Garamendi Suit Demands Calif. WC Fund Audit Data

Commissioner Garamendi is mandated to report back to the legislature on the carrier and its finances on July 1.

But the two sides have been engaged in a turf battle for nearly a year?last May, State Compensation Insurance Fund, also called State Fund, sued Mr. Garamendi, alleging that Mr. Garamendi may be trying to improperly take control of SCIF.

The State Fund spokesman Jim Zelinski told National Underwriter that the insurer filed its lawsuit last May "to get the court to validate that the commissioner and the insurance department do not control the operations and assets of State Fund.

"The control and oversight of State Fund rests with legislature and the governor." Another hearing on the suit is scheduled for later this month, Mr. Zelinski said.

Defending Mr. Garamendi, Norm Williams, a California insurance department spokesman, said the commissioner has no desire to take control of the State Fund and that he is counter-suing to simply do a review that's needed for his report to the legislature due July.

"The workers' comp reform legislation from last year requires us to issue a report to the legislature on State Compensation Insurance Fund and its finances on July 1, 2004," Mr. Williams said. "In order to do this report, we need to have a financial analysis done. So we have worked with State Fund to place an auditor inside, but we have not been successful yet. They have not agreed to do so."

The insurance department, Mr. Williams added, just wants to make sure that the State Fund is implementing the reforms properly and that any savings can be passed onto employers.

"We are trying to work cooperatively with State Fund," he added. But the insurance department has been receiving many complaints about the way State Fund handles its claims, Mr. Williams said. "We are trying to help them understand how to put into place reforms, how to process all the information properly as a more efficient organization."

Mr. Williams also remarked Commissioner Garamendi has, on numerous times, stated publicly that "he has no intention of taking over State Fund." Commissioner Garamendi already has 25 bankrupt insurers under his guidance right now, Mr. Williams noted. "So a healthy State Fund is crucial to California's economic future."

But the State Fund is refusing to give in, calling the proposed audit by Mr. Garamendi a "redundant" and "expensive" operational review, which duplicates prior audits that have documented the organization's improved financial position. State Fund said it has already paid $2.5 million for audits and examinations ordered by Mr. Garamendi and performed by his selected representatives.

SCIF said it objects to redundant reviews whose cost will most likely fall on State Fund.

"We acknowledge the commissioner's responsibility to review, analyze and report our financial condition to the legislature," said State Fund President Dianne Oki. "But we are obligated to protect the interests of our policyholders. State Fund does not agree that it must assume the cost of another expensive, repetitive review."

The hearing schedule for Mr. Garamendi's lawsuit is being worked on at the moment, and as soon as that's scheduled, Mr. Garamendi will go forward and present his case, according to Mr. Williams.