At the age of 94, the State Fund finally goes public

California’s State Compensation Insurance Fund, a well-heeled, quasi-state agency that flew under the radar for more than nine decades until it was racked by internal scandal, is about to make a debut of sorts: For the first time, it’s board of directors will meet in public.

Not completely in public, however – the most sensitive issues will be discussed by the board in private at the two-day meeting, Thursday and Friday, in San Francisco.

“This is our first board meeting under Bagley-Keene and the Public Records Act,” said State Fund spokeswoman Jennifer Vargen. “It’s a new environment for us and we are working through it. We hope to handle it without minimal disruption and as professionally as possible.”

The State Fund, created in 1914, sells workers compensation insurance, and it’s a big player—the biggest, in fact, in the nation. It takes in about $3.2 billion annually from its premiums and has some $22 billion in assets.

California law requires employers to have their workers covered in the event of injuries. The State Fund is charged with offering coverage to businesses that can’t obtain it anywhere else. Traditionally the fund has covered a sixth or perhaps a fifth of the market, although it’s market share spiked dramatically a few years ago when the workers compensation insurance industry imploded, and desperate employers flocked to the fund.

That shift brought new public – and media – attention to the State Fund, which had rarely been on the A-list of media outlets hunting stories.

The five voting directors on the State Fund’s board – the current chair is Jeanne Cain, a vice president of the state Chamber of Commerce – have met in private for decades. The reason, according to the fund, is that the board makes sensitive decisions involving investments, marketplace competition, company solvency, fraud investigations, and the like. The fund notes that it conducts internal audits, separate from any commissioned by the insurance commissioner or the Legislature, and it has commissioned outside auditors to examine the agency — although the findings of those audits are not subject to public disclosure.

The result is that the State Fund has been exempt from disclosure rules that apply to other government entities, the Bagley-Keene Act, which requires state agencies and their advisory boards to disclose information to the public, post meeting times and agendas and respond to public information requests in a timely way.

But this year, the Legislature approved legislation authored by Sen. Mike Machado, D-Linden, that put the State Fund under the jurisdiction of the Bagley-Keene Act. With 8,000 state employees – until recently, the only exempt employee was the top executive – it seemed logical to require the State Fund to be covered by the disclosure rules.

The state board has five voting members, but that will change in January, when the board expands to 11 members, including nine appointees of the governor. The State Fund also receive permission to hire a half-dozen top executives – thus allowing them to recruit the personnel without being restricted to Civil Service salaries. Five of those positions – chief information officer, chief operations officer, chief financial officer, chief risk officer and general counsel have been filled. “Being able to bring in that expertise is probably the largest impact (the Machado bill) has had on our operation,” Vargen said.

The Machado bill was prompted in part by internal turmoil at the State Fund that ultimately led to a criminal investigation by the California Highway Patrol.

In March last year, State Fund President Jim Tudor was abruptly fired by the governing board, along with Renee Koren, a Tudor deputy and head of State Fund’s group insurance program. The firings followed a lengthy internal investigation and the resignations under fire of board members Kent Dagg and Frank DelRe, who stepped down amid allegations of conflicts of interest that businesses they controlled profited through their connection with the fund. No charges have been filed. Fund officials turned over the results of their internal probe to outside investigators. Currently, a joint investigation is being conducted by the CHP, the Department of Insurance and the San Francisco district attorney’s office.

To date, no one has been charged with a crime.

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