Quackenbush Hearings Take Dramatic Turn

A day of explosive developments in the Chuck Quackenbush case included an arrest warrant, revelations of shredded documents and testimony that the insurance commissioner personally directed employees to collect millions from title companies for TV commercials that would feature him.

As legislative hearings on Quackenbush’s actions resumed Monday, surprise testimony from staff counsel Robert Hagedorn was the first to directly link Quackenbush with a strategy of using punitive insurance settlements to enhance his public image.

Quackenbush directed staff lawyers in March to collect $4 million from settlements with title insurance companies for a “media buy” for the TV commercials, Hagedorn testified Monday.

The testimony followed that of another Department of Insurance lawyer, whistle-blower Cindy Ossias, that senior Quackenbush aides ordered her and other staff lawyers to shred key documents related to Northridge earthquake settlements.

Later, one current and one former deputy commissioner invoked the 5th Amendment to avoid self-incrimination. And an arrest warrant was issued for Sacramento football coach Brian B.T. Thompson, who failed to appear to testify.

Thompson, who received $263,000 from a Northridge foundation for a football camp attended by two Quackenbush children, eventually arrived at the Capitol Monday night after being tracked down by the California Highway Patrol and sergeants-at-arms for the Assembly.

“Congratulations,” said Assemblyman Tom McClintock (R-Northridge) facetiously as Thompson sank low in his chair, “you have earned your place in history as the first person ever arrested by the California state Assembly.”

Thompson was released by the committee after promising to appear with his attorney at hearings set for Thursday morning.

Fund-Raising Quotas Alleged

The most electrifying testimony came from Hagedorn, who reluctantly disclosed that after Quackenbush ordered his top staff to raise the $4 million, a deputy commissioner set minimums that each agreement would have to produce.

“I believe he had a number,” said Hagedorn, “a total he had to bring in, so to speak.”

Hagedorn said the instructions from the commissioner had been relayed to him in March by the department’s chief counsel, Brian Soublet, who explained that they had been issued to top-level staff during a meeting with Quackenbush.

He said he was told the money was to be used for “outreach,” a term he knew to mean television spots featuring the commissioner.

Asked if Soublet appeared to be troubled by the message he was having to deliver, Hagedorn nodded. “Yes, he was,” he said.

Stunned by the revelations, several committee members said Hagedorn’s testimony was the most damaging yet for Quackenbush, who has steadfastly maintained that he had no direct involvement in the settlements and the operation of the nonprofit foundations they financed.

“If it is true, it casts some doubt on his [Quackenbush’s] claim that he was not involved in the disposition of funds,” said Assemblyman Darrell Steinberg (D-Sacramento). “The facts get worse the more we hear.”

McClintock said the commissioner’s survival in office may depend on how he answers Hagedorn’s assertions when he testifies before the committee on Thursday.

“It is imperative that Mr. Quackenbush refute this testimony,” McClintock said.

A spokesman for the California Land Title Assn., meanwhile, said the organization was “outraged” by the revelations. “This is a sad commentary on the settlement process utilized by the Department of Insurance,” he said.

The department had sought to settle its part of a lawsuit against title insurance companies that alleged the industry had benefited financially from escrow deposits it steered to certain lenders. The industry denied the accusations, but so far five companies have settled with the department for a total of $2.3 million.

The committee turned its attention to title company settlements after Ossias testified that she had been ordered to shred documents containing recommendations from department lawyers for fines against insurers accused of mishandling Northridge earthquake claims. Ossias was granted immunity from prosecution in exchange for her testimony.

The shredding came on direct orders from Quackenbush’s top lieutenants, who had reached settlements allowing the insurers to escape fines by paying “small amounts” into nonprofit foundations created by Quackenbush, Ossias said.

The foundations are being investigated by state Atty. Gen. Bill Lockyer, who described one of them in court documents as a “sham” operation controlled by Quackenbush’s former deputy, George Grays. Lockyer said foundation assets were used to pay for television ads featuring Quackenbush, political polling and grants to charitable organizations with ties to Quackenbush and Grays.

Grays, who resigned in April, appeared briefly before the committee to take the 5th Amendment. He told the committee he was “eager to answer your questions” but had been advised by his attorney to cite the constitutional protection against self-incrimination.

Contradicting earlier statements by Quackenbush’s top staff, Ossias, a veteran on the department’s legal staff, told lawmakers she was part of a team of lawyers that proposed fines against insurance companies.

She said lawyers based their recommendations for fines on the number of claims-handling violations that had been uncovered in department audits conducted on insurers after the 1994 Northridge earthquake.

She said she was “appalled” when she learned that fines she had expected to be in the range of “$20 to $40 million” were never levied, and instead the companies were permitted to donate a few million dollars to the commissioner’s foundation.

“I had seen the files . . . and I felt these exams showed violations that were egregious and warranted hefty fines and restitution,” she said.

Shortly after the settlements were signed, Ossias said, department lawyers were directed by Deputy Insurance Commissioner Mark Lowder to shred all copies of their recommendations.

She said her outrage over the settlements eventually led her to become the whistle-blower who released the confidential audits to a former staffer for the committee.

Ossias, who Quackenbush has since placed on administrative leave, said she knew she was putting herself in personal jeopardy by leaking the documents but added, “I felt it was their [Northridge victims’] right to know how they had been shortchanged.”

McClintock scolded her for her decision to give confidential documents to the Legislature, saying it had compromised lawmakers’ investigation of the commissioner. “For the Legislature to sit in judgment,” he said, “it is very important for the Legislature to be above reproach.”

Like Grays, Lowder cited his 5th Amendment rights when called to testify before the committee.

Other committee members saw Ossias’ testimony as a disturbing addition to the mounting evidence of possible misconduct by Quackenbush and his chief lieutenants.

“Recommendations for significant fines ended up turning into no fines and in the midst of that process there was a request from upper management to shred . . . documents,” said Steinberg. “Why? What was there to hide.”

Assemblyman Thomas Calderon (D-Montebello) said the evidence seemed to show overwhelmingly that “the focus in the department was not on protecting the public but on raising money to pay for television commercials for the commissioner.”