Copyrighted material

Calif Commissioner Nixed $3.6 Billion Penalty Against Insurers

by Joe Shea

"The whole thing seems to be a sweetheart deal for the insurance companies"
(AR) LOS ANGELES -- California's "politically ambitious" state insurance commissioner Charles Quackenbush opted to reject fines and special payments totaling more than $3.6 billion against State Farm, Allstate and 20th Century for failing to live up to insurance policies covering victims of the 1994 Northridge Earthquake, and received $55,000 in campaign contributions from two of the insurance companies after his decision, the Los Angeles Times reported Sunday.

Allstate and 20th Century contributed $50,000 and $5,000 to Quackenbush, respectively, about six months after Quackenbush instead permitted one firm to pay $100,000 in fines and asked the three insurance companies to pay a total of $12 million dollars to a research foundation that ran statewide TV ads featuring him during his re-election campaign last fall, the Times said. (State Farm doesn't make campaign contributions, a spokesman for the company told the Times.)

Under recommendations by the Insurance Department's legal staff, State Farm would have paid $2.38 billion in fines and $114.7 million to the repayment fund, but instead paid $2 million to the non-governmental research foundation; Allstate was allowed to give $2 million instead of paying the recommended fine of $172 million and $73.7 million to the repayment fund; instead of paying a $819 million fine and $44.2 million for victims, 20th Century paid a $100,000 fine and $6 million to the unnamed earthquake research and safety foundation.

The state of California would have received the $3.37 billion in fines but the special payments totaling $232.6 million would have been distributed to victims of the devastating January 19, 1994 earthquake, a 6.9 temblor that toppled freeways and caused more than $8 billion in damage to homes, businesses and infrastructure.

"The whole thing seems to be a sweetheart deal for the insurance companies rather than the policyholders of the state of California, state assembly Insurance Committee chairman Jack Scott told the Times.

The fines totaling $3.37 billion were recommended by the insurance commissioner's legal staff, who found that the companies "had repeatedly low-balled claims, failed to inform policyholders of their benefits, forced some earthquake victims to sue to get full payment and improperly deducted the cost of wear and tear on possessions," the Times said.

The information was contained in confidential staff reports obtained from the California Dept. of Insurance and revealed by the Times and in a series of reports that apparently culminated April 2.

State Farm made errors in nearly half of the claims audited by the department's staff lawyers, while 20th Century made mistakes in 80 percent of 431 audited claims and Allstate made mistakes in 24 percent of 808 representative claims audited by the Department of Insurance. The department is overseen by the Insurance Cmmissioner, Quackenbush, an elected official who had the power to set the fines at any level he desired.

Dan Edwards, a spokesman for Quackenbush, said Quackenbush opted for the lower fines and contributions for their "shock value." He said the companies would have tied up the fines in court for years. Indeed, State Farm has only this year concluded court actions against refunds ordered under the state's historic 1987 insurance reform act, sponsored by Ralph Nander and known as Proposition 103, Nader told the American Reporter in March.

Spokesmen for the three firms said the fines would have been challenged in court or put them out of business, and denied any wrongdoing in the payment of claims.

Quackenbush has been called before a state assembly committee hearing April 26 to account for his actions, which were apparently legal.

Comments? Send a letter to the editor.

Albion Monitor April 10, 2000 (

All Rights Reserved.

Contact for permission to use in any format.