State Fund Comments on Lawsuit vs. Calif. Commissioner

The State Compensation Insurance Fund released a statement regarding the lawsuit filed May 28 against California Insurance Commissioner John Garamendi and the California Department of Insurance (CDI).

The suit, according to State Fund, is intended to “clarify his [Garamendi’s] and CDI’s authority as well as to determine the applicability of Risk Based Capital (RBC) statutes to State Fund.

“State Fund receives its authority to provide workers’ compensation insurance directly from the California Constitution and statutory mandate, officials explained.”

“We’re evaluating its merits,” Steve Young, legal counsel for IBA West, said, in response to the troubling lawsuit.

Young said that while State Fund has challenged whether it is subject to the Risk-Based Capital provisions (RBC Statutes) in the Insurance Code, a more significant question may be whether the financial triggers are present that would authorize the Insurance Commissioner to take the specific actions set forth in those statutes.

Furthermore, the press release stated, “State Fund emphasized that Garamendi’s efforts to exert control over State Fund are illegal and unwarranted because the Fund is solvent and has adequate claims reserves to meet its obligations to California’s injured workers and employers. State Fund’s surplus has not kept pace with its unprecedented growth since 2000 when thousands of employers turned to State Fund to obtain coverage unavailable through other carriers.”

“We have averted a full-blown crisis of coverage availability in the last several years and in doing so prevented collapse of California’s workers’ compensation insurance system,” State Fund president Diane Oki said. “We support the Governor’s and Legislature’s efforts to affect fundamental, systemic reforms to ensure the system works for all its stakeholders – California’s injured workers and employers.”

Young said the suit is a “sign of the tremendous frustration that the State Fund leaders, California employers, and brokers feel with many of the actions Garamendi has taken.”

Garamendi and the CDI have 30 days to answer the complaint.

View the State Fund’s official press release in its entirety.

Check out the June 9 issue of Insurance Journal West for more on the State Fund vs. Garamendi lawsuit.