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More Details Emerge About the State Fund Versus the California Department of Insurance
BULLETIN: FLASH REPORT
WORKERS' COMP EXECUTIVE
Wednesday, May 28, 2003
Asserting that attempts by the California Department of Insurance to
upsurp control over it, which State Fund says will cause "irreparable
injury," the insurer has filed suit in San Francisco County Superior
Court to enjoin the Department and Insurance Commissioner John
Garamendi from what it calls an illegal power grab.
The suit seeks a temporary restraining order and/or a preliminary
injunction "maintaining the status quo" - meaning that State
Fund
continues to have control over itself - and a permanent injunction
preventing the Department from exercising control under Risk Based
capital statutes or seizing it under insolvency statutes.
The suit alleges breach of the separation of powers between parts of
government and seeks to prevent further breaches.
Outside lawyers unrelated to the case say it is the kind of case they
would love to argue and appears to be headed for the appeals and
probably the State Supreme Court regardless of the outcome(s) in the lower
courts.
State Fund's operating ratios have become troubled recently, it says
because of the many failures of carriers in the private market, and
because of the refusal of the remaining carriers to write business
for all but the most benign of risks or very large accounts have
required it to take on more business more quickly than normal.
The suit accuses Garamendi and DOI of a number of actions that
constitute a breach of the separation of powers, including:
-- Attempting to use the Risk-Based Capital statute to "improperly
usurp control" from State Fund's board of directors and management
-- Asserting that other provisions of the Insurance Code give him
the authority to either direct State Fund's activities or take
control of its assets.
"During the last few months, Mr. Garamendi has publicly commented
that the State Fund is in very serious financial trouble," the suit
states.The Insurance Commissioner "has made further demands on the
State Fund that ... constitute an inappropriate exercise of authority."
Garamendi, the suit says, has directed State Fund to refuse to write
workers' comp insurance for certain segments of employers, to fire its
lobbyist who opposed Garamendi's position on a bill. He also demanded
that State Fund remain neutral to his positions on pending legislation
according to the filing.
The suit also alleges that Garamendi directed State Fund to "change
the way it seeks new business; to charge premium rates decided by him;
to employ financial consultants chosen by him; and to restate State Fund's
annual statement for 2002."
That last statement in the suit speaks volumes about the timing of the suit and its pre-emptory nature. End of the year results are due to be filed this week - and controversy appears sure to erupt over whatever figures State Fund and its auditors, PricewaterhouseCoopers, file.
The suit alleges that Garamendi "has attempted to usurp control" of theorganization from its board of directors "and actively manage" it.
The Insurance Commissioner, State Fund maintains, "does not have the authority to control" its operations. "The Legislature has conferred that authority on the Board of Directors and has given the Board the authority to delegate operational management to the officers of the State Fund," the suit said.
The Board of Directors is made up of five policyholders, one of whom
represents organized labor, appointed by the Governor, the Director of
the Department of Industrial Relations, and non-voting designees from
the Speaker of the Assembly and President pro tem of the Senate. The State
Fund board has authorized this suit.
The suit asks the court to "declare the proper limits" of Garamendi's
authority regarding State Fund.
While State Fund contends that the RBC Statutes do not apply to it,
even if the court rules that they do, Garamendi "has threatened to
misapply them in such a fashion that he would abrogate the
constitutional and legislative provisions and statutes which
established the State Fund," the suit alleges.
Additionally, applying Insurance Code §§ 1010 et seq. to SCIF
"would
constitute an illegal exercise of power in excess of the Insurance
Commissioner's authority as State Fund is not subject to conservation."
Even if it is, the suit insists, "none of the provisions is applicable
under the circumstances that exist presently."
The Executive has contacted the Insurance Commissioner's office for
comment. It is in the process of reviewing the suit and preparing a
comment. We'll bring you that side of the story as soon as possible.
----------------------------------------
LEGAL NOTICE AND COPYRIGHT
The editors have made every effort to ensure the accuracy of information
published in each issue. Opinions on financial and legal matters are those
of the editors and others; professional counsel should be consulted before
any action or decision based upon this material is taken. The material
herein is copyright 2003 Providence Publications, LLC. All Rights Reserved.
This document may be copied and distributed subject to the following
conditions: (1) All text must be copied without modification and all pages
must be included; (2) All copies must contain Providence Publications'
copyright notice; (3) This document may not be distributed for profit.
last updated: May 30, 2003
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