Quackenbush Breaks the Silence

Insurance Journal senior staff writer Dave Thomas, along with publisher Mark Wells, recently caught up with former California Insurance Commissioner Chuck Quackenbush. Quackenbush, who has been working in Hawaii as a consultant, speaks about a range of topics from the Northridge earthquake settlements to his future plans. Below are excerpts from the interview. The full interview will be available on www.insurancejournal.com/interviews/quackenbush beginning Feb. 28.

Mark Wells: You resigned back in June of 2000, I believe, what have you been doing since then? I know you’re living in Hawaii.

Chuck Quackenbush: Actually, it was July of 2001… but we moved here to get away from all the political turmoil in Sacramento. It wasn’t a particularly pleasant time after I resigned. I don’t think you can describe in words the searing experience this was to have everything that you’ve worked for torn down so quickly and your reputation shattered the way it was. We’ve been over here for the last couple of years getting reestablished in another state. I’ve been doing some consulting work with military intelligence out in Pearl Harbor and I’m also putting together a political consulting company in the state. We own a home here in Hawaii.

Wells: Most people in the insurance industry want to know about the Northridge earthquake settlement. Chuck, can you tell us a little bit about what happened, how the settlement originated, and how you felt about the settlement?

Quackenbush: Well, it’s interesting. The Northridge earthquake kind of defined, book-ended my administration. It started right before I became Insurance Commissioner, and we did the enforcement action at the very end of my administration. The goal was, at the time, to bring an end to a lot of the controversies that had occurred during the claims handling portion of the Northridge earthquake. The quake had been a devastating hit on the industry, but I don’t think the industry was equipped to handle the huge amount of claims that came at it very quickly. Inevitably, in a claims handling situation like that, mistakes are made, injustices sometimes are perpetrated on people accidentally. There was a lot of things stuffed in the cracks. Years after the earthquake, there was still complaints coming out about claims handling from that particular earthquake. My administration had always had a bias for action where we wanted to get the situation fixed quickly. We found a pattern of problems in our initial market conduct exams. We thought we could settle the issue quickly for all the consumers as best we could. Now, normally if we had done a long-term enforcement action against several companies, it would have dragged on for many years. Going through the administrative process, which is iffy at best, it’s very problematic for the Department to win in a long hearing process. I made a determination that we wanted to settle this thing quickly. I thought that the best thing to do would be to put together a settlement that maximizes benefits to consumers. And by that, I mean anyone who felt they had been mistreated by insurance companies or not gotten a favorable settlement on their particular problem, we have their claims reopened. And that was really the gist of the settlement, was to go back to all the claimants, say, ‘Did you have a problem with your claim? Do you want to have it reopened and examined again?’ Another look. This was revolutionary, and we really thought we had accomplished something great, because the industry essentially walked away from the protection of the Statute of Limitations, which has been a major bone of contention between me and some of the companies. They wanted to have a date certain for when claims could be filed and could not be opened again, and I was mandating that they go back and open claims again. So, I thought that was quite significant, and it was taken care of with just about everyone who might have had a problem. It’s also important to remember, some people were engaged in litigation with the insurance carriers, and it wouldn’t have affected any of their particular cases either. That was the thrust of what the settlements were all about. We avoided years of expensive litigation with these settlements and, because of them, hundreds of millions of dollars went to the consumers who reopened their claims. Despite the white hot political rhetoric that engulfed us in 2000, the settlements have proven to be one of the biggest consumer wins ever crafted by the California Department of Insurance.

Dave Thomas: Looking back several years later, is there anything you would do differently, given the opportunity right now, in the way it was handled?

Quackenbush: That’s quite an interesting question. Sure, there’d be several things that I’d do differently. One of the things we had tried to do was put together some foundations that were going to be used to do some other work. It was a very ambitious idea that we had about moving insurance products into underserved communities where the insurance market had not really penetrated. We were trying to take care of the uninsured motorists, make sure that they had insurance, and make sure that all segments of society were educated to the value of insurance and indeed the necessity for insurance in a risk-based economy. I think we had set those up as independent foundations, and the political mistake was to make them independent foundations because it’s very clear that when money is changing hands and there’s a politician near it, even if he doesn’t know what’s going on, he’s going to get the blame for it. So that obviously would have been something I would have done differently.

Thomas: Do you think the image was out there that this money was going specifically to Chuck Quackenbush, you know, the politician down the road, and not where it needed to be going?

Quackenbush: It certainly didn’t come to me. The idea of the foundations was to do a variety of things—outreach to minority communities and underserved communities, but also earthquake education issues. We had tried to do some of those things. Obviously, for various reasons, some of the parties involved with one of those foundations went in another direction and got involved with some illegal activity. That tarred my administration and hurt a lot of people. I do regret that happening.

Wells: Going further on that, what you’re talking about is the different foundations that were set up and then some of the money got into the wrong hands?

Quackenbush: Yes, that’s exactly what I’m speaking about. It set up an image that this was some kind of a slush fund that was being run by the Department of Insurance for different reasons and that was never the intent. As I was handling the crisis, as it was blowing up around me, it was clear, you know, I didn’t know everything that was going on, and I was being informed of it by the Los Angeles Times and various parties. It made it very difficult to prepare an adequate presentation for people as to exactly what had occurred. Because they’d tend to read about it in the paper, and then come to me for the explanation. It was just one of those things I couldn’t get my hands around because I had let this occur without my knowledge.

Wells: And this was money that was over and above any individual insured’s claim settlement?
Quackenbush: Yes, this was money that we had put into, as part of the settlement, that they would put this money into these foundations that were engaged in various charitable activities. We had modeled it after something the Attorney General had done earlier in an anti-trust settlement with Nine West and Levi Strauss. He had them put money into foundations involving women’s health. He had thought those were pretty good ideas at the time, and it seemed like a good mechanism for us to use in this particular case.

Wells: The recently re-elected Insurance Commissioner John Garamendi has talked about re-opening or appealing the settlement decision. Is that possible after this many years?

Quackenbush: After I had left office, the Attorney General went to court to overturn the settlement, saying that they had been put together improperly, and did not further the aims of the Department of Insurance and the functions of the Department of Insurance. Well, the court held, in no uncertain terms, that the settlements were legal and proper in every respect. In fact, even pointed out the fact that the Attorney General had put together the very same types of settlements in his own particular cases and couldn’t understand why he was coming after these particular terms. There had been some problems in execution of those settlements obviously, but that wasn’t the issue before the court. That was whether they were legal settlements. Now, that court ruled, and Commissioner Garamendi has said that he intends to appeal that. He gave no legal grounds for the appeal, and I think essentially that’s a political decision on his part. I understand it, that he doesn’t want to be near a controversy from the past, and this is the best way for him to get it off his plate.

Thomas: Chuck, you mentioned a few minutes ago about some people who basically did things they shouldn’t have done. Do you take a little responsibility though, that maybe enough background wasn’t known on these people? How do you fit into all this?

Quackenbush: Generally it was one person who put together the illegal activity. The person I had hired had come out of the Pete Wilson administration and… had been spoken highly of. He was well known within Republican circles. I thought he was a perfect person to put into a position that involved multi-level liaison work between foundations and citizen action groups and people that we wanted to reach out to from the Department of Insurance.

Thomas: So when this person came in there were never any questions in your mind that possibly down the road there could be some problems?

Quackenbush: No, I had no suspicions after having seen him operate in the Wilson administration, having talked with the people over there. When someone decides to engage in illegal activity, they normally don’t announce it to the world, and they certainly don’t bring it up in an executive staff meeting Monday morning with the rest of the deputies. It was a big surprise to all of us. I felt personally betrayed by it.

Thomas: Whether you’re to blame or not, people are always going to look at you because you’re in charge of this department. Do you feel that you did the proper things, but yet, you’re the focal point here, people are going to blame you because this person worked underneath you?

Quackenbush: Well, I think the person in charge always takes the blame, and also the responsibility. Now, normally in the private sector, if something like this occurred, somebody in your organization was stealing, you would immediately remove that person, find out what the damage was, and put in systems to prevent anything like that from happening again. But, these things occur. People come in and decide they want to shoplift from you or embezzle from you or whatever. Sure, it’s your responsibility, but it’s also your responsibility to fix it and make sure it doesn’t happen again and take that kind of action. Unfortunately, I wasn’t able to do that because I had to resign.

Topics Catastrophe Claims Hawaii