Garamendi Lashes Out at Insurer’s Practices : Consumerism: The new commissioner demands that FGS stop selling a high-risk liability policy that he says has no value.

Insurance Commissioner John Garamendi, in the first such action of his term, issued an order Tuesday demanding that one of the state’s largest high-risk auto insurers stop selling a product that, Garamendi contends, “has no value as an auto liability policy.”

Garamendi also announced that the state Insurance Department has accused the firm, Irvine-based FGS Insurance Agency, of racketeering, gross mismanagement and breach of fiduciary duties in an amended version of an earlier civil lawsuit.

“The Department of Insurance has a new, get-tough consumer protection policy,” Garamendi said during a news conference in Los Angeles. “Consumers will be warned when bad policies are being sold. And companies that break the law will be pursued, prosecuted and, where appropriate, put out of business.”

Alan Greenberg, president of FGS, said in a statement that Garamendi’s allegations are “totally unfounded” and part of an “ongoing controversy between the department and FGS. There is nothing new about it.”

The firm, which provides car insurance for nearly 200,000 Californians, has been the subject of allegations of fraud in the past. Last year the Insurance Department, under former Commissioner Roxani M. Gillespie, accused FGS of fraudulent activities, including misuse of the state’s assigned-risk plan, falsifying driver records and hiding commissions and fees.

In response, FGS has filed legal action against the Insurance Department, accusing it of harassment.

A recessed administrative hearing on whether the insurance firm’s license should be revoked is expected to resume next week.

Greenberg said in his statement that Garamendi’s announcements are an attempt “just one week prior to the reconvening of the administrative law hearings to injure FGS through news media.”

Garamendi, the state’s first elected insurance commissioner, took office last month.

In referring to the FGS policy that allegedly does not meet state standards, the commissioner addressed himself directly to insurance buyers.

“Consumers, beware. The general liability policy being marketed by FGS . . . may not protect you if you have an automobile accident,” he said. “The policy is written through a company apparently based on a Caribbean island. It is not licensed to do business in California. And we have issued this order today to stop this scheme in its tracks.”

The policy, he said, is written by a firm known as Elbe Insurance--which Garamendi said is not licensed to sell the policy in the state--and sold through a Canoga Park broker. FGS markets the policy in its television ads as meeting the state’s minimum financial responsibility requirements.

Garamendi contends that it does not.

The state requires that drivers have policies that cover the policyholder, his car, anyone else who might be injured in an accident and that person’s car, he said. The Elbe policy, he said, covers only the policyholder.

FGS, in responding to the cease-and-desist order, can comply or ask for an administrative hearing. If it is not satisfied with the outcome of a hearing, it can seek remedy in the civil courts.

The racketeering charges were included in an ongoing civil suit against Coastal Insurance Co., a firm that was ordered liquidated in 1989 and has been taken over by the Insurance Department.

The amended complaint, filed under the federal Racketeer-Influenced and Corrupt Organizations Act (RICO), alleges that Coastal bought FGS, then sold it back to its original owner, Sidney M. Field, engaging with Field in improper practices. Field eventually had his insurance license revoked, but continued to operate FGS, the complaint contends.