California State Fund's Injunction Request Denied

NU Online News Service, Aug. 7, 2:28 p.m.EDT?The State Insurance Fund, which provides workers'compensation coverage for about half of California's employers,said it will appeal an August 5 ruling by a superior court judgethat denied a request for a preliminary injunction againstInsurance Commissioner John Garamendi.

The injunction would have prevented the commissioner from takingcontrol of the financially ailing insurer and making furthernegative comments about the fund and its management, according tocourt papers filed by the fund.

Judge James L. Warren of the San Francisco Superior Court didpermit the State Fund's lawsuit to continue to trial. The actionhas as its primary objective a ruling that the fund is not subjectto certain statutory risk-based capital requirements. UnderCalifornia law, insurance companies that do not meet theserequirements can be taken over by the commissioner.

The fund contends that, as a government agency empowered by thestate constitution to write workers' comp coverage and subject tooversight by the state legislature, it is not required to meet thecapital requirements.

Judge Warren denied the preliminary injunction after there wasno threat of immediate and irreparable harm to the State Fund. Thejudge ruled that the fund's contention that the commissioner'sremarks hampered its ability to obtain reinsurance did not amountto a threat of immediate harm.

The State Fund in a statement emphasized the portion of thejudge's decision allowing the suit to go forward and noted that theInsurance Department has agreed to file a responsive pleadingwithin 20 days. A trial date has not yet been set.

Although the preliminary injunction was denied, State FundPresident Dianne Oki said that "if Mr. Garamendi should issue aninappropriate order to State Fund, we will return to thecourt."

The Insurance Department, after the ruling, focused on thejudge's decision not to grant the injunction.

"I am pleased that the judge found that the largest workers'compensation insurer in the nation is subject to regulation just asevery other insurer in this state," Mr. Garamendi said in astatement. "I look forward to working cooperatively with the StateFund to address its financial and management issues," he added.