QUACKENBUSH FINED $50,000 IN FLAP OVER CAMPAIGN FUNDS

SACRAMENTO-California Insurance Commissioner Chuck Quackenbush has agreed to pay a $50,000 fine for violating state campaign disclosure laws by understating more than $100,000 in contributions from insurance industry donors.

Meanwhile, the American Names Assn. Inc., a group of U.S. investors in Lloyd's of London, charges that the commissioner is siding with Lloyd's in its securities fraud suit because the market was a major contributor to his 1994 campaign.

Mr. Quackenbush filed an amicus curiae, or "friend of the court," brief March 20 in the 9th U.S. Circuit Court of Appeals in Los Angeles seeking reconsideration of its March 6 decision to allow U.S. names' suit against Lloyd's to go forward in federal court.

The 9th Circuit had agreed with a San Di-ego trial court's 1995 decision to dismiss the portion of the suit addressing state securities laws (BI, Sept. 18, 1995).

But the appellate court ordered the trial court to hear arguments over whether Lloyd's violated federal securities laws when it recruited U.S. investors for the market.

Mr. Quackenbush's amicus brief supports Lloyd's assertion that the entire suit should be dismissed because the names gave up their right to sue the market in U.S. courts when they signed their investment contracts.

The contracts included a "forum selection" clause that required all litigation against Lloyd's to be filed in the United Kingdom, explained attorney Dean Hansell, a partner in the Los Angeles office of law firm LeBoeuf, Lamb, Greene & MacRae, which represents Lloyd's.

In his brief, Mr. Quackenbush asserts that if Lloyd's were put on trial for federal securities laws, it would subject the business of insurance to inherently incompatible dual regulation, which would seriously disrupt, if not entirely halt, the business of insurance in this country."

"The commissioner is clearly fulfilling his duties as the chief insurance regulator to protect the policyholders of California by enforcing the names' contract obligations," LeBoeuf Lamb's Mr. Hansell said.

However, American Names Assn. President Howard Johnson claims Mr. Quackenbush is intervening in the lawsuit as a payback for Lloyd's campaign contributions.

One of the complaints against the commissioner that led to the $50,000 fine is his alleged "incestuous" relationships with the companies he regulates, Mr. Johnson said.

"His judgment. . .appears suspect and should be considered by the state in its investigation of the department," Mr. Johnson said.

Mr. Quackenbush negotiated the fine, which will be paid with personal funds, with staff of the Fair Political Practices Commission, a state agency that enforces campaign disclosure laws. The five-member commission will vote April 9 on whether to approve the fine.

This fine is unrelated to an investigation launched last year by the state attorney general's office, which is examining, among other things, potential conflicts of interest that department personnel may have in dealing with the insurance industry (BI, Aug. 19, 1996).

"This was just another drum that they wanted to beat," said Chuck Bell, a partner with Bell, McAndrews & Hiltachk in Sacramento who represents Mr. Quackenbush on campaign-related issues. "But there's no relation between the two," he added, referring to the fine and the amicus brief.

Mr. Bell explained that the underreporting occurred because the contributions were added manually rather than with an electronic calculator, which resulted in an error in the cumulative totals. He said that entries of individual contributions were accurate, but there were errors in adding the totals.