California State Fund's Injunction Request Denied

NU Online News Service, Aug. 7, 2:28 p.m. EDT?The State Insurance Fund, which provides workers' compensation coverage for about half of California's employers, said it will appeal an August 5 ruling by a superior court judge that denied a request for a preliminary injunction against Insurance Commissioner John Garamendi.

The injunction would have prevented the commissioner from taking control of the financially ailing insurer and making further negative comments about the fund and its management, according to court papers filed by the fund.

Judge James L. Warren of the San Francisco Superior Court did permit the State Fund's lawsuit to continue to trial. The action has as its primary objective a ruling that the fund is not subject to certain statutory risk-based capital requirements. Under California law, insurance companies that do not meet these requirements can be taken over by the commissioner.

The fund contends that, as a government agency empowered by the state constitution to write workers' comp coverage and subject to oversight by the state legislature, it is not required to meet the capital requirements.

Judge Warren denied the preliminary injunction after there was no threat of immediate and irreparable harm to the State Fund. The judge ruled that the fund's contention that the commissioner's remarks hampered its ability to obtain reinsurance did not amount to a threat of immediate harm.

The State Fund in a statement emphasized the portion of the judge's decision allowing the suit to go forward and noted that the Insurance Department has agreed to file a responsive pleading within 20 days. A trial date has not yet been set.

Although the preliminary injunction was denied, State Fund President Dianne Oki said that "if Mr. Garamendi should issue an inappropriate order to State Fund, we will return to the court."

The Insurance Department, after the ruling, focused on the judge's decision not to grant the injunction.

"I am pleased that the judge found that the largest workers' compensation insurer in the nation is subject to regulation just as every other insurer in this state," Mr. Garamendi said in a statement. "I look forward to working cooperatively with the State Fund to address its financial and management issues," he added.