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Probe launched after Calif. comp fund firings

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Probe launched after Calif. comp fund firings

SACRAMENTO—California state lawmakers will hold a hearing this week to explore possible financial improprieties at the State Compensation Insurance Fund, following the abrupt firing last week of two SCIF officials, including its president.

The state's Senate Banking, Finance and Insurance Committee will examine the state-run workers compensation insurer's problems in a hearing Wednesday, Senate President Pro Tem Don Perata, D-Oakland, said in a statement.

The move came just days after San Francisco-based SCIF--the state's largest provider of workers comp coverage--terminated President, James C. Tudor and Vp Renee Koren, following an internal review of its operations for undisclosed reasons.

"The board took the action after receiving the results of an internal review, which had been commissioned by the board," SCIF Board Chair Jeanne Cain said in a statement. "Those results convinced the board that a leadership change was in the best interest of the organization and, most importantly, State Fund's policyholders."

Ms. Cain would provide no further details, but a spokeswoman for the chair confirmed that the internal review included SCIF's group insurance programs, which provide discounted workers comp insurance for members of trade associations, and that Ms. Koren, whose appointment was terminated, was in charge of SCIF's group insurance programs.

SCIF's group insurance programs came under fire late last year following the departure of two of SCIF's board members, who resigned amid conflict of interest concerns raised by California Gov. Arnold Schwarzenegger's office.

Frank DelRe, president of Western Insurance Administrators Inc., and Kent Dagg, chief executive officer of the Shasta Builders Exchange, resigned from SCIF's board after concerns were raised over their roles in placing and administering some group business with SCIF for which their companies received fees, a source close to the matter confirmed.

Long Beach, Calif.-based WIA administers eight SCIF workers comp safety associations and is its largest group program manager, with more than 25,000 employers participating in various groups, according to its Web site.

Redding, Calif.-based Shasta Builders, a nonprofit association of building contractors and related businesses, offers a group workers comp program through SCIF, according to its Web site.

In their respective resignation letters, Messrs. DelRe and Dagg cited personal reasons for their departure. Neither could be reached for comment last week.

Gov. Schwarzenegger has not yet named replacements, a spokeswoman said.

Following last week's terminations, other lawmakers and officials expressed concerns about the situation at SCIF.

"I'm concerned about what may be gross mismanagement of the State Compensation Insurance Fund," Sen. Michael Machado, D-Linden, chairman of the Senate Banking, Finance and Insurance Committee, said in a statement. "This agency plays an integral role in the state's workers compensation system, providing many employers with affordable insurance and keeping rates down. We must make sure the agency is in competent hands."

"This is a very closed organization that needs some sunlight and will certainly benefit from new management and a new approach," said a spokesman for Lt. Gov. John Garamendi, the state's former insurance commissioner. "It's critical that this happens."

"We support the board's actions and the ongoing oversight of State Fund's operations," a spokeswoman for Gov. Schwarzenegger said. "It's important that the Fund performs with the integrity necessary to ensure the public's confidence."

The California Insurance Department, which has solvency oversight jurisdiction over SCIF, took a more cautious view of the management changes.

"We're watching the situation with great interest and will follow it very closely in the coming weeks," a spokeswoman for Insurance Commissioner Steve Poizner said.

"The Department of Insurance has been somewhat concerned about the management of SCIF and the inherent lack of public accountability. The commissioner understands that California businesses and workers rely on SCIF to operate in a manner that is publicly accountable. While he's not familiar with the details (of the personnel changes) he does plan to work with the governor to make sure SCIF is a responsive organization and that the issues that were highlighted in this specific incident are fully addressed," she said.

Meanwhile, in a separate announcement, SCIF named Lawrence E. Mulryan, former executive director of the California Insurance Guarantee Assn., as Mr. Tudor's interim replacement.