Lawmakers to probe state-run insurer

The head of the state Senate announced Thursday that he would hold a legislative hearing to investigate a brewing scandal at the State Compensation Insurance Fund, which fired its president and another top official this week.

The state government-run company, with more than $6 billion a year in premiums, provides workers’ compensation insurance for 230,000 employers and acts as insurer of last resort for small companies that can’t find coverage in the private market.

Senate President Pro Tem Don Perata (D-Oakland) said a healthy State Fund was important to California’s economy.

“It is crucial to ensuring that employers pay the lowest possible rates for workers’ compensation coverage,” he said. “If there are problems with how the fund is being managed, we need to know about them and correct the situation immediately.”

On Tuesday, State Fund’s board of directors dismissed President James Tudor and Vice President Renee Koren on the basis of an internal legal and financial review that focused on the sale of discounted group policies. In November, two fund directors who administered group insurance programs resigned after conflict-of-interest questions were raised.

State officials and others, who requested anonymity because of the sensitivity of the matter, said investigations of activities at State Fund could lead to a criminal probe, but they declined to elaborate. A spokesman for the California attorney general’s office declined to comment, and a spokesman for the fund also had no comment.

Perata said he had asked Sen. Michael Machado (D-Linden), chairman of the Senate Banking, Finance and Insurance Committee, to call an investigative hearing for Wednesday. Machado said he was “concerned about gross mismanagement” at the San Francisco-based fund.

Senate committee staff members late Thursday were scrambling to put together an agenda for the hearing and couldn’t confirm the participation of any specific witness.

Perata also announced that he had appointed a top aide, Senate Office of Research Director Don Moulds, as his nonvoting representative on the five-person State Fund board of directors.

Moulds was the Senate’s staff expert in helping to craft the state’s sweeping workers’ compensation insurance overhaul in 2004.

The dismissal of Tudor, only six months after he was named president, is evidence that State Fund is “a very insular organization that simply was unable or unwilling to change,” Lt. Gov. John Garamendi said.

State Fund sued Garamendi in 2003, when he was insurance commissioner. State Fund objected to the California Department of Insurance’s efforts to regulate the company just as it oversaw private-sector insurers.

“They’ve got to bring new outside management into the organization so it can change,” Garamendi said.

As expected, State Fund’s board announced Wednesday that it had hired insurance consultant Lawrence E. Mulryan as its interim president.

marc.lifsher@latimes.com