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Quackenbush Took Trips as Insurance Firms' Guest

Los Angeles Times, February 20, 2001
By VIRGINIA ELLIS - Times Staff Writer

SACRAMENTO -- As part of a cozy relationship with those he regulated, former state Insurance Commissioner Chuck Quackenbush took trips to Amsterdam, London and Beijing paid for by insurance companies that had millions of dollars in business pending before him.

Accompanying Quackenbush on the trips, taken in the months before he resigned amid scandal last summer, was James Woods, a San Francisco lawyer whose insurance industry clients picked up the tab for the commissioner's air fare, luxury hotels, sightseeing and entertainment.

After the trips, Quackenbush took actions that benefited some of Woods' clients.

The commissioner and his entourage "were treated to anything they asked for. It was first-class luxury all the way around," said William Portanova, an attorney for George Grays, a former deputy insurance commissioner who also went with Quackenbush on one trip.

Grays recently pleaded guilty to charges that he engaged in a kick-back scheme involving foundations created by Quackenbush.

California, unlike some states, allows the insurance commissioner to accept travel and entertainment from the industry he regulates.

But Quackenbush's close association with Woods contrasts sharply with the arms-length attitude his successor, Harry Low, is taking toward the insurance industry.

In one of his first acts as commissioner, Low, a retired judge appointed to office by Gov. Gray Davis, ordered the department to draw up a code of ethics requiring "that we don't take trips, we don't take dinners, we don't take entertainment from those we regulate."

"This is my policy," Low said in an interview. "We don't take anything from regulated companies. If it has an appearance of impropriety, we don't do it."

Legality Still Being Examined
Insurance companies are still free to give gifts and trips. California law requires only that the recipient report the gift under certain circumstances.

Officials of the Fair Political Practices Commission, the state's watchdog on these matters, said it remains unclear whether Quackenbush, California's second elected insurance commissioner, disclosed everything the law requires. The legality issue is now part of an investigation by the state attorney general's office.

State records show that Quackenbush did not report the China trip or the costs of airfare to, or entertainment in, London and Amsterdam. He did disclose the costs of hotels in the two cities.

A monthlong effort to obtain comment from Quackenbush through his attorney, Joseph Russoniello of San Francisco, was not successful.

In an interview, Woods said that he arranged the international trips himself and that each was related to the insurance business and Quackenbush's duties as commissioner.

Woods, managing partner in the San Francisco office of LeBoeuf, Lamb, Greene & MacRae, a firm specializing in representing insurance companies, described his long association with the former commissioner as "professional"

Woods, who is in charge of LeBoeuf's recently opened Beijing office, said he took great care to make sure that "things were properly reported and paid for and the whole bit."

"I think we handled things appropriately, or at least from my standpoint they were," he said.

Quackenbush quit in July, facing almost certain impeachment. He had reached secret agreements with major insurance companies that required them to contribute to foundations he created.

Those donations, solicited in lieu of heavy state fines for the companies' mishandling of Northridge earthquake claims, were used for political expenditures that benefited Quackenbush.

The foundations are being investigated by a task force that includes the FBI, the U.S. attorney in Sacramento and the California attorney general. So far, the probe has led to the charges against Grays, who was Quackenbush's political advisor.Prosecutors said Grays has become a witness for the government.

Quackenbush's association with Woods dated to 1994, when Woods helped Quackenbush raise money for his first campaign for commis-sioner. The grateful commissioner then appointed Woods to head his transition team.

Quackenbush's calendar, obtained by The Times, shows that he scheduled numerous dinners with Woods and planned to attend Woods' engagement party, his wedding and his 50th birthday party.

Quackenbush's trips with Woods were taken shortly before the scandal over the foundations erupted. Woods was representing several clients in sensitive matters pending before Quackenbush's department. At the time of the Beijing trip, Woods was a lawyer for Fidelity Title Insurance, which was seeking approval of a merger with Chicago Title Corp. that would make it the nation's largest title insurance company.

Last February, Quackenbush and two of his deputies flew with Woods to Amsterdam, compliments of three Dutch insurers: Aegon USA Inc., ING America Insurance Holdings Co., and Fortis Inc. The companies were awaiting a go-ahead from Quackenbush before they made a $4.2-million payment to set up a humanitarian fund for Holocaust, survivors. Besides airfare and meals, the companies provided accommodations at the Grand Sofitel Demeure Hotel in the historic section of Amsterdam.

On the return trip, Quackenbush and his entourage stopped in England, where expenses for their visit were paid by insurance giant Lloyd's of London, another Woods client.

Perks for the California officials included a tour of the Royal Air Force Museum--a favorite of former helicopter pilot Quackenbush--and a visit to a London theater to see a musical about American singing legend Buddy Holly. They stayed at Forty Seven Park Street, a five-star hotel in the heart of London's exclusive Mayfair district.

Four months earlier, Woods, whose firm does business in China, had gone with Quackenbush to Beijing. The commissioner was to be a speaker at a Chinese and American symposium on insurance there, co-hosted by Leboeuf.

The tab for the symposium and Quackenbush's travel and five-day stay was paid by Liberty International, a member of the Liberty Mutual Group, and Metropolitan Life Insurance Co. The transaction was done through LeBoeuf's client, China Industrial Information Institute, a nonprofit American insurance group.

Giving the Firm State Business
Throughout Quackenbush's tenure as commissioner, LeBoeuf was one of the major law firms that represented companies before the Department of Insurance. Its clients have included American Bankers, Liberty Mutual Insurance, Fidelity National Financial Inc., Chubb Insurance, Levitz Furniture (which sells credit insurance), AXA Global Risks Ltd., Lloyd's and the three Dutch insurers.

At the same time that LeBoeuf was representing insurers, Quackenbush's department was giving the firm state business.

LeBoeuf was hired to advise Quackenbush on the conversion of Pacific Mutual Life Insurance Co. from a mutual insurer to a publicly traded company. LeBoeuf also served as tax advisor for the then fledgling California Earthquake Authority, which insured homeowners against earthquake damage.

Woods said the Dutch insurance companies invited Quackenbush to Amsterdam to demonstrate the efforts they were making to find Holocaust survivors who might be entitled to insurance benefits under California law.

Frank Mankiewicz, a spokesman for the Dutch insurers, said the Quackenbush visit was not unusual. Many American regulators, he said, have accepted the companies' invitations to observe their operations.

Officials from other states who sent representatives to the Netherlands said they did not allow the companies to pay their travel expenses. "As regulators, we pay for our travel," Said Linda Shelley, chief of staff for Florida's former insurance commissioner.

Robert Harkins, Washington state's chief deputy insurance commissioner, said his office sent its Holocaust expert to visit the Dutch companies, but the companies were not allowed to pay his expenses.

"By state law we do not and cannot accept any direct compensation or gifts," said Harkins.

Former Assemblyman Wally Knox (D-Los Angeles), who sponsored legislation to help Holocaust survivors recover insurance benefits, said California too should bar such arrangements.

"For the insurance commissioner to be flown anywhere for any reason by anyone in the insurance industry stinks to high heaven," he said.

Quackenbush went to Amsterdam three months after he signed an agreement with the companies calling for them to contribute to the survivors fund, but the deal left it to the commissioner to decide when those payments would be made.

Quackenbush left office without requiring them to pay. Mankiewicz said the companies were eager to pay and would have done so at any time. In May, Quackenbush told The Times that the controversy over his other foundations caused him to delay creation of the Holocaust fund.

Amsterdam, London, Beijing
In a critical examination of the Department of Insurance, state Auditor Elaine Howle said she could find no adequate reason why the money was never collected. She said there was more than enough time before the scandal erupted for Quackenbush to have demanded and received the payment.

Low, the new commissioner, has asked the state attorney general to work out a payment plan. Woods said Quackenbush wanted to add London to the Amsterdam trip so he could touch base with the largest insurance market in the world." Lloyd's officials said they split the cost of the visit with the International Underwriting Assn. of London, a group of 30 British insurance companies and a client of LeBoeuf.

"[Quackenbush] thought it would be wise to stop off in London on the return leg and to talk to the London insurance market about a variety of issues," Woods said.

Attorney Portanova said his client, Grays, recalled a meeting in. the Lloyd's offices at which the discussion centered mostly on the company's effort to get Quackenbush to support a reduction in how much money its syndicates were required to keep on deposit in the United States to pay claims. (Quackenbush left office before the issue was resolved.)

Woods said Quackenbush's appearance in Beijing was at the invitation of Chinese officials who wanted advice from an American insurance regulator.

Hal Engel, president of the information institute, said it was Woods who decided to invite Quackenbush. He said Chinese officials would not have known about the commissioner.

Three days after Quackenbush returned from Beijing with Woods, he ordered his deputies to reach a settlement with title companies on "all outstanding issues." The company that stood to benefit most from that directive was Fidelity, which couldn't get its merger approved until it resolved a lawsuit with Quackenbush's department.

The insurance department and other government agencies had filed litigation against the title industry accusing it of earning interest on consumer escrow funds. The industry maintains that the practice is legal.

Woods, Fidelity's attorney, said he never discussed the title issues with Quackenbush on the Beijing trip, and the timing of the trip and the commissioner's directive was purely coincidental.

Quackenbush agreed to settle his portion of the lawsuit by demanding that the industry pay $3 million into yet another nonprofit foundation, Title and Escrow Consumer Education and Outreach Corp. that he created.

In papers filed with the California secretary of state, LeBoeuf's offices were listed as the headquarters of the foundation. A Fidelity official would later confirm to the Legislature that Fidelity paid LeBoeuf to write the bylaws of Quackenbush's foundation.

Fidelity's merger with Chicago Title was approved after the settlement.

Peter Sadowski, Fidelity's general counsel, said he was not aware of Woods' Beijing trip with Quackenbush.

Another Fidelity official, Andrew Pudzer, testified to the Legislature that his company had hired LeBoeuf because of its regulatory expertise and "they had individuals at LeBoeuf who were familiar with individuals at the Department of Insurance."

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