An insurance industry watchdog says the California Department of Insurance is running a coverup to shield it from more embarrassing disclosures about interactions between Applied Underwriters’ representatives and Insurance Commissioner Ricardo Lara and another key Department official. The organization says Department officials knew that two former legislators—Assemblymen Rusty Areias and Fabian Nunez—were acting as paid lobbyists for Applied but failed to turn over or even search for documents related to meetings with the two.
Consumer Watchdog is in a continuing court battle with CDI over access to meeting records and other public documents in the wake of the pay-to-play scandal that hit the Department two years ago. The scandal was part of a failed pressure campaign Applied waged to get Commissioner Lara’s approval for the sale of California Insurance Company (CIC) back to its founder Steve Menzies.
Menzies stood to lose a $60 million deposit if the sale didn’t go through. California’s refusal to approve a sale on Applied’s timeline prompted its failed attempt at redomestication of the carrier into New Mexico to avoid California regulators. The California Department placed CIC into state conservatorship, where it remains while the courts approve a rehabilitation plan.
Failure To Produce
Consumer Watchdog filed a Public Records Act (PRA) request seeking records of meetings and communications between the Department and individuals “employed by or representing” California Insurance Company, Applied Underwriters, or other associated entities. The PRA followed published reports – and investigations in Workers’ Comp Executive – that Commissioner Lara received tens of thousands of dollars in political donations from individuals linked to Applied but who were not identified as such (for past coverage, see Ricardo Lara Was it Money Laundering). The contributions came while the Department was reviewing Applied’s Form-A application for the sale of CIC.
Consumer Watchdog says it filed the current lawsuit after the Department’s response to the PRA was less than complete. CDI special counsel and Deputy Commissioner Bryant Henley allegedly oversaw the Department’s response to the PRA.
Consumer Watchdog alleges that the Department is engaging in systemic discovery abuse by withholding documents responsive to the PRA and discovery in the lawsuit. In addition to the original meeting records, Consumer Watchdog later sought all communications between the Department and any person regarding its PRA request. The Los Angeles Superior Court will hear its motion to compel the production of additional documents early next month.
Notable in the latest court filings is a new declaration from Areias, who says that both he and Nunez lobbied the Department on Applied Underwriters’ behalf. Areias declares that both lobbyists informed Commissioner Lara sometime between February and June 2019 that “we might be or were about to be” representing Applied Underwriters.
The declaration adds that Areias later participated in phone calls with Henley and CDI staff counsel Laszlo Komjathy to discuss CIC and Applied Underwriters. Areias says he identified himself as representing CIC and Applied during these calls.
Consumer Watchdog says the Department failed to produce any records related to these meetings or calls in violation of the public records act. Additionally, it says the Department failed to even search for any records pertaining to Areias or Nunez.
“Remarkably, despite Mr. Henley’s knowledge that Areias and Nunez were representing Applied Underwriters, Inc., neither Nunez’s nor Areias’s name appears among the search terms that Respondent used to identify records of meetings and conferences with individuals ‘employed by or representing’ Applied and the other companies identified in the CPRA Requests,” the nonprofit says in the filing. “Apparently, Mr. Henley failed to disclose these communications to Department staff responsible for searching for public records in response to the CPRA Requests.”
The two lobbyists are currently suing Applied Underwriters to collect a $2 million fee for their work on behalf of the company. That case is still pending.
CDI refuses to turn over hundreds of documents that it claims are privileged and therefore not subject to release under the PRA or discovery. Consumer Watchdog learned of these withheld documents when the court-ordered CDI to produce a full and complete response to its discovery requests.
The trove includes over 400 documents covering communications regarding its PRA requests. Many of the documents in question are e-mails either authored by or received by Henley.
The Department is claiming attorney-client or work-product privileges, but Consumer Watchdog says recently released documents in a batch of 29 e-mails show that the Department is misapplying these privileges.
“Only confidential communications between a client and lawyer in the course of the lawyer-client relationship are privileged,” says Consumer Watchdog in support of its motion to compel. It notes that two of the released e-mails that were claimed to be protected were actually requests by non-lawyer legal analysts to various staffers to search for records responsive to the PRA. “This is clearly an administrative task not subject to any privilege, and the communications were not made by an attorney, nor do they reflect any legal advice or services, nor any attorney’s opinions, research, or conclusions.”
The organization maintains that such an overreach in claiming privilege calls into question the status of the other withheld documents. Additionally, it argues that communications regarding its PRA request that occurred before it filed the lawsuit should also be released.
“While obviously a lawsuit over a CPRA request implicates attorney-client work, here all the withheld documents occurred long before the Petition was filed on February 18, 2020. The mere process of searching for documents and responding to the request is primarily administrative in nature and should not be withheld under claims of attorney-client or attorney work-product privileges,” it argues. “The withheld communications regarding the CPRA Requests will likely shed new light on what Respondents did and did not do to search for records.”
Consumer Watchdog asks the court to compel the Department to produce the withheld documents. If the documents are not ordered released, it asks the court to block the Department from introducing evidence or testimony on the question of how it searched for responsive records (For complete coverage of the scandal, click here to see all our articles on the Ricardo Lara Investigation).
Lara is running for reelection.