Quackenbush Investigation Far From Over

By | May 15, 2000

It began back in March, when lawmakers demanded that California Insurance Commissioner Chuck Quackenbush appear at an April 27 hearing and produce confidential reports his office prepared on the handling of Northridge earthquake claims. Now, seven weeks later, Quackenbush is still under the microscope.

The series of confidential reports by the Commissioner’s department concluded that three insurance companies-State Farm, 21st Century (formerly 20th Century) and Allstate-had allegedly low-balled claims, failed to inform policyholders of their benefits, forced some victims to sue to get full payment and improperly deducted the cost of wear and tear on possessions.

Rather than listening to staff lawyers’ recommendations to fine these companies, Quackenbush’s office agreed to deals that saved the insurers billions of dollars in fines for mishandling claims following the Jan. 17, 1994, Northridge earthquake. In lieu of a fine, Quackenbush required that the insurance companies contribute to the California Research and Assistance Fund, a nonprofit educational foundation.

On the day of the hearing, Quackenbush read a prepared statement before the Assembly Insurance Committee Quackenbush: “I am…deeply concerned that the perception of the activities of the Foundations has been that they exceeded the mandate authorized them-a perception that has, unfortunately, led to controversy.

“Let’s not forget, however, that these Foundations, which I continue to believe to be good public policy on behalf of consumers, have supported some very laudable programs.”

The list of “laudable” programs (along with expenditures that amount to $5.6 million) include: $3 million to TV spots featuring Quackenbush; $1 million to the “Quake Ready” program including children’s Web site and TV spots featuring Shaquille O’Neal and Quackenbush; $500,000 to the Sacramento Urban League; $400,000 to PACE (Protection, Advice and Coverage for Everyone) minority outreach program; $263,000 to Skillz Athletics Foundation (football camp); $200,000 to 100 Black Men organization; $100,000 to the Freedom Fund for community development; $70,000 to Athletes & Entertainers for Kids; $45,000 to 911 4 Kids; $40,000 to the Oakland Mentoring Center; $25,000 to the Meadowview Community Association, Sacramento; $18,000 to Community Connections; $12,000 to the National Latino Peace Officers Association; $10,000 to the Black Film Makers Association; $10,000 to the 2nd District Education and Policy Foundation, Los Angeles; and $10,000 to the Northern California Reinvestment Consortium.

Of the $11.6-million fund, $6 million remains-earmarked for Northridge quake victims whose damaged property was uninsured or underinsured. “More than $10 million of the total earthquake settlement money is committed to specific earthquake-related projects, including-most importantly-the $6-million relief fund,” Quackenbush stated. “Notwithstanding the important works of the groups that have received Foundation support, I believe that the earthquake research projects should have been prioritized. They obviously were not. For that, I take responsibility.”

On May 3, a group of enraged Northridge victims, consumer advocates and lawyers gathered outside the Devonshire Village condominium complex, where six years after the devastating quake, the buildings’ roofs still have not been repaired because victims have been unable to settle insurance claims.

Calling for the immediate resignation of Quackenbush, the angry residents accused the Commissioner of violating promises to advocate for consumers.

“As politicians, the Legislature of Sacramento is going to be enormously reluctant to remove anybody from office,” said Harvey Rosenfield, president and founder of the Foundation for Taxpayer & Consumer Rights (FTCR), a California-based, non-profit education and advocacy organization. “However, I do believe that the public outrage over this scandal and the magnitude of Quackenbush’s misconduct…suggests that if he does not resign, he may well be impeached.”

An impeachment movement for misconduct in office can be initiated by a resolution of the Assembly and imposed by a two-thirds vote of the Senate. No elected state official has ever been impeached in California.

Quackenbush was not present to defend himself against the irate victims and activists. Instead, he held a press conference of his own later that same day to respond to what he called “misrepresentations made by critics this morning with respect to 1994 Northridge earthquake claims.”

In a prepared statement, Quackenbush said that the morning’s news conference was arranged by “professional critics and trial lawyers” and that only one alleged earthquake victim was in attendance. After Northridge residents called on Quackenbush to quit, he said he would never resign. “Let me emphatically say that I will not be run from office by my political opponents,” he told reporters at the press conference.

With the onslaught of accusations in the L.A. Times, it may look as if Rosenfield is out to get Quackenbush, but Rosenfield said this was not the case. “I have never had anything personal against him,” he said. “My criticism of him is that in the past he has been a poor Commissioner, he has not protected consumers and now I believe he has violated his oath of office and betrayed the public.”

Rosenfield is not the only one analyzing Quackenbush’s actions. In court papers, Attorney General Bill Lockyer said George Grays, a former top aide to Quackenbush, controlled the foundations. On April 13, amid allegations that the network of foundations he helped manage on behalf of Quackenbush misused millions of dollars, Grays resigned as Deputy Insurance Commissioner. In an interview with the L.A. Times, Quackenbush said he was unaware of any direct involvement by Grays in disbursing foundation funds.

“Grays essentially treated the assets of the corporation as his own, and the corporation served as a mere shell for his own purposes,” Lockyer argued in the court papers. “[The California Research and Assistance Fund] was a sham corporation for Grays’ personal use.”

On May 5, Sacramento Superior Court Judge John R. Lewis ruled that funds deposited with the California Research and Assistance Fund for Northridge victims will be frozen until he can conduct a hearing May 22.

If the position of Insurance Commissioner was in fact a political stepping stone for Quackenbush, “he just stepped right into the trash can,” Rosenfield said. “He has created the climate in which insurance companies engaged in wrongdoing with the expectation that he would never hold them accountable and…he fell victim to the climate he created. I think he became convinced he could do anything and not get caught.”

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