Lobbyists told state insurance chief they represented company at center of campaign scandal, new filing says [The San Diego Union-Tribune]

Two former state lawmakers now working as lobbyists spoke personally with California Insurance Commissioner Ricardo Lara and his senior deputy, contrary to what state officials have said in a public-records lawsuit unfolding now in a Los Angeles courtroom.

In a sworn declaration filed last month, former state Assemblyman Rusty Areias said he told Lara in 2019 that he had been hired by the workers' compensation firm Applied Underwriters and may be reaching out to Lara in the future.

At the time Applied Underwriters was seeking state approval from Lara's office for a change in ownership.

Areias said in the declaration that he spoke repeatedly with Deputy Commissioner Bryant Henley, one of the senior Department of Insurance officials who intervened in department

proceedings to benefit Applied.

"During the course of assisting the clients on this matter, I had multiple phone calls with Bryant Henley of CDI regarding CIC and Applied Underwriters," Areias said in the sworn declaration filed in Los Angeles Superior Court.

CIC is an acronym for California Insurance Co., a subsidiary of Applied. CDI stands for the California Department of Insurance.

"In our telephonic conversations, Lazlo Komjathy at CDI was always on the line but never said anything," Areias said. "In these calls I informed Henley and Komjathy, among other things, that I was representing CIC and Applied Underwriters."

The declaration is significant because state insurance regulators typically are not supposed to take up the cause of companies they regulate. Henley at least twice overruled administrative law judges who decided cases in favor of Applied policyholders.

Henley also was the official in charge of responding to the California Public Records Act requests filed by a group called Consumer Watchdog.

Consumer Watchdog in 2020 sued the Department of Insurance for emails and other communications related to Applied Underwriters after The San Diego Union-Tribune reported in 2019 that Lara had accepted thousands of dollars in political donations from insurers, despite promising during his 2018 campaign not to do so.

At the time, Lara publicly apologized for accepting political contributions from people associated with Applied or other insurance companies, and he returned more than $80,000 to insurers and other donors with business before state regulators.

In the public records case, as recently as September, Department of Insurance lawyers told the court there was nothing in the public record indicating that Areias or his then-partner, Fabian Nunez, were lobbying on behalf of Applied.

The Department of Insurance recently declined to respond to questions about Areias' declaration but said it already had turned over all of the documents it could.

"As we previously stated regarding Consumer Watchdog's PRA requests, the Department of Insurance disclosed all relevant records in accordance with California law," spokesman Michael Soller said by email. "Your other questions address ongoing litigation and the department cannot comment further."

The department has released some documents, but Consumer Watchdog alleged in the suit that state officials wrongly withheld some records and never even searched for others.

"Despite Commissioner Lara's pledge for 'transparency,' the Department of Insurance failed to search for, let alone produce, records of meetings and communications with individuals representing the workers' compensation insurer, including Nunez and Areias," the advocacy group said.

The Areias declaration was included in a motion seeking an order to compel the Department of Insurance to turn over 200 internal communications the advocacy group believes are subject to its California Public Records Act request.

"The new evidence strongly suggests an attempted cover up of Commissioner Lara's and Bryant Henley's contact with top lobbyists seeking to secure political favors from Lara," Consumer Watchdog litigation director Jerry Flanagan said.

"Commissioner Lara can dispel this cloud of uncertainty by releasing all pertinent records and communications," he said.

Applied Underwriters is a big player in the workers' compensation insurance market, although one of its core policies has been called into question by regulators in multiple states, including California.

The company, which declined to respond to a request for comment, is privately held so its annual revenues are not clear. According to a report released by the Department of Insurance in 2019, the company wrote more than $300 million in policies in 2017.

Applied Underwriters has been the subject of dozens of policyholder complaints to state regulators.

Many of the claims resulted in proceedings before administrative law judges working for the Department of Insurance. The Union-Tribune reported in 2019 that Lara and his senior staff intervened in at least four cases to benefit Applied.

Soller said Lara was not involved in a decision to overrule the judge.

"I can't address all your questions since some are campaign-related," Soller said in 2019. "But (in) this case, the commissioner was not involved in this decision nor will he be involved in any decision regarding this company going forward."

In October 2019, insurance executive Steven Menzies completed a $920 million acquisition of Applied Underwriters from Berkshire Hathaway.

Days later, the California Department of Insurance said the sale was not in the best interest of consumers and rejected the transaction, meaning the insurer could not sell policies in California.

The state later sought to place the Applied subsidiary, California Insurance Co., into conservatorship, and a San Mateo County judge agreed. Lawyers for Applied and the state have been locked in litigation over those developments for two-plus years.

Areias served 12 years in the California Assembly before leaving in 1994. He later served as director of the California Department of Parks and Recreation.

Nunez served four terms in the statehouse, including four years as the Assembly speaker, before retiring from politics in 2010. He is also Lara's former boss and political mentor.

Last year Areias and Nunez's former firm, Mercury Public Affairs, sued Applied Underwriters, alleging the company failed to pay a $2 million fee for its lobbying work. That case is ongoing.

It is not clear when the Los Angeles Superior Court might rule on the Consumer Watchdog motion to compel the Department of Insurance to release additional records.

Lara is up for reelection later this year.

This story originally appeared in San Diego Union-Tribune.

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