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State Post Kept Open

Nominee to head the insurance department's Conservation and Liquidation Office is withdrawn.

August 17, 2004|Marc Lifsher | Times Staff Writer

SACRAMENTO — Facing conflict-of-interest concerns in the state Senate, Insurance Commissioner John Garamendi has withdrawn his nominee to head a state agency that oversees more than $1 billion in assets from failed insurance companies.

Garamendi pulled the nomination of Fred A. Buck to the $260,000-a-year job as head of the Department of Insurance's Conservation and Liquidation Office after the Senate Rules Committee said it would take no action on the appointment.

"He wouldn't have been confirmed," said Senate President Pro Tem John Burton (D-San Francisco), chairman of the powerful Rules Committee.

The Senate's rejection of the Buck appointment is the latest setback for the Department of Insurance's liquidation office, which has been targeted in a series of critical state audits over the last decade. The audits pointed to extensive mismanagement and poor financial oversight at the little-known agency.

Burton said he became uncomfortable with the Buck nomination after a background check by the rules committee revealed that Buck had been working as a paid consultant to the Reston, Va.-based National Organization of Life and Health Guaranty Assns. at the same time he had been serving as the chief executive of the state liquidation office. The two entities are often adversaries in litigation involving claims by policyholders of failed insurers.

The Times reported this month that Buck's nomination was stalled because of concerns over potential conflicts of interest.

Garamendi, who hired Buck as a consultant in January 2003 and named him CEO of the liquidation office last September, said Monday that Buck had "performed exceptionally in his role." The insurance commissioner said Buck had closed the books on about one-third of the estates of failed insurance companies that existed when he came into office. He also distributed close to $1 billion to pay claims, Garamendi said.

Buck declined to comment Monday.

Burton said he had agreed to a request from Garamendi to retain Buck as a consultant for six months until a successor at the liquidation office could be hired.

Critics of the Buck appointment said they were particularly worried about how he would handle the high-profile case involving Executive Life Insurance Co.

Garamendi seized the Los Angeles-based firm during a first term as commissioner in 1991, claiming it had been severely weakened by a sharp drop in the value of its portfolio of high-risk junk bonds.

The seizure and Garamendi's decision to sell Executive Life's assets to French investors led to a series of civil lawsuits. A separate federal criminal prosecution resulted in a $770-million settlement in January. Separate civil actions by both the California Department of Insurance and Department of Justice against the French investors, including the Credit Lyonnais bank, are continuing, more than a decade after the sale.

The Department of Insurance received $110 million as its share of the criminal settlement. Both the guaranty organization and the Executive Life policyholders are vying for a share of the criminal restitution funds, as well as possible future payouts from the civil cases.

Maureen Marr, a New York-based activist on Executive Life issues, credited the Senate Rules Committee for "acting in the best interest of the policyholders" by opposing the Buck appointment.

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