He added that affirming that SCIF is subject to RBC statutes provides the department with “a key to their inner workings and the ability to get them to do the best job they canto make sure that management is held accountable.”

Mr. Williams explained that the department regulates the financial ability of insurers to pay off policies. “State Fund, according to our assessment, had been underreserved. They didnt have enough to account for all of their responsibilities now and ongoing,” he said.

Under the RBC statute, he noted that the department previously “had the ability to direct [SCIF] to create a plan to address that reserve issue.”

Insurance Commissioner John Garamendi, he said, created a plan for SCIF, “and as a result, today they are in much better financial condition. But for some reason they sued us back in May [2003] and said we did not have the authority to regulate them under RBC statutes.”

Without the RBC statute, he said, the situation would have been “extremely troubling.” SCIF would have operated without regulation, “and they may have gotten back into the same position they found themselves in before the commissioner came into office.”

Mr. Williams said the judge ruled in the departments favor, but has not yet signed anything. “He asked us to prepare a proposed decision for him by Jan. 7. He may sign it as it is or he may amend it somewhat, but that will be the final decision,” he said.

Whether SCIF will appeal is still in question, he said.

Jim Zelinski, a representative for SCIF in San Francisco, said that “naturally we are disappointed with the decision, and we will consider filing an appeal once the final statement of decision has been issued on Jan. 7.”

He pointed out that “it has been nearly a year-and-a-half since the initial complaint was filed, and circumstances with regard to our financial position as well as the departments posture toward State Fund are really different than they were when the complaint was filed.”

The bottom line, he said, is that “our financial condition has improved.” The reason for the improvement is “a positive impact from reforms as well as the fact that the pace of new business has slowed somewhat.”

“For a couple of years we were experiencing unprecedented growth, and that was driving the need to increase surplus,” he added.

In a statement, Mr. Garamendi said that “as the market leader, with nearly 60 percent of all workers' comp insurance business in California, it is essential that State Fund achieve a level of health that allows it to pass on the reform savings.”

The judge's decision, he said, “clarifies that State Fund, like all other insurers, is subject to the law and the regulation of the Department of Insurance.”

Reproduced from National Underwriter Edition, December 16, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.