Quackenbush Refuses to Testify, Storms Out

Heightening tensions with lawmakers, Insurance Commissioner Chuck Quackenbush stalked out of a state Senate committee hearing Tuesday, refusing to answer questions about his handling of millions of dollars in insurance company settlements.

Quackenbush said his refusal to testify was based on the advice of his lawyer, Sacramento criminal defense attorney Don Heller, who warned the Republican commissioner to avoid a “political ambush” by the Democrat-controlled Legislature.

“So here I stand, conflicted between following the advice of my lawyer or responding to what I can now assume to be politically motivated questions,” Quackenbush told the Senate Insurance Committee, “and today I defer to Mr. Heller’s judgment.”

Minutes later, Senate President Pro Tem John Burton (D-San Francisco) said the commissioner’s action left him no choice but to issue a subpoena forcing Quackenbush to return to testify, possibly next week.

“I personally think Chuck made a terrible mistake walking out of the committee,” said Burton, who is normally reluctant to issue subpoenas. “I’m very sorry he did that.”

Just before his exit, Quackenbush held up copies of e-mail between an Assembly staff member and the Senate committee’s chief consultant, Richard Steffen, that he said was proof of lawmakers’ political motivation. The e-mail, written 15 months ago and labeled “confidential,” urged Steffen not to confront the commissioner about secret settlements with insurers because “we have to set him up first. . . . If we do not completely ambush him, he will slide out of it.”

As Quackenbush strode out of the committee room, a small group of supporters cheered. Outside, his wife, Chris, met with reporters, saying, “I’m proud of my husband.”

She has been prominent in the controversy. It was her husband’s transfer of more than $250,000--mostly insurers’ political contributions--to pay debts from her failed state Senate bid that prompted lawmakers to examine his actions.

The commissioner’s departure Tuesday threw the hearing into temporary chaos, forcing committee Chairwoman Jackie Speier (D-Daly City) to call a brief recess, after disputing his “ambush” remark.

“I’ve actually been in an ambush before,” said Speier, who survived the 1978 attack on a U.S. delegation leaving Jonestown, Guyana. “Almost lost my life in that ambush. . . . This is not an ambush.”

Other senators were also aghast.

“I’m ashamed and I apologize to the voters of the state,” said Sen. Nell Soto (D-Pomona). “I’m sorry that Mr. Goody Two-Shoes, Mr. Self-Righteous, decided not to stay.”

Sen. Teresa Hughes (D-Inglewood) likened Quackenbush’s move to that of an actor in a television serial. “It was like throwing a hand grenade before the exit,” she said.

Speier, who called the daylong hearing to examine settlements made by Quackenbush’s department with firms it accused of mishandling Northridge earthquake claims, later complained that he used the e-mail as a ruse to avoid testifying.

“I don’t think the commissioner ever intended to testify,” she said. “I think he was thumbing his nose at all of us.”

Speier said the e-mail was written by Assembly staffer Anne Mitchell, not by a member of her own staff, in response to an inquiry from Steffen, who had asked “a very legitimate legislative question” about Quackenbush’s decision to keep settlements secret.

Quackenbush’s actions before the committee signaled that he is adopting a more confrontational strategy for defending himself in the many investigations of his department now underway. Insurance Department officials called to testify before the committee said Tuesday that Quackenbush’s chief counsel told them not to reveal the internal workings of their office.

Both the Assembly and the Senate have been investigating Quackenbush’s decision not to fine insurance companies for their handling of Northridge claims. Instead, the commissioner required them to contribute millions to nonprofit foundations that he established.

The foundations used the funds for TV spots featuring the commissioner and to make contributions to charitable organizations that had little or nothing to do with earthquakes or insurance. They are being investigated by state Atty. Gen. Bill Lockyer, who obtained a court order freezing the assets of one foundation earlier this month after arguing that it was a “sham” operated by one of Quackenbush’s deputies.

Bernie Bernheim, a Los Angeles lawyer who has represented many Northridge victims in lawsuits against insurance companies, told the committee that it was unusual to negotiate settlements with companies in secret and without oversight by the courts. He said the nearly $12 million in donations agreed to by six companies represented only a fraction of the amount they paid to settle private lawsuits.

Also under scrutiny is Quackenbush’s use of earlier settlement funds for TV ads that featured him in 1997 and 1998. In some settlements, firms were required to make payments directly to vendors designated by the department. In a settlement with Levitz Furniture, which sells credit insurance, a company was required to pay $675,000 to a fund controlled by the department.

Speier said department documents showed that the agency had originally sought to settle with Levitz by requiring the company to pay $500,000 into the fund and $200,000 to cover the department’s costs of handling the case. But she said that at the last minute those costs were reduced to $25,000 and the remaining $175,000 went to the fund eventually used for ads.

Under questioning, Insurance Department attorney Patricia Staggs acknowledged that the $25,000 did not adequately reimburse the agency for the time lawyers and investigators put into the case.

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‘Political Ambush’ E-Mail

The document that Chuck Quackenbush presented to the state Senate Insurance Committee as proof of a “personal political ambush” was an e-mail exchange that took place 15 months ago between Senate staffer Richard Steffen and former joint legislative task force staffer Ann Mitchell. Mitchell now works as a consultant to Assembly Speaker Bob Hertzberg. Hertzberg press secretary Paul Heffner said the “e-mail was not at all in keeping with the bipartisan effort of the oversight that is underway in the Assembly. It was written by a staffer who was not involved in that effort.”