Insurance Dept. Caretaker Named

Under pressure from lawmakers and Atty. Gen. Bill Lockyer, embattled Insurance Commissioner Chuck Quackenbush named a prominent law professor Wednesday to assume a caretaker role over the scandal-scarred Department of Insurance until his replacement is appointed.

Clark Kelso, 40, head of the governmental affairs program at the University of the Pacific’s McGeorge School of Law, said his primary task will be to begin to restore public trust in the agency and to relieve the “near state of paralysis” that has engulfed it since the political corruption scandal first erupted in March.

Kelso will begin work today as chief deputy and then will become acting insurance commissioner when Quackenbush formally steps down Monday. Michael Kelley, who is now chief deputy, has decided to leave the department, a spokesman said.

Although Kelso’s appointment was made by the commissioner, officials said a key role was played by Lockyer, who has made clear his concern that control of the department not fall into the hands of Quackenbush deputies who are embroiled in various aspects of the investigations of the agency.

They said the attorney general also was worried that with the resignation of Quackenbush, the department had become leaderless and chaotic.

“People are trying to take charge and they are fighting each other like crazy,” said one insurance company executive.

A spokeswoman for Lockyer called the appointment of Kelso “a very important step in restoring public confidence in the Department of Insurance.” She said Lockyer was consulted about the appointment, but the idea of naming an interim commissioner was Quackenbush’s.

Kelso, a Republican, said he will serve until Gov. Gray Davis appoints Quackenbush’s replacement, which could be as soon as two weeks but is likely to be about two months. He said he is not a candidate for the permanent post.

The appointment buys time for Davis, who had been under pressure to name a replacement quickly and fill the leadership vacuum left by Quackenbush’s resignation. Among those rumored to be under consideration are state Sen. Patrick Johnston (D-Stockton) and Maria Contreras-Sweet, Davis’ secretary of business, transportation and housing.

Officials said Davis was not involved in the decision to name Kelso but had no objections to the appointment.

Quackenbush resigned last week on the day before he was to testify under oath at an Assembly Insurance Committee hearing where lawmakers were investigating settlements made with insurance companies accused of mishandling claims after the 1994 Northridge earthquake.

Although internal audits found numerous examples of mishandled claims, Quackenbush decided that, rather than fine the companies, he would require them to make contributions to nonprofit foundations he created.

Evidence gathered by the committee and Lockyer showed the assets of the foundation were then used to air television spots featuring Quackenbush, pay for political polling and make grants to charities, many of which had ties to the commissioner. In court documents, Lockyer described one of the foundations as a “sham” operation controlled by Quackenbush’s former deputy, George Grays.

At the Assembly hearing, Quackenbush would have had to answer assertions by a top insurance department lawyer that he personally had ordered his staff to raise $4 million from title insurance companies for a television advertising campaign. The lawyer’s testimony contradicted Quackenbush’s repeated claim that he had no direct involvement in the foundations.

At a hastily called news conference Wednesday, Kelso said he will direct the department to fully cooperate with all investigations. In the next few weeks, he said, he sees his job as an effort to put the department “back on its feet,” make sure the day-to-day operation is running smoothly, and prepare for new leadership.

“California consumers expect the department to be an active and effective watchdog over the insurance industry,” he said. “I intend to see to it that the department fulfills that expectation.”

A 1983 graduate of the Columbia University School of Law, Kelso joined the McGeorge faculty in 1986. Kelso, who has been a frequent consultant to the Legislature, said he is knowledgeable about insurance law but has never worked in the industry.

Former Assemblyman Phil Isenberg (D-Sacramento), who often worked with him on judicial issues, described Kelso as “smart, inventive, calm and rational.”

If Davis wants to take some time to consider the permanent appointment, Isenberg said “he can be comfortable that he has someone in there who in fact will be remarkably adroit and reassuring. This guy’s a thorough professional.”