Mendoza, Group Levies Charges against Garamendi

GOP Nominee for Insurance Commissioner, Gary Mendoza, was joined recently in Sacramento by Jon Coupal, president of the Howard Jarvis Taxpayers Association, at a press conference to highlight the alleged gross mismanagement of the Department of Insurance during John Garamendi’s previous term.

Mendoza and Coupal referenced a 1992 State Auditor report, which declared that the Department’s Liquidation and Conservation Division, which handles hundreds of millions of dollars in assets of insolvent insurance companies, suffered from “significant weakness” in the way it performed its function.

Coupal stated, “Instead of fixing the problems, John Garamendi made them even worse. Two years later, when the State Auditor conducted another audit, he said that he would ‘characterize this as being a very poorly run division.'”

In 1994, the State Auditor reportedly stated that Garamendi had been aware of problems within the division since at least mid-1991, when the first of two Department of Finance audits revealed lax financial and managerial controls. However, Garamendi reportedly took no steps to overhaul the agency until late 1993.

The 1994 State Auditor report identified numerous problems within the division, including:
• failing to develop a strategic plan to oversee the liquidation or rehabilitation of insolvent insurers seized by the state
• operating without a budget and drafting a spending plan that was at least 45 percent too low
• hiring employees without advertising jobs, paying unauthorized overtime, and giving severance pay to workers who were not laid off
• using consultants without written contracts; making double payments to vendors; and reimbursing contractors for questionable expenses such as hotel health clubs and personal long distance calls
• selling property seized from insurance companies to division employees at cut-rate prices

Gary Hernandez, who served as Garamendi’s Deputy Commissioner and Chief of Enforcement, noted, “In general, the auditor reports that are referred to in here… what the press release doesn’t say is that these auditor reports confirmed findings that John Garamendi had identified in his first term in the Department of Insurance. It was a surprise to me that this was portrayed as a negative, when in fact, it was something the Commissioner at that time was in the process of identifying and changing management structures.

“He took two very affirmative steps—the first, between 1991 and 1993—was to instill a brand new level of management into the organization in creating a deputy level spot to oversee the Conservation Liquidation office and was in the process of instituting many changes in existing management at that time. In February of 1993, I took over that deputy spot and continued implementing those changes that ultimately led to a plant closure of the entire Conservation Liquidation office. We started all over recreating the office. So yes, there were issues to be dealt with that Garamendi inherited when he took office, and by the time the 1992 audit came out the changes that were being implemented were not enough to fix it and ultimately led to affirmative and forceful action to start all over again and rebuild the organizational structure.”

When asked if the Department was run by Garamendi insiders Hernandez responded, “That’s wrong. The track record that was identified… I was the guy on behalf of John that endured the legislative hearings that led to address both the audit findings as well as the newspaper accounts and I think we satisfied the legislature that we were attacking those problems and addressing them.”

Editor’s Note: The feature will run monthly up to the Nov. 5 election to keep readers updated on the latest events in the race for California Insurance Commissioner.