Quackenbush Action Lacked Legal Force, Lockyer Says

Former Insurance Commissioner Chuck Quackenbush acted without legal authority when he made settlements after the Northridge earthquake that required insurers to contribute to foundations whose activities were not related to the disaster, an opinion by state Atty. Gen. Bill Lockyer said Wednesday.

The opinion, requested by Senate Insurance Committee Chairwoman Jackie Speier (D-Hillsborough) in May, said that, although Quackenbush had broad power to reach settlements with companies accused of mishandling Northridge claims, he exceeded that authority by creating foundations that financed political polling, minority outreach and grants to charities.

“The commissioner may not . . . [require] payment of funds to a private charitable foundation for the purpose of supporting activities unrelated to the regulatory enforcement responsibilities of the Department of Insurance in the proceeding,” Lockyer wrote.

Speier, who plans to release the opinion at an 11 a.m. news conference today in San Francisco, said in an interview that it could have far-reaching implications for the victims of the Northridge quake and could be used as the legal basis for reopening investigations of claims.

She said lawyers in the attorney general’s office had sought advice from a number of legal authorities before issuing the opinion. “I think they wanted to make very sure they were on firm footing,” she said.

In April, the legislative counsel, legal advisor to the state Senate and Assembly, concluded in a more strongly worded opinion that the commissioner did not have the power to compel insurance companies to give money to private foundations.

Quackenbush’s attorney, Don Heller of Sacramento, told a San Francisco television station Wednesday that Quackenbush’s actions were taken with the advice of his legal counsel and “in the good faith belief that he was acting appropriately and lawfully.”

Lockyer has already asked a Sacramento Superior Court to dissolve one of the foundations, the California Research and Assistance Fund, which he described as a sham operation that was controlled by one of Quackenbush’s deputies, George Grays.

The settlements Quackenbush reached in 1999 with six insurance companies--State Farm, Allstate, 21st Century, Farmers Home, Fireman’s Fund and Farmers--prompted a series of fact-finding hearings by the Legislature. Ultimately, those hearings led to Quackenbush’s decision to leave office July 10.

During the proceedings, insurance department attorneys testified that they had recommended hundreds of millions of dollars in fines against several of the companies. But Quackenbush settled with the firms instead, requiring $12.8 million in contributions to the foundations.

Other witnesses said the foundations were used to enhance his political image by financing television spots featuring the commissioner and grants to charities that had ties to Quackenbush and Grays.