California Insurance Company
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1 Jerry Flanagan (SBN 271272) 2 [email protected] Benjamin Powell (SBN 311624) 3 [email protected] CONSUMER WATCHDOG 4 6330 San Vicente Blvd., Suite 250 Los Angeles, CA 90048 5 Tel: (310) 392-0522 6 Fax: (310) 392-8874 7 Kelly Aviles (SBN 257168) [email protected] 8 LAW OFFICES OF KELLY AVILES 9 1502 Foothill Blvd., Suite 103-140 La Verne, CA 91750 10 Tel: (909) 991-7560 Fax: (909) 991-7594 11 Attorneys for Petitioner/Plaintiff 12 13 14 15 SUPERIOR COURT OF THE STATE OF CALIFORNIA 16 FOR THE COUNTY OF LOS ANGELES 17 18 CONSUMER WATCHDOG, a non-profit CASE NO. organization, 19 VERIFIED PETITION FOR WRIT OF MANDATE AND COMPLAINT FOR 20 Petitioner/Plaintiff, DECLARATORY RELIEF 21 v. (Code Civ. Proc. §§ 1060, 1085; Public Records 22 Act, Gov. Code § 6250 et seq.) 23 RICARDO LARA, in his official capacity as the Insurance Commissioner of the State of 24 California; CALIFORNIA DEPARTMENT OF 25 INSURANCE; and DOES 1–50, 26 Respondents/Defendants. 27 28 VERIFIED PETITION FOR WRIT OF MANDATE AND COMPLAINT FOR DECLARATORY RELIEF 1 Petitioner/Plaintiff Consumer Watchdog alleges as follows: 2 INTRODUCTION 3 1. This Petition and Complaint challenges the validity of California Insurance Commissioner 4 Ricardo Lara, who is sued here in his official capacity, and the California Department of Insurance’s 5 refusal to provide certain records in response to two California Public Records Act requests (Government 6 Code section 6250 et seq. (“PRA”)) submitted by Consumer Watchdog. 7 2. The Department of Insurance is the nation’s largest state regulatory agency. It is 8 responsible for regulating the $310 billion insurance industry in California and keeping insurance 9 available and affordable. The Department of Insurance is subject to the PRA. 10 3. The PRA was enacted for the purpose of increasing freedom of information by giving the 11 public access to information in possession of public agencies. As the California Supreme Court has 12 opined, “[a]n informed and enlightened electorate is essential to a representative democracy.” (Times 13 Mirror Co. v. Superior Court (1991) 53 Cal.3d 1325, 1328.) This principle is now enshrined in the state 14 Constitution following the adoption of a voter-approved initiative in 2004: “The people have the right of 15 access to information concerning the conduct of the people’s business, and therefore, . the writings of 16 public officials and agencies shall be open to public scrutiny.” (Cal. Const., art. I, § 3, subd. (b)(1).) 17 4. The PRA requests at issue here focus on $54,300 in campaign contributions 18 Commissioner Lara received from individuals linked to two insurance companies, Applied Underwriters 19 (formerly a Berkshire-Hathaway Company) and Independence Holding Company (“IHC”), after 20 Commissioner Lara pledged not to take contributions from companies regulated by the Department of 21 Insurance. In some instances, Commissioner Lara received large contributions from the relatives of 22 insurance industry executives. The structuring of these contributions was apparently intended to conceal 23 their true origins. 24 5. Shortly after receiving the contributions, Defendant Lara intervened in four proceedings 25 involving one of the insurers, Applied Underwriters. Defendant Lara admitted publicly that he met with 26 27 28 1 VERIFIED PETITION FOR WRIT OF MANDATE AND COMPLAINT FOR DECLARATORY RELIEF IFIED PETITION FOR WRIT OF MANDAMUS AND TAXPAYER COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF 1 the President of Applied Underwriters, Steven M. Menzies, prior to intervening in the proceedings, and 2 that Menzies requested he review the cases.1 3 6. In the four proceedings, Administrative Law Judges (“ALJs”) initially ordered Applied 4 Underwriters to refund excess payments made by employers that purchased Applied’s workers’ 5 compensation insurance policies. These workers’ compensation insurance plans had been deemed “bait 6 and switch” by Commissioner Lara’s predecessor, yet Commissioner Lara ordered the ALJs to reverse 7 course by requiring employers to pay whatever Applied claims was owed. At stake are potentially 8 hundreds of millions of dollars that Applied wants to collect from policy purchasers. 9 7. Menzies also stands to gain if Commissioner Lara ultimately approves his purchase of 10 Applied Underwriters, which requires Commissioner Lara to agree to the sale of Applied’s California 11 affiliate, California Insurance Company. The Department of Insurance has recently entered into 12 conservatorship of California Insurance Company “with the goal of obtaining [purchase] approval and 13 settlement of disputes with [the Department of Insurance].” (A true and correct copy of the order 14 appointing the Department of Insurance as conservator is attached as Exhibit 1 and incorporated by this 15 reference.)2 16 8. Commissioner Lara also received contributions from an individual associated with IHC. 17 On information and belief, IHC is one of the largest sellers in the United States of short-term “junk” 18 health insurance policies, which have been banned in California. 19 9. As discussed more fully below, Respondents/Defendants initially refused to provide 20 Insurance Commissioner Ricardo Lara’s schedule of meetings and communications with insurance 21 industry representatives and related documents in response to Consumer Watchdog’s PRA requests. 22 Following the Department of Insurance’s initial refusal to provide the records, Consumer Watchdog 23 significantly narrowed the PRA requests to focus on the specific individuals and companies associated 24 with the campaign contributions. While the Department of Insurance eventually agreed to produce some 25 1 Lily Jamali, State Insurance Commissioner Defends Intervening in Cases Involving His Donors, 26 KQED (July 25, 2019), https://www.kqed.org/news/11763205/state-insurance-commissioner-defends- intervening-in-cases-involving-his-donors. 27 2 All of the exhibits referenced herein are true and correct copies of the documents they purport to be and are incorporated herein by reference as though they were set forth in full. 28 2 VERIFIED PETITION FOR WRIT OF MANDATE AND COMPLAINT FOR DECLARATORY RELIEF IFIED PETITION FOR WRIT OF MANDAMUS AND TAXPAYER COMPLAINT FOR INJUNCTIVE AND DECLARATORY RELIEF 1 responsive records, the production was grossly inadequate and failed to uphold Commissioner Lara and 2 the Department of Insurance’s duties under the PRA. For example, instead of turning over copies of the 3 original records, the Department of Insurance appears to have created a summary of Lara’s meetings, 4 raising significant questions about what it is withholding. Additionally, the Department of Insurance 5 claims it is withholding other records under various claims of exemption but refuses to provide any 6 additional information about what types or how many records it is withholding or the factual basis for its 7 claims of exemption. 8 10. Based on the records that were turned over by the Department of Insurance, it appears that 9 many additional communications between Commissioner Lara and insurance company representatives 10 have been withheld, which raises more questions about whether Applied Underwriters and IHC were 11 attempting to use campaign contributions to influence Commissioner Lara’s decision-making process on 12 policy matters affecting the two companies. Disclosing the remaining records is essential to restore the 13 public trust in the Office of the Insurance Commissioner in the wake of widespread reports of influence 14 peddling involving Commissioner Lara and insurance companies regulated by the Department of 15 Insurance.3 16 17 3 See, e.g., Jeff McDonald, State’s Top Insurance Regulator Accepted Tens Of Thousands Of Dollars From Industry Executives, Records Show, San Diego Union Tribune (July 7, 2019), 18 https://www.sandiegouniontribune.com/news/watchdog/story/2019-07-05/states-top-insurance- 19 regulator-accepted-tens-of-thousands-of-dollars-from-industry-executives-records-show; Jeff McDonald, Insurance Commissioner Will Return Funds From Companies With Ties To Industry He 20 Regulates, San Diego Union Tribune (July 8, 2019), https://www.sandiegouniontribune.com/news/watchdog/story/2019-07-08/insurance-commissioner-will- 21 unhand-funds-from-companies-with-ties-to-industry-he-regulates; Editorial: Insurance Commissioner 22 Lara Never Should Have Accepted Donations From Those He Regulates, San Diego Union Tribune (July 8, 2019), https://www.sandiegouniontribune.com/opinion/editorials/story/2019-07-08/insurance- 23 commissioner-lara-donations-insurance-companies; Hannah Wiley, California’s Sustainable Development + Lara’s Campaign Contribution + Earthquake State of Emergency, Sacramento Bee 24 (July 10, 2019), https://www.sacbee.com/site-services/newsletters/capitol- morning/article232453557.html; Editorial: Insurance Commissioner’s Campaign Cash Scandal Raises 25 Troubling Questions, Sacramento Bee (July 10, 2019), 26 https://www.sacbee.com/opinion/editorials/article232509952.html; Editorial: Troubling Behavior From California’s Insurance Commissioner Ricardo Lara, Los Angeles Times (June 11, 2019), 27 https://www.latimes.com/opinion/editorials/la-ed-ricardo-lara-insurance-donations-20190711- story.html; Editorial: Thumbs Down: Ricardo Lara’s Broken Promise, Santa Rosa Press-Democrat (July 28 12, 2019), https://www.pressdemocrat.com/opinion/9790544-181/thumbs-down-ricardo-laras-broken. 3 VERIFIED PETITION FOR WRIT OF MANDATE AND COMPLAINT FOR DECLARATORY RELIEF IFIED PETITION FOR WRIT OF MANDAMUS AND TAXPAYER