Firm’s Officials Contradict Quackenbush

State Insurance Commissioner Chuck Quackenbush, who has denied direct involvement in controversial negotiations with insurance companies over Northridge earthquake claims, personally intervened with at least one firm, its lawyers revealed Monday.

Attorneys for Farmers Insurance said the commissioner telephoned top officials in the company early last summer to press them to reach a settlement with his department, complaining that Farmers was one of a few holdouts.

“[He] encouraged us to bring the thing to resolution and capitulate to the department’s demands, basically,” recalled Jason Katz, Farmers executive vice president and general counsel, in an interview. The company was being asked to contribute to a foundation in lieu of investigations into its handling of Northridge claims.

In testimony before the state Senate Insurance Committee, another Farmers lawyer remembered two earlier meetings with the commissioner in which Quackenbush had also urged the company to reach a quick settlement. The commissioner has told lawmakers that he left negotiations to his deputies.

The executives’ recollections contradict Quackenbush’s repeated assertions that he had not taken any direct role in the negotiations that are now being investigated by committees in the state Senate and the Assembly.

Quackenbush Appears Under Subpoena

Also on Monday, an argumentative Quackenbush appeared under subpoena before the Insurance Committee, again denying having taken part in settlement negotiations.

“Was I in the building at the time these meetings occurred? It is possible,” Quackenbush said. “I don’t recall making any special appearances to dazzle those involved with my presence.”

A short time after the commissioner’s phone call to Board Chairman and Chief Executive Martin Feinstein, Farmers officials said, they signed an agreement with the Department of Insurance promising to pay $1 million to an educational foundation created by Quackenbush.

The commissioner funneled $12.8 million into two foundations he established with money from settlements with insurance companies that his department accused of mishandling Northridge claims. Funds from one of the foundations were used to produce and air public service spots featuring Quackenbush, and to give grants to charitable organizations that had no connections to earthquake safety.

State Atty. Gen. Bill Lockyer, who oversees charitable trusts, obtained a court order freezing the assets of that foundation after he described it as a “sham” operated by one of the commissioner’s key deputies. That deputy, George Grays, resigned in April.

Farmers on Monday became the first insurer to describe in detail a series of meeting with department officials that culminated in their agreement to sign a settlement.

Steven Weinstein, a lawyer for Farmers, said company officials were subpoenaed in March 1999 to appear at department headquarters in Sacramento. When they arrived, he said, they were herded into a small room with officials from two other companies, Allstate and Farmers Home.

He described the room as filled with boxes, each bearing the names of insurance companies, as if to show “that they had files on us.” Later, he said when someone accidentally leaned against one of the boxes it appeared to be empty.

On the wall were poster-size fake newspaper stories reporting that the companies had been ordered to appear at hearings to examine their handling of Northridge claims.

“It was heavy-handed, theatrical,” Weinstein recalled. “I’ve got to admit I was outraged.”

His outrage, he said, was compounded when the department presented Farmers with a proposal that it pay $83.5 million to a remediation fund, $4.2 million to a public education fund and a civil penalty of $450 million. He said the penalties were based on findings that had been made against other companies--not against Farmers, which had not been investigated by the department.

“Because the department found other companies to have committed . . . violations, there was an assumption . . . that perhaps Farmers had done similar activities, even though there was absolutely no evidence,” Weinstein said. “My reaction was to get up and walk out.”

He said he was persuaded to stay by department officials who quickly withdrew the proposal. Weinstein said there was repeated pressure from department officials--and on two occasions from Quackenbush himself--for Farmers to settle quickly in hopes that other companies would follow its example.

He said the company was reluctant to make any agreement because “we felt very comfortable that Farmers was doing everything right, and to this day we feel very comfortable that Farmers had done everything right.”

Eventually, he said, the company did settle in what it considered a business decision to avoid protracted litigation with the department and the bad publicity that would accompany it.

Quackenbush Calls Hearing a ‘Witch Hunt’

The testimony by Farmers officials followed the appearance by an unrepentant Quackenbush, who repeatedly sparred with committee members and in an opening statement accused Committee Chairwoman Jackie Speier (D-Daly City) of “wasting taxpayer money on this endless witch hunt.”

Later Speier introduced videotape, airing a string of television commercials featuring Quackenbush that had been paid for with settlement money. As one ad, a spot for the “Quake Ready” program featuring a whistle-wearing Quackenbush and Los Angeles Laker star Shaquille O’Neal, was showing in the committee chambers, several insurance representatives let out laughs and shook their heads in disbelief.

“Mr. Commissioner, I think it was a waste of money,” Speier said afterward.

Quackenbush defended the ads as an important vehicle for him to educate consumers, and even urged the lawmakers to try some of their own. “We can’t just sit here mute in Sacramento,” he said.

Sen. Liz Figueroa (D-Fremont), who had pushed as a member of the Assembly to ban such advertisements featuring politicians, was not swayed. “I am not going on television with you, commissioner,” she said to laughter from the chambers.

Figueroa then pressed Quackenbush for making what she called a “$19-million mistake” with the settlement money--funds that could have gone to earthquake victims. Quackenbush did not bite.

“I am not going to say I made a $19-million mistake at all,” he said.

Sen. Byron Sher (D-Stanford) said he was troubled not by the establishment of foundations but that there seemed to be little accountability for their actions.

“The problem here is the way you chose to do it, with what some would regard as a sham foundation,” he said. “Then the department washes its hands of everything that follows.”

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Times Sacramento bureau chief Rone Tempest and staff writer Carl Ingram contributed to this story.