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ON THE SURFACE, it would appear that policyholders of Golden Eagle Insurance Co. would be well served by either of the two insurers vying for control of the troubled workers compensation insurer. But in reality, the poor handling of the company's transfer by California regulators-and the ensuing legal battle for control of the company-guarantees more uncertainty for policyholders.

Insurance Commissioner Chuck Quackenbush acted decisively enough when his department seized Golden Eagle in January after determining the insurer was underreserved by nearly $140 million. But when it came to finding a buyer for the company, the commissioner suffered a failure of resolve.

As we reported last week, Liberty Mutual Insurance Co. was granted control of Golden Eagle by a California judge overseeing the company's conservatorship. The problem is, the California Insurance Department in May signed a deal with American International Group Inc. to take over Golden Eagle. AIG says it has invested considerable resources in managing the insurer and ensuring an orderly transition for its policyholders. Now, however, all that is on hold as litigation and appeals follow Liberty Mutual's successful challenge to AIG's winning bid.

The whole imbroglio casts state insurance regulators in a poor light, at a time when they already are under fire on several fronts for the quality of their oversight.

In looking at the Golden Eagle case, one has to wonder what Commissioner Quackenbush intended to accomplish.

After backing away from an early deal with Zurich Centre Group in January, the commissioner initiated a sealed bidding process for Golden Eagle that resulted in his awarding the insurer to AIG. When the court, which all along had the authority to approve any Golden Eagle rehabilitation plan, rejected the AIG deal, Commissioner Quackenbush quickly threw up his hands and said, "All the proceedings were under the control of (the judge). It was his decision."

If that is so, why did he put everyone through the trouble of submitting bids to the Insurance Department in the first place? Why not instead tell bidders to submit their offers directly to the court and let the judge decide, with or without a recommendation from the commissioner?

Conversely, if Commissioner Quackenbush believes he has the ability and authority to manage this process-and if he thinks his wishes carry any weight with the court-why is it he did nothing to defend the bid the department picked as the winner?

His hasty retreat leaves him open to questions about the integrity of the process he initiated. We wonder, for example, whether he recognized the court approval step as an additional opportunity to play bidders off against one another, and whether this or some other reason explains his quick acquiescence to the Liberty Mutual victory.

This is not to say that we believe policyholders would be better off with one insurer over the other. Nor do we oppose the concept of insurers competing to acquire Golden Eagle or other companies in rehabilitation. But to allow bidding in two separate forums is absurd.

This mess will only prolong the uncertainty for those companies with unpaid claims against Golden Eagle and those whose policies are soon to expire and must now wonder whether to renew or seek coverage elsewhere.

Policyholders also have been harmed because the ability of state regulators to oversee the conservation of troubled companies with minimal disruption to policyholders is now in doubt, not only in California but also in other states. Sadly, the battle for Golden Eagle serves as a poor example for regulators in other states seeking buyers for a company in rehabilitation.

We believe that if troubled insurers are to be transferred in an orderly and efficient manner to new owners-without excessive litigation or turmoil for policyholders-then clearer guidelines are needed for how this process should be handled.

State insurance regulators and the insurance industry should work together to come up with guidelines to be followed when such situations arise in the future. Doing so will help both remove some of the tarnish left on them by the mess in California.