Insurance Debacle Is a Cautionary Tale for Public Servants

In the 19th century Sir Walter Scott warned: “Oh, what a tangled web we weave / When first we practice to deceive!”

Little did I know when I became chair of the Assembly Insurance Committee in early 1999 that a tragic web of scandal was being woven in the Department of Insurance. But in the past few months, it has been the task of our committee to unravel this tangled web.

After five extensive hearings, the damaging evidence was in and, at the end, Commissioner Chuck Quackenbush resigned in disgrace. The unfolding of events provides a cautionary tale for us all on the consequences of unethical decisions and gross misconduct.

What happened and why did it happen?

Briefly, experienced professionals within the Insurance Department, responding to complaints from the 1994 Northridge earthquake victims, investigated mishandling of insurance claims. They then recommended that hefty fines be levied on certain companies and that a restitution fund for these homeowners be established. The insurance companies would have had the choice of accepting the findings or going to court to defend themselves.

So far, very straightforward and proper. But then the shenanigans began.

The insurance companies were first threatened with huge fines, much larger than the investigating professionals recommended. Then they were told that they could escape the fines entirely. How? By settling instead with contributions to the newly established California Research and Assistance Fund (CRAF), contributions amounting to less than one cent on the dollar of the proposed fines. Not only would the insurance companies save money, but they also would escape the stigma of admitting any wrongdoing. Pretty tempting offer.

CRAF now had the money, and they ran amok with it. Not one penny went to earthquake victims. Rather, the first $3 million went to pay for an expensive television campaign featuring Quackenbush. An exorbitant $470,000 went to Quackenbush’s key political consultants to produce the ad.

Another step CRAF took was to divert funds to causes unrelated to earthquake assistance or research. The Sacramento Urban League received $500,000 and then named Quackenbush to the board of directors; $263,000 went to the Skillz Athletic Foundation (the state attorney general has launched an investigation into allegations that $90,000 of this contribution was returned in kickbacks to George Grays, a former deputy commissioner in the department).

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But why did misuse of funds happen? Greed, pure and simple, and thirst for political advantage. The political scheme was scripted by a public relations firm to provide a perpetual political campaign for Quackenbush. The financial scam paid off for insiders and friends.

There are many losses in this fiasco. The Insurance Department lost its integrity because of the arrogant abuse of power by Quackenbush and his top deputies. Unfortunate homeowners hit first by the earthquake were hit again by losing their opportunity to recoup losses. And all of us lost because once more our confidence in our elected officials spiraled downward.

When an elected official violates trust, we all suffer. We have the right to expect from our public officials the moral compass to say no to bad advice, even--indeed, especially--if it results in personal or political gain.

Yet we also gained: Our political system works. By diligent effort and relentless questioning, the Insurance Committee’s Republican and Democratic members laid bare the corruption, exercising its legislative oversight in a sterling, bipartisan manner.

Now that Quackenbush has resigned, what next? Shortly the committee will publish its findings and recommendations. Legislative action is underway to prevent future abuses. California Atty. Gen. Bill Lockyer and the U.S. Attorney’s Office are pursuing a criminal investigation. And I am confident that Gov. Gray Davis will appoint a permanent insurance commissioner who will clean house and establish procedures to restore the rightful regulatory power of the Insurance Department. Already, seven top aides to Quackenbush have submitted resignation letters to Acting Insurance Commissioner Clark Kelso.

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Large lessons can be learned from what has happened. Pride is seductive, and the moment we as elected officials forget that we are in office solely to serve the people, we have taken the first step down the trail of abuse. Chuck Quackenbush is not the first officeholder who has been blinded by the arrogance of power. I cannot promise that he will be the last. But he ought to be.

The creators of our Constitution knew the flawed nature of humankind. They entrusted no one person nor one branch of government with absolute power. Democracy with all its flaws can and does work. As the 20th century theologian Reinhold Niebuhr wisely observed: “The goodness in man makes democracy possible, and the evil in man makes democracy necessary.” Long live democracy.