CDI Files Lawsuit Against State Fund

April 7, 2004

Insurance Commissioner John Garamendi and the California Department of Insurance (CDI) filed a suit against State Compensation Insurance Fund (State Fund), California’s workers’ comp insurer of last resort, in a San Francisco Superior Court on April 6.

According to the lawsuit, State Fund refused to allow Garamendi’s selected representatives, the CPB group, to conduct a financial examination and also refused to pay for that examination. The commissioner said that he has the duty to report State Fund’s financial condition, underwriting practices and rate structure to the governor and Legislature under SB 228, the reform legislation passed in September 2003.

“We acknowledge the Commissioner’s responsibility to review, analyze and report our financial condition to the Legislature,” said Dianne C. Oki, president of State Fund in a statement. “But we are obligated to protect the interests of our policyholders. State Fund does not agree that it must assume the cost of another expensive, repetitive review by the CPB Group, especially since their expertise is outside the required scope of the study.”

Garamendi further stated in the suit that he has the authority to make sure that State Fund correctly implemented savings resulting from the passage of SB 228 and AB 227. Garamendi said that he wants the court to allow him access to State Fund’s documents, books, employees and business locations.

“The basic reason we’re suing State Fund is to help State Fund,” said Norman Williams, spokesman for Garamendi and CDI. “What we’re trying to do is ensure that they are implementing the reforms appropriately and we’re providing them with all the assistance that is necessary. We are required by law by the new reform legislation to assess State Fund’s operations. That is what we’ve been trying to do. We’ve been trying to place an auditor there to go through the books and make sure they’re taking advantage of all possible savings and all possible means to achieve the savings. This is something we’re looking to work with State Fund on.”

Jim Zelinski, spokesman for State Fund, stated that the insurer supplies adequate information to the commissioner.

“State Fund is the most scrutinized workers’ comp insurance carrier in California,” he said. “We’re mystified by the assertion that we’re not opening our books or providing enough data to the commissioner. We report to his office, the governor’s office, the state of California. “We’ve already paid $2.5 million for audits and examinations ordered by the commissioner and performed by his selected representatives.”

State Fund Assistant Chief Counsel Charles W. Savage stated in a February letter, “We are ready to cooperate fully with any examination of the State Fund’s financial condition, underwriting practices and rate structure conducted by the Department of Insurance. “We believe, however, that the Department has more than sufficient resources and data, both internally and from existing consultants, to fully perform such an examination.”

In May of 2003, State Fund sued the commissioner, claiming that he was trying to illegally take control of the workers’ comp carrier.

“We assert that the day-to-day management authority of State Fund lies with our Board of Directors, who are appointed by the governor, and then ultimate oversight of State Fund rests with the Legislature which created us in 1914,” Zelinski said. “We concur that the commissioner has every right to examine, review, analyze every aspect of our operation, however our 2003 lawsuit was an attempt to have the court validate that the insurance commissioner and the CDI do not control the operations and assets of State Fund.”

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