State Fund Files Lawsuit Against Insurance Commissioner Garamendi

California's State Compensation Insurance Fund filed a lawsuit May 28 against the California Insurance Commissioner John Garamendi and the California Department of Insurance (CDI) requesting a court-ordered injunction that would prevent the CDI from exercising authority under Risk Based Capital standards placing State Fund under any level of department control.

State Fund reportedly rejects Garamendi's claim that Insurance Code §§ 739 et seq. (Risk-Based Capital for Insurers) is applicable to the organization, instead maintaining that State Fund's status as a "public enterprise fund" exempts them from regulation meant for private carriers.

In an official complaint for declaratory and injunctive relief, obtained from State Fund spokesperson Jim Zelinski, State Fund alleged that Garamendi has "made demands on the State Fund that, it is informed and believes, constitute and inappropriate exercise of authority over the State Fund."

Furthermore, the suit stated, "The State Fund is informed and believes, thereon alleges, that Mr. Garamendi has attempted to usurp control of the State Fund from its Board of Directors and actively manage the State Fund.

"State Fund is further informed and believes, and thereon alleges, that unless this Court declares the proper limits of Mr. Garamendi's authority with respect to the State Fund, and enjoins him from exceeding it, he will persist in his attempts to interfere with the operation of the State Fund to the detriment of the California economy, California employers, and California employees."

Off the record, a party related to the case said Garamendi has 30 days to respond to the suit. State Fund is hoping to resolve the issue by working with Commissioner Garamendi and the CDI to come to an amicable solution.

Commissioner Garamendi released the following statement regarding the lawsuit:

"It is very unfortunate that the State Compensation Insurance Fund has initiated a jurisdictional dispute with the California Department of Insurance. This is a time when we should be focusing all of our attention on legislation that solves the California workers' compensation crisis.

"The allegations raised by State Fund's lawsuit are incorrect. Our actions in regard to the State Fund have been taken to ensure that it continues to have the ability to provide affordable and available workers' compensation insurance to California employers.

Garamendi continued, "We have made every attempt to work cooperatively with State Fund to resolve the financial problems that threaten its viability. I believe that our actions have been consistent with applicable state laws. While we will deal with this issue initiated by State Fund, my principal focus is to reduce the escalating costs that are plaguing the workers' compensation system.

"The fact remains that California's businesses will continue to be faced with ever increasing workers' compensation premiums unless and until the legislature and Governor pass reforms that are immediate, quantifiable, and concrete. State Fund's lawsuit does nothing to move these reforms forward."