Insurance Commissioner Will Audit State Workers' Comp Insurer
By Steve Lawrence, Associated Press Writer - April 8, 2007SACRAMENTO (AP) _ California's largest workers' compensation insurer, the State Compensation Insurance Fund, came under scrutiny Wednesday as the insurance commissioner ordered an investigation into potential mismanagement and conflicts of interest at the quasi-governmental agency.
The audit announced by state Insurance Commissioner Steve Poizner comes on top of an internal investigation ordered by the insurance fund's board and a review by the state attorney general's office.
Jennifer Kerns, a spokeswoman for Poizner, said the commissioner wanted his office to look into operations at the fund "to ensure there is an independent investigation."
"Certainly, the commissioner believes ... an internal investigation by an organization that has been plagued by corporate governance issues is not sufficient," she said.
The insurance fund operates as a private company but is headed by a board appointed mostly by the governor. It sells workers' compensation insurance to 230,000 California employers.
It has come under increasing scrutiny since two of its directors resigned last November amid concerns about conflicts of interest.
The former directors, Frank DelRe and Kent Dagg, were executives with companies that were paid about $25 million in so-called administrative fees by the insurance fund in 2005, according to Poizner.
The fees were paid as part of a program that was started in 1993 to provide insurance rate discounts to groups of businesses that provide workplace safety services to their members, Jeanne Cain, chairwoman of the State Compensation Insurance Fund, told a state Senate committee on Wednesday.
"The view of the board is the best way to reduce claims is to have a safe workplace," she said.
Dagg, chief executive officer of the Shasta Builders' Exchange, acknowledged there was a perception of conflict of interest in the payments but denied there had been any wrongdoing.
"State Fund has a tendency to be a target, and being a target like that all the time weighs on the employees," he told the Redding Record Searchlight newspaper after he resigned. "I could see there was a perception that there could be a conflict of interest, and I could see this thing was going to get heated up, so I drew away from it."
Cain said the board decided to do its own review of the administrative fee program and brought in a San Francisco law firm, Clarence & Dyer, to oversee the investigation.
"We needed to satisfy ourselves that we were getting good value and it was done in an ethical manner," she told the Senate Banking, Finance and Insurance Committee.
So far, the internal investigation has resulted in the firing last week of the insurance fund's president, Jim Tudor, and a vice president, Renee Koren.
Attorney Nanci Clarence said she couldn't discuss the internal investigation's findings but said there had been "significant progress."
"The investigation continues, and there is still significant work ahead of us," she told the Senate committee, which held about an hour-long hearing on the situation.
That work, she said, will include personnel inquiries.
Cain, the board's chairwoman, said she expects the internal investigation to be completed in 90 days.
Nathan Barankin, a spokesman for the attorney general's office, said the office was reviewing information provided by the insurance fund. He said the review hadn't risen to the level of an investigation.
Poizner, in a letter to Cain and the insurance fund's interim president, Larry Mulryan, said he wanted the fund to give him a plan to deal with what he called its "operational crisis" within 15 days.
He threatened to take additional, unspecified regulatory action against the fund if it didn't meet the deadline or provided what he considered to be an inadequate plan.
Poizner urged the board to take several steps, including firing or putting on leave any staff members who knew of, or should have known of, improper payments. He also called for a "clear" conflict-of-interest policy and ethics code for board members and staff.
He issued a statement saying his audit would be a "thorough, top-to-bottom examination of SCIF" that would cover the recent firings as well as "all aspects of the organization and its governance."
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