Freezing of Foundations’ Assets Urged

The head of the state Assembly’s Insurance Committee said Monday that he will push to freeze the assets of controversial foundations established by Insurance Commissioner Chuck Quackenbush and steer their remaining money to financial victims of the Northridge earthquake.

Assemblyman Jack Scott (D-Altadena) said he will ask the Legislature’s top attorney if lawmakers have the power to freeze the foundations’ remaining assets, about $6 million, and somehow distribute the money among policyholders who suffered damage in the 1994 quake. The Legislature’s lawyers have issued an opinion that Quackenbush had no authority to create the foundations--a position contested by Quackenbush.

Scott and Assemblyman Thomas Calderon (D-Montebello) also announced that they are pursuing legislation that would allow people victimized by unfair insurance claim settlements to receive restitution from any future fines, penalties or other funds extracted from insurance companies.

Rather than impose massive fines on insurers for their handling of Northridge claims, Quackenbush agreed to far less costly settlements, allowing the firms to contribute to foundations he created.

“The fact is that the insurance commissioner played so fast and loose with all of this that not one penny of the money has gone to victims,” Scott said. “If you are going to fine companies for their behavior, the money should go to those that were wronged.”

Quackenbush’s legal team had recommended fines totaling several billion dollars against a few large insurers, saying reviews indicated that the firms had consistently low-balled or botched claims. Instead, insurers wound up making $12.8 million in “voluntary donations” to the nonprofit Quackenbush-created foundations.

State Farm was told that it faced $2.38 billion in fines and $114.7 million in repayment penalties. The giant insurer was allowed to settle the matter by making a $2-million payment to the California Research and Assistance Fund, set up as an earthquake research, education and relief foundation.

At least $3 million of the foundation’s money went to producing TV spots featuring Quackenbush, including one in which the commissioner posed in an NBA referee’s outfit with Lakers star Shaquille O’Neal.

An additional $500,000 was donated to the Sacramento Urban League, of which the commissioner is a board member. A total of $450,000 went to political consultants who had worked in Quackenbush’s election campaigns.

None of the money went directly to insurance consumers harmed by the earthquake.

Deputy Insurance Commissioner Dan Edwards, a spokesman for Quackenbush, recently said the remaining $6 million will go to victims of the Northridge earthquake whose damaged property was uninsured or underinsured.

Quackenbush compelled insurance companies to give money to the foundations “for their failure to properly compensate those who were insured,” Scott said. “I certainly feel sorry for those who hadn’t adequate insurance. But they’re not the ones who should be a priority here.”

As he answered a barrage of tough questions from the Insurance Committee last week, Quackenbush stated that one of the reasons he chose to set up foundations rather than fine the insurance companies was that fines would go to the state’s general treasury, where the money could be used for anything.

That prompted Calderon and Scott to pursue their legislation--a move that was quickly praised by the Department of Insurance.

“The proposed legislation by Mr. Scott,” said Quackenbush spokesman Scott Edelen, “is a welcome validation of Commissioner Quackenbush’s contention that consumers should be the primary benefactors of sanctions imposed on insurance companies rather than the black hole of the state’s general fund.”

Those words only angered Calderon, who asked why Quackenbush had not sought help from lawmakers in the first place if he had such strong concerns.

“He could have come to us a long time ago and said, ‘I have this issue with the Northridge earthquake, this is going to result in hundreds of millions in fines, and we need to start a fund for it,’ ” Calderon said. “The fact is, he didn’t, and nothing he can say to spin it now that the spotlight is on is going to change that.”