United Policyholders


What's UP A Newsletter for Insurance Policyholders

In This Issue - Summer 2000

Investigation of CA INS Commissioner
Amicus Update
Los Alamos Firestorm Visit
UP Adds Specialist to Board
UP in Academia

UP in the Media
HMO Trauma: Defend Yourself
UP Settlement Aids Impact Fund
Chavez & Gertler Honored
Long Wait for CEA Seismic Inspections

Quackenbush Scandal No Surprise

The top state official responsible for regulating California’s insurance industry, Chuck Quackenbush, recently resigned in disgrace amidst the biggest political scandal in the state since the 1930’s.

Quackenbush, once considered the most promising Republican candidate for the next Governor’s race, has been the focus of months of high profile corruption investigations by the state Senate, Assembly and Attorney General Bill Lockyear.

According to key testimony by Department of Insurance employees, including whistleblower Cindy Ossias, staff attorney Robert Hagedorn, and others, the Commissioner and his top aides were abusing their positions for personal gain and ignoring or acting against consumers’ interests for many years.

The Commissioner resigned almost immediately after Hagedorn testified that he was told to raise $4 million from settlements with insurers to fund media buys for television ads featuring the Commissioner. This testimony compounded Ossias’ testimony about how upper management at the department suppressed findings of insurer wrongdoing and instructed her to shred documents.

By the time this issue reaches our readers, Governor Davis will have appointed a successor to Quackenbush. It is critically important that his appointee be an effective regulator who is willing to stand up to the powerful insurance industry and restore the public’s trust in the California Department of Insurance.

The Essence of the Scandal

The essence of the scandal is that the Commissioner and top aides concocted a scheme to use money from insurers to fund projects for his personal, political advancement. The scheme included crafting settlements with insurers who had committed unfair claim and business practices.

Many settlement documents falsely stated insurers had done no wrong. They allowed insurers to pay a fraction of the true amounts recommended by the CDI staff who’d audited randomly sampled files and found thousands of violations. They allowed insurers to make tax deductible contributions to non-profit foundations instead of paying appropriate fines. (See www.senate.ca.gov, Senate Judiciary Subcommittee on Bad Faith Liability and Consumer Rights for a more detailed explanation).

California taxpayers, of course, were the losers. The public was kept completely in the dark about the thousands of claims-handling violations the department found. There was no money paid to the General Fund, as required by law. None of the foundation money went to the victims of the unfair claim and business practices. Not one dime.

The money went for thinly veiled political ads featuring the commissioner that ran not coincidentally during election time. The money paid for political polls. The money went to public relations firms. The money went to charitable and athletic organizations to reward the Commissioner’s friends and strengthen his base of political support.

United Policyholders’ Role

UP provided important information to Assembly and Senate Insurance Committees for use in their investigatory hearings. UP was a critical link between whistle blower Cindy Ossias and the State Senate. Many of our readers know Cindy and remember her hard work after the Oakland firestorm at meetings and public hearings. She was instrumental in then Commissioner Garamendi’s enforcement action against Allstate and agent Charles Strahan. Ossias again proved herself a true public servant by providing copies of controversial CDI market conduct exam reports to legislative investigators.

These reports are critical evidence of wrongdoing by insurers and Commissioner Quackenbush, so of course, the Commissioner and his industry pals are in court trying to remove them from the public domain. It appears they have found a friendly judge, but the fight is likely to go several rounds before it concludes.

State Senator Martha Escutia hired UP’s Executive Director Amy Bach as a consultant to the Senate Judiciary Subcommittee on Bad Faith and Consumer Rights, of which Escutia is the chair. The subcommittee is investigating whether insurers were held accountable or properly fined for the thousands of claims handling violations CDI staff found when they audited insurer’s Northridge claims files. The subcommittee obtained copies of the audit reports, known as "Market Conduct Exams" and released them for public review. At the subcommittee’s first hearing, CDI, industry and consumer witnesses testified. Former UP staffer George Kehrer, attorney Deborah Wegman and claims handling expert Gary Richman all testified about insurer misconduct after Northridge.

A History of Corruption

Policyholder advocates have known since the beginning of his first term in 1994 that Quackenbush was not going to effectively police the insurance industry or protect consumers.

Why? Money and politics. We knew he was accepting large campaign contributions from the very companies he’s supposed to be regulating. ($6.1 million, at last count). We knew he had his eye on the governor’s office and was strategizing to get there. We knew he hired insurance industry insiders for his executive staff. We knew that the truth behind the PR spin on his consumer complaint handling record. We had no idea how low he would sink.

Quackenbush showed his hostility to consumer protection in many ways. He cut so many positions in the Consumer Services Division several years ago that a full legislative inquiry was conducted and remedial legislation was enacted. UP contributed evidence and testimony to that inquiry.

Quackenbush also routinely neutralized staff members who were effective in prosecuting insurer misconduct by moving them out of enforcement positions.

UP has worked with and supported CDI staff who are trying to serve the interests of consumers. After Quackenbush took office, UP had to renew a collaboration with policyholder attorney and Special Master Ray Bourhis to monitor the CDI’s complaint handling operation because it became clear consumer complaints were among his lowest priorities.

It turns out that many of the "fines" Quackenbush took public credit for recovering for consumers were actually the tax deductible contributions to non-profit foundations that never went to consumers at all.

An Uncertain Future

It is now up to the Attorney General and the Legislature to determine the appropriate punishment for a man who is a poster child for campaign finance reform. Will uncompensated Northridge victims will ever get funds to complete needed repairs? Will insurers ever be held accountable for grossly underestimating earthquake damage, low balling and misinforming policyholders about their rights and benefits? Let your elected officials know how important it is to you that both these questions are answered YES!

There are a range of legislative proposals being floated that are aimed at remedying problems exposed by the Quackenbush scandal. These bills include:

  • Limits on campaign contributions from insurers (Thumbs up)
  • Returning the Commissioner’s post to an appointed position (Thumbs down — we say give the electorate a chance to learn from their mistakes)
  • A one year revival of the rights of Northridge victims to file suit against insurers (Thumbs up — many victims were misled on the nature and extent of insured damage to their homes)
  • A Policyholders Bill of Rights with multiple provisions aimed at ensuring fair claim settlements (Thumbs up — we’re participating in crafting this proposal)

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UP contributed to a major victory for policyholders in Arizona by filing an amicus brief before their Supreme Court in Zilisch v. State Farm. Fortunately, the Court vacated an appellate opinion that was very damaging to policyholders. That opinion held that as long as the amount an insurer ultimately offers is "fairly debatable", nothing else it does in investigating, evaluating, or settling the claim really matters. Under such a rule, insurers would escape liability for lowballing, unfairly delaying and failing to investigate claims, as long as they argued that the value of the claim was debatable. Our brief was prepared pro bono by Arthur G. Newman, Jr. of the Phoenix law firm of Treon, Strick, Lucia & Aguirre.

UP also contributed to the recent policyholder victory in Kransco v. American Empire Surplus Lines Ins. Co. where the California Supreme Court rejected the notion of "comparative bad faith." The Court explained that giving policyholders tort remedies advances the social policy of safeguarding an insured in an inferior bargaining position who contracts for calamity protection, not commercial advantage. So, while the duty of good faith is a "two way street," and insured’s must cooperate with insurers, an insured’s breach does not give an insurer access to tort remedies.

Eugene Anderson and John McDonald of Anderson, Kill & Olick and Jordan Stanzler of Stanzler, Funderburk and Castellon wrote UP’s brief, pro bono. Thanks also to David Gauntlett, of Gauntlett & Associates, in Irvine, CA., who prepared UP’s brief in Callas v. Travelers pro bono, and to Jeffrey C. Metzger, Esq. In Laguna Hills, CA. for his recent work on an amicus letter for UP in Boicourt v. Amex.

If you know of a case on appeal involving important insurance principles where policyholder amicus support is needed, contact UP or Eugene Anderson, Amicus Project Chair, at (212) 278-1000.

While most UP amicus briefs are drafted pro bono, we need funding to ensure that we can participate in any proceeding where we are needed.

Donations to support UP’s Amicus Project should be sent to: PMB 262, 110 Pacific Ave., San Francisco, CA 94111.

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Connecting Oakland and Los Alamos Firestorm Survivors

by Betty Ann Bruno

For seven of us who survived the Oakland Firestorm, visiting Los Alamos two weeks after the Cerro Grande Fire, was, as they say, "deja vu all over again."

We saw block after block of blackened foundations, fireplaces, cars, trees. Men and women, homeless and numbed by loss, stood amidst ash and rubble, seeking con-nection from what had been homes and neighborhoods.

We were there because the University of California, which runs the Los Alamos National Laboratory, flew us to New Mexico for "two days of sharing."

"Oakland residents acquired a great deal of knowledge after the 1991 Firestorm and it seemed that people in Los Alamos could benefit from that," said Steve McGrath, the UC admin-istrator who organized the visit. "It was a bit risky because some people in Los Alamos felt they weren't ready to see anybody from the outside and we didn't know what memories we might stir up for the Oakland people."

We didn't know what memories would be stirred up, either, but in four two-hour meetings on May 23 and 24, just about everything was stirred up by questions from people trying to work their way out of disaster:

In every meeting we talked about United Policyholders and the power that came to us from organizing into policyholder groups. McGrath took along the UP video and tip sheet. Amy is directly in touch with some of the folks there via e-mail.

Questions were all too familiar: "The company adjuster says I have to get my inventory in right away and replace all my personal property within a year! How can I do that? I probably won't even have my home back!"

"My adjuster says we have to build exactly the same house on the same piece of property. Is that true? Can't I just move and get on with my life?"

"There's no way I can rebuild for $80 a square foot, which is what the com-pany adjuster says we are entitled to. I have guaranteed replacement insurance. How can I find out what it will really cost to rebuild my home?"

"I'm staying with friends now, in a one-room basement apartment. It's very generous of them, but we can't stay there indefinitely? Aren't we entitled to our own place?"

"My house didn't burn, but I'd like to help. What can I do?"

"What about my kids? We're staying on the other side of town now and they don't have any friends nearby. How can I help them?"

"Should I get a lawyer?" "What's a public adjuster?" "Who are all these people who are swarming into town?" "Whom can I trust?"

By the time of our trip, Los Alamos was two weeks out of the fire and people were already having meetings. We encouraged them to do what had helped us: organize, organize, organize. We emphasized the need to document all contacts with company adjusters, to keep talking to each other and build a body of knowledge, and to involve as many local, state and federal office holders as they can. We stressed that knowledge is power and power will help them change laws and regulations if needed, or at least get some deadlines extended.

Because Los Alamos is heavily dependent on the federal govern-ment, and the Park Service accepts responsibility for starting the fire, Congress and the feds will play a bigger role in their recovery than it did in ours. It will be very inter-esting to see how things play out between the insurance companies and the federal government and to see what effect those negotiations will have on homeowners.

Although our visit lasted only a day and a half, the time there was so intense that it seemed as though we had been there for a week. We are greatful to the University for making the trip possible and as Los Alamos goes through the stages of recovery, we look forward to building on the friendhips that were begun.

Betty Ann Bruno is a former TV news reporter. She and her husband Craig Scheiner run CPS Asspciates, a video production company.

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UP Adds Health / Disability Specialist to Board

UP’s Board of Directors recently voted unanimously to add a fifth member, Alice Wolfson.

Alice, a partner with the San Francisco policyholder law firm of Bourhis, Wolfson & Schlictmann, is a founder of the National Women’s Health Network, a 17,000 member health consumer and professional advocacy organization. She is also a founder of the Committee to Defend Reproductive Rights/Coalition for the Medical Rights of Women, and is currently serving as a consumer representative on an FDA Advisory Committee.

Alice has extensive experience in health and disability insurance issues, as well as non-profit administration and social action, and is a very welcome addition to the Board.

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UP in Academia

UP’s presentation at a Western United States Earthquake Insurance Summit was very well received by attendees. While some deemed our remarks "controversial" because we criticized the California Earthquake Authority’s creation and the policies it sells, most appreciated the range of consumer options we described for securing superior protection.

When Oregon State University Geology Professor Emeritus Robert Yeats read the text of our presentation on the Internet, "Earthquake Insurance Claim Tips for Homeowners and Businesses" (www.wsspc.org/summit/eqiperspectives2.html#bach), he contacted us and asked if we would contribute to the insurance chapter of a book he was writing on earthquakes.

We did, and the book, "Living With California Earthquakes, A Consumer Survival Guide," will be published this fall through Oregon State University Press.

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UP in the Media

UP was recently featured on a half hour long segment of "Right on the Money", a PBS series that examines financial issues from the consumer perspective.

The show profiled a family and their efforts to settle their insurance claim for fire repairs to their Minnesota home. The show was filmed in St. Paul last January. UP Executive Director Amy Bach gave detailed tips to the family and viewers on securing a fair claim settlement. The show was broadcast during the months of April and May throughout the U.S. by PBS affiliates.

UP and Bach also were featured recently in an edition of "Take Issue" on Bay TV, hosted by Michael Krasny. Bach and State Senator Jackie Speier, Chair of the Senate Insurance Committee answered viewer questions about Commissioner Quackenbush and discussed the current investigation.

Bach also was recently a featured guest on the Alex Bennett show, which is a live "webcast" clicked on by 30,000 netheads. Again, the topic was the corruption investigation of Commissioner Quackenbush.

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Special Report By Jamie Court, Consumer Health Care Advocate

Corporate medicine is intent on shackling health care expenses by doctors and other medical profes-sionals against the interests of patients. For the patient denied treatment, this is an adversarial system.

How can patients or their allies help themselves in a system that is set up not to help them get treatment?

Your tactics must be those of negotiation. Everything is negotiable―with the HMO, the HMO doctor, and the HMO hospital. In a negotiation, establishing what is reasonable is the goal. What should a reasonable person have to do in order to document his or her need for treatment? What should a reasonable cooperation have to provide and how long should it take? Is the company reasonably living up to the letter and spirit of state law? Reasonableness always includes a reasonable timetable. When will a decision be made to approve care? Who is the decision-maker? How long will it take to schedule the procedure? What is the longest it will take before this doctor sees me? These are the types of standards someone negotiating with their HMO or HMO doctor must require.

HMOs have time on their side. They will delay as a tactic of denial. Because most patients cannot sue HMOs for a denial or delay of treatment and receive damages if they prevail, the company has an incentive to stonewall. A seriously ill patient may not have the energy for a struggle and others close to them must take on that role. So what can a patient or their allies do?

There are some general rules one can follow in dealing with HMOs, but there are no panaceas, simply precautionary measures.

Write everything down. Bring a notepad and pen and take notes on what your doctor tells you. It will help keep track of your care, catch any errors, and provide a record should there be a question of inappropriate treatment.

If you are denied care, ask for it in writing. You will need a record of the denial if you want to dispute it. Leave a "paper trail". If it becomes apparent that you are not getting cooperation, memorialize in written correspondence all conversations.

Find out the timelines. Most states have regulations establishing the timeframe within which a treatment or coverage decision must be made. Contact the appropriate regulatory body in your state and find out what those timelines are. Then make sure that everyone you deal with at the medical group or HMO knows that you know those timelines and then, make sure that they stick to them. In addition, non-government groups that accredit HMOs may have more stringent timeline requirements. Find out if your HMO is a member of organizations such as the National Committee for Quality Assurance (www.ncqa.org), American Accreditation of HealthCare Commission/URAC (www.urac.org), and the Joint Commission on Accreditation of Health Care Organizations (www.jcaho.org). Know that organization’s timeline requirements for the health plan’s decision-making process.

Appeal treatment denial to regulators. Find the appropriate state agency and their rules for filing a complaint. Medicare and Medicaid recipients can take a complaint to the federal Health Care Financing Administration. Don’t rely on governmental agencies as your savior; many are ineffective. Patients must be persistent. HMOs don’t like too many documented complaints, so include a carbon copy to state regulators and politicians of any contested correspondence.

Complain to the accrediting organization. HMOs rely on their accreditation by non-governmental organizations (NCQA, URAC, and JCAHO) in marketing to employers and unions. In addition to copying your documentation to the state regulators, send a copy to any accrediting organization where your HMO is a member.

Find allies in the medical profession. When medical experts advocate care HMOs find it harder to deny treatment. Insist on second or third opinions from a qualified professional. If your HMO won’t pay for a second opinion, pay out of your own pocket. It could save your life.

Ask how your doctor is paid. Under new rules, Medicare recipients are entitled to see a summary of their physician’s contract with their HMO, which would give details of any incentive to withhold treatment. Many states also provide that this information must be given to plan members if requested. Ask for it. File a complaint with your state’s medical board if you believe that your doctor is withholding treatment for his of her pecuniary gain.

Never take "no" for an answer. Always ask if there are treatment options available for you other than those that the HMO recommends. If you have a problem, take it up the ladder — fast. If you get health care through your work, enlist the help of your employer’s personnel department.

Never stay in the hospital by yourself. Have a spouse, loved one or friend present at all times when you are in the hospital, even if that means they sleep in a chair. Having an advocate present to monitor what is happening around you, to make sure you get the treatment that you need, is essential. If something goes wrong, he or she can act quickly to secure assistance.

Don’t be intimidated by someone else’s uniform, occupation, credentials and stature. You’re paying the bills, not only as a consumer, but also as a taxpayer that helps fund the medical system. Write or call everyone you can think of in the HMO; contact your elected representatives for help; write the newspapers; whenever possible, enlist your doctor as an advocate for you; involve your employer if you get your health care through work. Don’t let the bureaucrats slow you down.

Always maintain a reasonable, professional and calm demeanor both in person and in writing. If you lose control, make threats of violence or use foul language, you will simply be dismissed as a "crank", a "flake", or a "weirdo" and you will not accomplish your goal.

Get the medical care you need. You must always remember that your health care is your most important priority. Do whatever you have to do to get the medical care you need — mortgage your house, get loans from friends and relatives, try to make deals with doctors and hospitals, get community help with fundraisers. Get the care and worry about the money later.

Get a lawyer if you need one. Lawsuits are no fun. Most who have gone through the process say they underestimated how hard it would be, especially to relieve medical trauma. There is the possibility that you can have a legitimate case but will be unable to prove it in court, or laws won by the insurance industry may limit your right to even go to court. Nevertheless, legal options are often your only leverage against profit-driven managed care.

If possible, never give up the right to go to court. Avoid signing arbitration agreements that force you into HMO-controlled private justice systems. . Cross out arbitration clauses and initial it. If your employer has signed your right away, lobby to change that provision of the contract. Some insurers require you to file complicated internal complaints before going to court. Follow these instructions exactly, but don’t delay consulting a lawyer in the meantime.If you do not want to be denied care, remember that the fight begins with an understanding of the system and its foibles. Be an aware consumer. l

Jamie Court is a Consumer Health Care Advocate with the Foundation For Taxpayer and Consumer Rights. For additional information, you may want to read his recent book on the topic Making A Killing: HMOs and the Threat to Your Health (Common Courage Press, 1999), and you can find it on the Internet at www.makingakilling.org.

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UP Settlement Aids Impact Fund–Chavez & Gertler Honored

The law firm of Chavez & Gertler was recently honored for their work on behalf of consumers by the Impact Fund, an Oakland-based philanthropic organization.

"Cy Pres" funds from the settlement in United Policyholders v. Dollar Rent-a-Car, in which Chavez & Gertler represented UP, were directed to the Fund where it will be used to advance consumers’ interests.

The law suite involved overcharges to consumers for collision damage waiver protection.

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Long Wait For Free CEA Seismic Inspections

When we learned the California Earthquake Authority was advertising free earthquake safety home inspections whether or not you're a CEA policyholder, we applied right away.

We own an old home in San Franciso and need advice on retrofitting, etc. Its been a year and we're still waiting. We got a letter in February promising that we would be hearing from an engineer. We got another letter in April telling us that our request was receiving priority attention. We're still waiting.

According to the CEA's "SAFER" program, (State Assistance for Earthquake Retrofitting), the CEA has gotten 7,500 applications, which greatly exceeded their expectations, and have closed the program to new applicants.

–Amy Bach

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