California Insurance Commissioner John Garamendi said Wednesday that he was ready to go to court to stop illegal insurance sales practices said to affect multimillion-dollar commercial policies as well as consumer home and auto coverage.
But first, he has to settle a turf battle with state Atty. Gen. Bill Lockyer.
The two elected officeholders, potential competitors in the 2006 Democratic gubernatorial primary, have been dickering over the best legal and regulatory strategy to halt the alleged payment of kickbacks by insurance companies to brokers who steer business their way.
The issue gained national prominence last week after New York Atty. Gen. Eliot Spitzer filed a lawsuit against Marsh & McLennan Cos., the world's largest insurance broker, alleging that the firm conspired with insurers to inflate bids at the expense of clients. Spitzer indicated that other brokers and insurers were in his sights.
Garamendi, who said he had been working with Spitzer since February, said he wanted to take legal action under California's Unfair Competition Law against brokers and insurance companies, which he has declined to identify. Lawsuits, if successful, could force defendants to disgorge illegal profits.
"We intended to file [a lawsuit] last week, but we hit a little speed bump along the way," Garamendi said.
That speed bump, he said, was Lockyer.
The commissioner said Lockyer's staff had made it clear to Garamendi that only the attorney general could take an action under the Unfair Competition Law on behalf of the state of California.
So far, Lockyer hasn't indicated whether he would pursue the case on those grounds, and Garamendi conceded that he needed the attorney general to go to court.
"It's his turf," Garamendi said.
Lockyer's office, citing its attorney-client relationship with Garamendi, declined to discuss the possibility of taking legal action. However, Lockyer spokesman Tom Dresslar said the attorney general's office was taking a "hard look" at broker practices.
"We have formed an interdisciplinary team of lawyers to look at the problem of secret payments and bid rigging in the insurance industry," Dresslar said.
Those are the same practices that Garamendi is looking at. Although both he and Dresslar said that the two offices were in communication with each other, the timeline for any potential legal action remained foggy.
On Tuesday, Garamendi said he would be filing a lawsuit within two weeks. Wednesday morning he shortened the time to "next week." Later in the day, his spokesman corrected him, saying something would happen in "the near future."
Although Lockyer has yet to commit to an Unfair Competition Law action, he has given Garamendi the go-ahead to use private attorneys to assist the Department of Insurance in prosecuting insurance code violations. On Wednesday, the commissioner hired the San Diego-based firm of Lerach Coughlin Stoia Geller Rudman & Robbins "to investigate and determine whether or not a civil lawsuit should be filed on behalf of the insurance commissioner and the state of California," said partner John J. Stoia Jr.
Stoia's firm, best known for class-action suits by shareholders, has filed several federal and state lawsuits alleging bid rigging and insurance commission kickbacks. Last week, it sued a San Diego employee benefit broker, Universal Life Resources Inc., for allegedly engaging in unfair business practices. On Wednesday, Stoia filed a related action against Universal in U.S. District Court in San Diego under the federal Racketeer Influenced and Corrupt Organizations Act.
In a statement, Universal Life President Doug Cox denied allegations that the company received kickbacks from insurers and pledged to cooperate with any government probe.
Also Wednesday, Garamendi officially proposed insurance rules that would require brokers to disclose in detail to customers all payments from insurance companies. The regulations would also penalize brokers with loss of licenses and fines if they failed to provide clients with the "best available" insurance coverage.
Insurance agents and brokers gave notice that they intended to fight the proposals, which Garamendi can adopt after public hearings.
"I think the commissioner has gone way too far in trying to impose these heightened, unprecedented and, we believe, legally unsupportable legal duties on the industry," said Stephen Young, general counsel of the Insurance Brokers and Agents of the West.
Times staff writer Kathy M. Kristof in Los Angeles contributed to this report.