Insurance Chief Kills Probe by Quackenbush

Reversing decisions of his predecessor, Chuck Quackenbush, the acting state insurance commissioner called off an investigation of document leaks Monday and abandoned lawsuits against state senators for distributing them.

Acting Commissioner Clark Kelso said he was dropping the legal actions because it would “serve no purpose” to pursue a battle with lawmakers that Quackenbush had initiated while he was under investigation by both houses of the Legislature.

“Respect for the separation of powers between the legislative and executive branches and basic principles of free speech . . . strongly support dismissing” these actions, he said in a written statement.

Kelso’s directives close an acrimonious chapter in the relationship between the Department of Insurance and the Legislature, whose public hearings on wrongdoing by Quackenbush ultimately led to his decision to leave office July 10.

At the height of the legislative probe, Quackenbush asked the California Highway Patrol to investigate leaks in his department, which he said allowed lawmakers to obtain copies of confidential reports examining major insurance companies and their handling of Northridge earthquake claims.

Summaries of the highly critical reports were eventually made public by Sen. Martha Escutia (D-Whittier), who posted them on the Internet, saying policyholders were entitled to know how companies had handled claims after the 1994 earthquake.

Quackenbush then asked Sacramento Superior Court Judge Joe S. Gray to order lawmakers to remove the reports from the Internet; Gray indicated he was prepared to do so.

Kelso acknowledged that he was concerned about the unauthorized disclosure of the reports, but he said now that they are public, “there is little likelihood that continuing these lawsuits will result in any useful relief being granted by the court.”

Escutia said she was pleased by Kelso’s decision and it demonstrated that “he’s obviously read the Federalist Papers.” The papers are a series of arguments by the founding fathers for ratification of the Constitution.

“We’ve always argued that we have every right to these documents,” she said. “We felt our right to investigate supersedes any confidentiality statute. There is no way any Legislature would ever in its right mind give away its right to investigate and use documents.”

The reports, which found numerous examples of mishandled claims, were used by Quackenbush to reach secret settlements with companies that required them to contribute $12.8 million to nonprofit foundations he created.

The foundations, now under investigation by Atty. Gen. Bill Lockyer, used the funds to enhance the commissioner’s political image by featuring him in television spots in major California markets. They also paid for political polling and grants to charitable organizations that had ties to Quackenbush and his former deputy, George Grays.

A judge froze the assets of one of the foundations after Lockyer described it as a “sham” operation that had been controlled by Grays from the Department of Insurance.

During the CHP investigation, a senior lawyer in the Department of Insurance admitted she leaked documents to the Legislature, saying she could no longer remain silent about what she viewed as egregious wrongdoing in the department.

Whistle-blower Cindy Ossias, who works in the department’s San Francisco office, was later subpoenaed to testify before the Assembly Insurance Committee, a move that automatically granted her immunity against criminal prosecution. Quackenbush, meanwhile, ordered her placed on administrative leave, and a spokesman for Kelso said no decision on her future has been made.

Kelso said the decision to call off the CHP investigation came after a meeting with CHP Commissioner D.O. “Spike” Helmick Jr., who promised to deliver a report on his findings within the next two weeks.

Helmick said he was satisfied that Ossias was the only department employee who leaked confidential reports. “We cannot find anything that points a finger at anyone else,” he said.

Helmick also said officials of the Quackenbush administration were guilty of leaking Ossias’ name. As the CHP investigation neared completion, he said, officers privately told department officials that Ossias was responsible for the leaks but asked that her name not be released publicly.

Instead, he said, the Insurance Department officials breached the agreement and “ran to the press” to make the announcement.

*

Times staff writer Carl Ingram contributed to this report.