The California governor's office said a new legislative measure expected to gain passage shortly should end a regulatory dispute that led to court action between the State Compensation Insurance Fund and state insurance department.

Asked about the legal battle, Daryl Ng, a spokesman for Republican Gov. Arnold Schwarzenegger, said it was anticipated that the legislation worked out with Democratic Insurance Commissioner John Garamendi would end his conflict with the quasi-public workers' comp insurer.

The legal tilt has been going on for two years over whether or not the commissioner has the authority to regulate SCIF.

Under the agreement, which will be enacted as amendments to an unrelated insurance bill by State Assemblyman Juan Vargas, D-Chula Vista, the SCIF would be subject to much of the same regulatory oversight as other insurers in the state.

The process of using an existing bill and changing its language in the closing days of a session is known in California as "gut and switch," or "gut and amend." This year's session ends Aug. 31.

Under the proposed measure, although SCIF is required to report its financial condition to the commissioner, neither Mr. Garamendi nor his successors will have the authority to place the fund into conservation or liquidation. Instead, the commissioner would report the problem to the governor and the state legislature, along with proposed solutions.

"A legislative resolution to this issue is essential in avoiding future litigation," Mr. Garamendi and Gov. Schwarzenegger said in their letter. "It will also help ensure that the SCIF will continue to be available as a market for employers, so that all of California's workers can be protected by workers' compensation insurance."

Mr. Garamendi, in going to court seeking more regulatory power over SCIF, criticized the fund for strengthening its reserves while failing to pass along cost savings to policyholders that resulted from legislative reforms.

In response to the agreement over the coming legislation, State Fund Acting President Jim Tudor said that SCIF "supports the legislation submitted today by Gov. Schwarzenegger and Insurance Commissioner Garamendi and welcomes the resolution of the critical issues between State Fund and the Department of Insurance."

The bill, including the agreement, will likely be moved through the Assembly insurance committee, which Assemblyman Vargas chairs, in the near future.

Portions of the measure would set limits on what sort of investments SCIF could make while at the same time widening its authority to make them.

Special Reports /

Garamendi, SCIF Legal Tiff Set To End

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