Garamendi seeks federal, state probe of blackmail claim by insurers groups

Associated Press
May 10, 2006

SACRAMENTO - Accusing the insurance industry of a ''serious breach of the law,'' state Insurance Commissioner John Garamendi asked federal and state officials Tuesday to investigate his claim that a group of insurers tried to blackmail him.

Garamendi charged Monday that an insurance industry representative contacted him through an intermediary and offered to drop a pending $2 million ad campaign that attacks proposed auto insurance regulations drafted by Garamendi's office if he would abandon the regulations.

''I firmly believe that this amounts to a serious attempt to blackmail me in my role as California's elected insurance commissioner,'' Garamendi said in a letter to the FBI, the U.S. attorney in Sacramento and the state attorney general.

''Clearly, I was offered a significant advantage. If I abandoned my responsibilities and delayed implementing the will of the voters, I would not be hit by a $2 million negative advertising campaign in the final weeks leading up to the June election.''

Garamendi is running in the primary for the Democratic nomination for lieutenant governor against state Sens. Liz Figueroa, D-Sunol, and Jackie Speier, D-Hillsborough.

The proposed regulations would limit auto insurers' ability to use ZIP codes to base their rates on where customers live.

Garamendi said the rules would implement the intent of voters when they approved Proposition 103 in 1988 and base rates primarily on a motorist's driving record.

Critics contend the regulations would unfairly boost rates for drivers in suburban and rural areas with relatively few accidents.

A group called Californians to Stop Unfair Rate Increases announced Monday that five insurance companies -- Farmers, 21st Century, State Farm, Safeco and Allstate -- were putting up funding for the ad campaign. It's scheduled to begin next week in 17 mostly rural counties.

The campaign includes mailers that mention Garamendi's name several times and a television commercial that urges viewers to ''tell Insurance Commissioner John Garamendi to drop this unfair plan now.''

A campaign adviser for Californians to Stop Unfair Rate Increases, Rick Claussen, suggested that Garamendi was told about the campaign through former political consultant Darry Sragow as a courtesy, not as an attempt to pressure him to drop the regulations.

''This is a very legitimate public policy campaign on a very legitimate issue that we have every right to be talking about,'' he said. ''If this somehow has been taken out of context, I'm sorry about that. (But) what we're doing with this campaign is certainly aboveboard and not unprecedented. We're very comfortable where we are.''

Lt. Gov. Cruz Bustamante, a Democrat, and Silicon Valley millionaire Steve Poizner, a Republican, are the leading candidates for insurance commissioner and are likely to face each other in the November general election.

Poizner could not be immediately reached for comment on whether he would attempt to overturn the proposed regulations if elected. Bustamante called the insurance companies' tactics ''outrageous'' and said he supported the general thrust of the regulations, although he hadn't seen them.

''Proposition 103 was real clear. The voters were real clear,'' he said. ''The individual driving record is the basis for auto rates.... When I become insurance commissioner -- if voters give me that opportunity -- I will base auto rates on individual driving records.''

Bustamante's campaign has received $47,500 in donations from insurance industry sources, although none from the companies paying for the ad campaign. The amount is about 18 percent of the $261,266 he has raised so far for his campaign, but he said the donations wouldn't influence his decisions.

''I have disappointed many campaign contributors my whole career,'' he said.

Campaign finance records on file at the secretary of state's office show Poizner has not accepted money from insurance companies.

Tom Dresslar, a spokesman for state Attorney General Bill Lockyer, said his office would ''undertake a serious, thorough review (of Garamendi's allegations) to determine whether any laws have been violated.''

Patty Pontello, a spokeswoman for the U.S. attorney's office in Sacramento, said any federal investigation would be handled by the FBI. An FBI spokeswoman, Karen Ernst, said her office had received Garamendi's letter and would review it.

''We'll go from there,'' she said.

The Department of Insurance is accepting public comments on the proposed regulations until May 17. It will submit the regulations next month to the Office of Administrative Law, which will rule on whether they carry out the intent of the law and can be implemented.

Copyright © 2006 Associated Press

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