Blackmail allegations heat up California auto reforms debate

In public issue campaigns, it is normal to alert someone who runs a department that is going to be a target of campaign. That is how
business is done,and it happens on a regular basis.

John Garamendi has called for an investigation into an apparent campaign attacking him and his proposed auto insurance rate regulations in California. Supposedly waged by insurance industry officials and advocates, Garmendi said the campaign opposes this plan to downgrade geography as a factor in setting auto insurance rates. The campaign is due to launch just before he faces voters at the polls as a candidate for lieutenant governor.

Up to this point, the courts have upheld the contention that when pricing auto insurance, location factors into the equation. If a policyholder lives in a rural area in which there are fewer people on the road and there is less crime, including auto theft, there is less of a chance to get into an accident or file an auto insurance claim; therefore insurance rates are less. As for those living in heavily populated areas such as Los Angeles and San Francisco, the risks are higher, therefore the rates are higher.

Insurers say no to reform

Opponents of the reforms cite an actuarial study conducted by the California Department of Insurance Commission revealing that if the reforms were to be implemented, rates for drivers in 52 of the state’s 58 counties would increase. The general position of the commissioner and CDI is that if reforms are implemented, rates can be lowered in urban areas without raising rates in rural areas by using a driver’s past record, not location.

The industry says that not only has Garamendi provided no proof that this plan is viable, but that it can’t possibly work.

Industry ultimatum

The commissioner claims he received an ultimatum from certain insurance industry officials to postpone the proposed rate regulations or face a $2 million political campaign attack against him. He has asked the Federal Bureau of Investigation, the U.S. Attorney’s Office and the Attorney General of California to investigate.

The alleged threats came to Garamendi as the CDI began to finalize the new auto regulations that give greater weight to how people drive rather than where they live.

The message was allegedly delivered in a telephone call from Darry Sragow, a Los Angeles lawyer and Democratic strategist, according to Garamendi.

In response to whether the insurance industry’s courtesy call was illegal, Sragow told the Sacramento Bee on May 9, “I would not convey a message that I thought was any violation of the law.”

The industry denies any illegal attempts of extortion or blackmail and says it has adamantly opposed such changes for two years now.

According to Sara Lee, consultant for the Coalition of Californians Against Unfair Rate Increases, “It is unfortunate that [Garamendi] is choosing not to focus on the issue.” She said the commissioner’s appeal for an investigation is “a diversionary tactic to shift focus away from what these regulations would do if implemented.”

“The entire timeline of this campaign was based on the timeline of when these regulations were released — the hearings, when the revisions came out and nothing else,” Lee said, adding, “The entire thrust of the campaign is targeting the proposed regulations and the Department of Insurance, not Garamendi.”

“In public issue campaigns, it is normal to alert someone who runs a department that is going to be a target of a campaign,” she said. “That is how business is done, and it happens on a regular basis on these types of issues. That is all that was done this time as well.”

Norman Williams, a CDI spokesman, said he’s not sure the industry was merely giving the commissioner a heads-up. “If that were the case, I think the message would have been delivered in quite a different matter than having a person such as Sragow deliver it in the manner he did.”

Lee said, “The industry has an obligation to let its customers know what these regulations are going to do to their rates.”

Williams added, “[Garamendi] fully considers this blackmail, and that is why he has asked the FBI to investigate.”

Among others, State Farm, Farmers, Allstate, Safeco and 21st Century Insurance are said to be financing the campaign.