In the two years since an uninsured motorist violently rear-ended Bellflower resident Anthony Odiase, he has been socked with dunning notices from doctors--and empty promises from his insurance company.
With $14,000 in medical bills, Odiase is just one in a parade of Californians left in the lurch by Southern Continental Insurance Co. Ltd.
Authorities in the tiny Caribbean island chain of Turks and Caicos say Southern Continental lacked a valid license. Its owner admitted under oath in July, 1991, that the firm was on the brink of ruin. Even so, Southern Continental went on to write an additional $8 million worth of policies in California. It finally halted operations last February.
Although warned repeatedly about Southern Continental, the California Department of Insurance took no effective action against the firm until last May, well after Southern Continental had withdrawn from the state.
At that point, Insurance Commissioner John Garamendi--citing the firm's "financial instability," though not charging it with any criminal wrongdoing--issued an order banning further sales of Southern Continental policies, an action he later spotlighted in a news release.
Cracking down on fly-by-night insurers has been one of Garamendi's main themes in the two years since he became California's first elected insurance commissioner--and he has had some successes.
But he also has had failures, and these gain significance as California's insurance problem worsens.
In 1992 alone, by Garamendi's estimate, Californians lost up to $200 million in unpaid claims against insurers that were unlicensed in California.
These so-called non-admitted carriers can sell insurance in California if they are properly licensed in another state or nation, though only through brokers with special California licenses. State regulations require brokers to disclose that the companies do not have California licenses and that their policyholders are not protected by the state's private insurance guaranty fund.
Such carriers include many sound and reputable firms, such as Lloyd's of London. The legitimate firms fill an important niche by supplying hard-to-get coverage for everything from a satellite launch to a football quarterback's throwing arm.
But the non-admitted carriers include financially shaky or downright fraudulent companies that exploit regulatory blind spots to sell worthless insurance. Their typical victims are people who--because of factors such as their driving records, medical histories or places of residence--have trouble finding affordable coverage from California-licensed carriers.
Interviews with regulators, consumers and insurance professionals, coupled with court and administrative records, document several problems in Garamendi's policing of non-admitted insurers:
* Communication breakdowns within his office or between California regulators and their counterparts in other jurisdictions.
* A tendency on the part of Garamendi's legal staff to move slowly and take on only cases that are sure winners.
* A lack of aggressiveness in pushing for criminal sanctions against those who commit fraud.
"There's been a lack of prosecution and follow-through," said Lorelle Hurlbut, executive director of American Agents Alliance, a trade organization for independent auto insurance agents. "Until we stand these people up in front of the firing line, I can't see how we're going to rectify this."
Garamendi defends his enforcement record, saying he is the first California commissioner to seize the assets of a non-admitted insurer and the first to revoke a broker's license for knowingly dealing with a bogus carrier.
He has issued more than 50 objection letters against non-admitted carriers, Garamendi says, essentially blacklisting them from selling insurance here, and has pushed through tougher regulations governing such companies.
Garamendi blames his setbacks partly on Gov. Pete Wilson. Wilson blocked a budget request for more insurance investigators and lawyers, Garamendi noted, and the governor's Office of Administrative Law delayed approving Garamendi's regulatory reforms.
"The laws and regulations of California do not protect the public from unlicensed companies," Garamendi said.
Con Artists Fill Void
"In order to sell insurance," the FBI noted in a 1991 report, "all that is really needed is the ability to convince potential customers that the promise of insurance coverage will be honored at an attractive price. Making believable promises is the con artist's stock in trade."
Insurance con artists spotted an opening in California beginning in 1988.
Prices were rising so fast--especially for auto insurance--that outraged consumers took the market into their own hands, voting themselves a discount through Proposition 103. The initiative's passage prompted some insurers to curtail the amount of auto insurance they wrote and led others to pull out of California.