State Sues Workers’ Comp Carrier

Insurance Commissioner John Garamendi sued California’s government-run workers’ compensation carrier Monday, escalating a long-running feud over Department of Insurance efforts to regulate the $7.6-billion entity.

In a lawsuit in state court in San Francisco, Garamendi says he wants to review the State Compensation Insurance Fund’s finances to make sure that any savings from the workers’ comp reforms passed by the Legislature last year are passed on to California employers in the form of lower premiums.

The commissioner says in the suit that he is concerned that he doesn’t have enough information to report to the Legislature on the fund’s financial condition, as required by the reform bills passed last year. Garamendi wants the court to order the State Fund to give his consultants access to all records, documents and employees.

The State Fund is a San Francisco-based nonprofit insurer of last resort for employers that can’t get workers’ comp coverage elsewhere.

It has been locked in a turf battle with Garamendi and has accused the commissioner of political grandstanding. In May, the fund sued him, alleging that he was illegally trying to take control of the 80-year-old insurer.

On Monday, State Fund President Dianne C. Oki said Garamendi had a right to “report our financial condition to the Legislature.” But she objected to his demand that the fund bear the cost of “another, repetitive review” by outside consultants.

The maneuvering is taking place as negotiators for Democrats in the Legislature and Republican Gov. Arnold Schwarzenegger work on a deal to once again overhaul the system for compensating injured workers.

Under a tentative agreement, skyrocketing premiums would be cut by streamlining the way permanent disability benefits are awarded and reducing litigation.

Over the last few years, the State Fund has ballooned into the state’s largest property and casualty insurance carrier, thanks to the bankruptcy of two dozen private insurers in California.

The State Fund now provides coverage to more than 60% of California businesses.

Lawmakers and the governor are crafting a measure that would rebalance the system and reduce the pressure on the State Fund to satisfy the workers’ comp needs of most small and medium-size employers, including those with workers in hard-to-insure, high-risk occupations like roofing and trucking.

The first state Senate hearing on a proposed bill has been set for Monday, when the Legislature is scheduled to return from spring recess and Schwarzenegger comes back from a Hawaiian vacation.

However, one last part of the complex deal is still incomplete. Democrats and their allies, including labor unions and attorneys representing injured workers, are demanding that insurance company premiums -- including those of the State Fund -- be regulated to make sure that any savings from the reforms are translated into lower premiums.

Positions on rate regulation are all over the map at the statehouse.

The latest and most detailed regulatory plan, by Senate Labor and Industrial Relations Committee Chairman Richard Alarcon (D-Sun Valley), would create a three-person commission that would set maximum and minimum workers’ compensation rates, based on actuarial data.

Companies would have to present evidence at public hearings if they sought rates outside the band.

“This obviously has significant support among Democrats,” Alarcon said.

He said he submitted his plan early in the week in hopes it would be considered by the governor and four top legislative leaders in their next “Big Five” negotiation on workers’ compensation.