Insurers--Quackenbush’s Victims, or His Allies?

A number of insurance executives hold that the industry has been subjected to a shakedown in the scandal engulfing Insurance Commissioner Chuck Quackenbush and that insurers, like consumers who suffered from the Northridge earthquake, are victims.

Indeed, an official of one of the leading companies asks, “Was the purpose of all this to leverage or push insurers into making a Hobson’s choice?”

He, as do others, maintains that in paying $12.8 million into Quackenbush’s foundations, doubling the money the commissioner ever received from insurers in campaign contributions, the industry was making the best of a bad bargain.

They were told by Quackenbush lieutenant William Palmer, they say, that they could put up the money or face much bigger fines and attendant bad publicity for their alleged lack of fair treatment of quake damage claimants.

But a Sacramento consumer advocate, Rosemary Shahan, notes that so often in the past the industry has shown itself “a master of massive deception” in its dealings with state insurance authorities, the Legislature and the electorate.

And Steven Miller, a former deputy insurance commissioner under John Garamendi, remarks that in his experience, “when insurance companies are confronted with a fine they disagree with, they’ll spend a million dollars in litigation to avert a fine of several million.”

Here, the stakes admittedly were higher. State Farm purportedly could have been fined $2.38 billion and Farmers $450 million, to cite two examples, before Quackenbush accepted much, much less.

But, still, if the big companies thought there was a shakedown going on against them, they should have reported it to legal authorities, the state attorney general or the U.S. attorney in Sacramento.

In their dealings abroad, U.S. companies have been prosecuted for paying bribes to secure contracts. Should companies give in here to what they might consider extortion or blackmail, which are, after all, synonyms for “shakedown?”

But a Times report Wednesday said some of the foundation money has gone to minority groups that might help Republicans like Quackenbush in the future. Perhaps the insurers, with their traditional affinity for the GOP, are willing accomplices to this effort.

And perhaps, these donations to foundations amounted to a no-contest plea by the insurers. Yes, they may be saying, we’re not willing to fight allegations we treated the quake victims poorly, and so we’re going to pay something.

This is not, publicly, what the insurers concede. “We did not do badly by our Northridge customers,” says Bill Sirola, a California spokesman for State Farm, the largest insurer. “We paid out $3.5 billion of Northridge claims.”

Whether Quackenbush and his aides pumped up the reports of mishandling claims to justify their threats of huge fines is a question.

But the fact is there has been substantial litigation, much of it ending in large settlements for consumers, that seems to establish gaps in proper treatment by the companies in what was the costliest disaster, in dollars, in U.S. history.

Trial attorney Michael Bidart points, for example, to the Allegro case, in which State Farm had unsuccessfully attempted to foist lesser quake coverage on unsuspecting consumers before the quake even occurred, and to the Jo Ann Lowe case, where a longtime Allstate employee told of alteration of engineers’ reports by company officials to allow lower payments to victims. Both won a settlement.

Not yet resolved is another major lawsuit, the Valnor case, which accuses Farmers of fiddling with deductibles in order to reduce payouts to consumers.

Still, there is enough suggestion of malfeasance in handling Northridge claims to justify the chairman of one Southland insurance company, who asked not to be named, saying he felt “the companies, if they want to be in business for the long term . . . have got to take care of their customers. They must be willing to redress their grievances.” He named State Farm and Allstate.

This affair is not the first time possible malfeasance in insurance preoccupies Sacramento.

In recent years prosecutions led to federal prison time for both the then-lead lobbyist of the industry, Clay Jackson, and the man he bribed, the chairman of the Senate Insurance Committee, Alan Robbins (D-Van Nuys).

The industry’s contributions to lawmakers alone reached $10.8 million in one five-year period. In one two-year session, all but four of the Legislature’s 120 members received something.

And, recently, there have been signs the insurers have begun to overwhelm, by their spending in initiative campaigns, their longtime rivals, the trial lawyers. Earlier this year, in their successful campaign to knock out third-party, bad-faith lawsuits approved by the Legislature and signed by Gov. Gray Davis, the insurers say themselves they outspent the trial lawyers 7 to 1, about $48 million to $7 million.

So where do we go from here? Some longtime reformers think it’s time to ratchet up the pressure.

Harvey Rosenfield, author of the 1988 insurance ballot measure, Proposition 103, declares that unless the Quackenbush inquiry is followed by action to curb excesses, “it raises the question of which is stronger, the insurance industry or our democracy.”

Harry Snyder of the Consumers Union, who has fought insurance issues in Sacramento for decades, states bluntly: “A closer investigation of the executives of these companies is needed. Nothing will stop the industry’s overreaching until there’s an inquiry into the people who cut the checks--not their lobbyists, not the trade association, not the senators or other elected officials, but the people who set the policies for the companies.”

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Erlich Motors last Friday repaid $1,352 of the $1,500 deposit in an aborted used car deal I wrote about last week to L.A. consumers Marie Solomon and Kamil Blaze. Only $148 the dealer paid the Department of Motor Vehicles wasn’t returned.

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Ken Reich can be contacted with your accounts of true consumer adventure at (213) 237-7060 or by e-mail at ken.reich@latimes.com.