Mr. Grays ever discuss with you any of the expenditures before or after they occurred?” Keeley asked.

Quackenbush replied that he had no knowledge of expenditures by the foundation and had been surprised to learn that it contributed to the Greater Sacramento Urban League. He is a member of the organization’s board of directors.

“I had nothing to do with the dispensation or guidance of those funds,” he said.

So he had no conversations with Grays or anyone else about how the foundation’s money should be spent? Keeley pressed.

“That’s correct,” Quackenbush said.

The commissioner acknowledged that Palmer had led the negotiations with Farmers, but when questioned about a controversial clause in the agreement that was reached with the company he said he had never seen it. The clause required Farmers to survey policyholders who had filed Northridge claims; consumers who replied to the survey would forfeit their right to sue the company over its handling of their Northridge claims.

Farmers provided the committee with copies of the survey letters to show that the company had never put that portion of the agreement into effect. The letters showed that when it surveyed consumers, the company did not require policyholders who answered the survey to give up their right to sue.

Deputy Commissioner David Langenbacher said he signed the Farmers agreement on Quackenbush’s behalf, and couldn’t remember if he had ever shown it to the commissioner.

Scott said later he was disturbed by the extent to which the commissioner seem to delegate his authority. He said that and other issues might be probed in later hearings.

In a properly run organization, Scott said, “People just don’t make those kinds of decisions without someone running the paper in front” of the top official.

Quackenbush admitted there was a problem. “If I had to do this over again,” he said of the way the foundations operated and distributed money, “this would be much, much more tightly drawn.”

Scott said legislators wanted to make Thursday’s hearing as low-key as possible to allow Quackenbush and his staff to explain their actions. He said several issues still need examining, and he hopes to call Grays and other witnesses, including some Northridge earthquake victims, to the next hearing. No date has been set.

Questioning Turns Hostile

Only once did the hearing get heated, when Keeley demanded to know how the department could have opened its negotiations with one company, State Farm, by threatening billions of dollars in fines, then have ended up 51 days later with an agreement for a $2-million donation to a foundation.

Keeley said he needed the commissioner to explain: “What ensued in the following 51 days to get to the $2 million? . . . What did he [Quackenbush] know and when did he know it?”

“The questioning is becoming a little more hostile than I would expect from you,” Quackenbush snapped back.

Although most of questions by the committee were addressed to Quackenbush, the commissioner frequently turned to his deputies to provide the answers. The staff repeatedly insisted that the department’s goal had been to settle with insurers as quickly as possible so that money could be returned to earthquake victims.

When legislators asked how much had gone to victims, the staff said only that $6 million earmarked for earthquake losses would be distributed soon. They said it had taken time to devise a plan for distribution.

“You can’t just open up the doors and let people come in and get a check,” said Chief Deputy Michael Kelley.

Scott said his greatest concern was that “the creation of these foundations has not yet gotten a dime to consumers.”