Quake Coming Back to Haunt Insurance Carriers

The Northridge earthquake is suddenly rattling insurance carriers all over again, with Gov. Gray Davis on Sept. 30 signing into law a measure giving thousands of homeowners an additional year to refile quake-damage claims.

The measure, SB 1899, will likely end up costing insurers tens of millions of additional dollars on top of what has already been one of the costliest disasters in U.S. history.

"It does open the door to a significant number of people asking their claims to be reviewed, and that will take time, resources and energy," said Kittie Miller, a spokeswoman for Los Angeles-based Farmers Insurance Group, which processed 37,000 quake claims. "It also opens the door to more lawsuits."

Brian Kabateck, a Century City attorney who has represented some 300 quake victims against the insurance companies, estimates as many as 10,000 policyholders could submit revised claims.

Within a few days of the governor's signing of the law, Kabateck said, two dozen perspective clients had approached him.

"What's it going to cost to revisit these claims? I'm not sure if it's in the hundreds of millions of dollars, but I wouldn't be surprised if it were in the $20 million to $30 million range," he said.

Critics such as Kabateck say insurance companies were responsible for widespread low-balling in their estimates of quake damage, telling homeowners in many cases that the damage didn't exceed their deductibles.

When homeowners later discovered more significant damage, insurance companies, citing provisions in their policies, rejected any claim submitted more than a year after the Jan. 17, 1994 temblor.

The insurers strenuously deny that their appraisers low-balled damage estimates or that the companies failed to take care of their customers in the aftermath of the quake.

Candysse Miller, a spokeswoman for the Insurance Information Network of California, an industry trade group, said insurers have already paid out $15.3 billion, making the Northridge quake the nation's most costly disaster.

Yet out of 600,000 claims that were settled, less than one half of 1 percent were disputed.

"With all the hype surrounding this law, and attorneys advertising for clients, there could be a number of people who say, 'Hey, maybe I can make some money off the insurance companies,'" said Miller.

Kittie Miller, with Farmers, agreed the law could open the door to iffy claims.

Her company conducted an extensive survey after the quake to see if its customers were satisfied with the way their claims had been handled.

Out of 26,000 customers surveyed, only 616 bothered to return the surveys. And of those, only 123 asked that their claims be reviewed. "People, we believe, were happy with the services we gave them," she said.

With the new law, "It's almost as if the Legislature and the trial attorneys were trying to convince homeowners they've been wronged," she said.

Few were slammed harder by the Northridge quake than 20th Century Insurance Co. (since renamed 21st Century Insurance Co.), which paid 46,421 policyholders a whopping $1.1 billion to settle claims.

"It put an extreme hardship on the company. It came close to wiping out all of our capital, and it erased all of our preceding profits," said Ric Hill, company spokesman.

So for 21st Century, the new law reopens some painful wounds.

Hill predicted the insurance industry would vigorously fight it in court, claiming it sets a dangerous precedent for contract law, not only for insurers but all businesses.

Policyholders had a year to file their claims after the quake and additional time in court to seek a remedy if they were unhappy with the way insurers handled their claims.

"It's very poor public policy," said Hill. "At some point in time you have to say people are responsible for themselves. When does it stop?"

SB 1899, sponsored by Senate President Pro Tem John Burton, D-San Francisco, got a significant boost by the controversy surrounding former state Insurance Commissioner Charles Quackenbush.

Mishandled cases

A State Department of Insurance survey found insurers had mishandled 25 percent to 50 percent of a sampling of several hundred files, in many cases underestimating quake damage.

Quakenbush used the survey results to collect $19 million from the insurers to advance his own political ambitions, a revelation that led to his near impeachment and ultimately his resignation in July.

The new law, which goes into effect Jan. 1, 2001, gives homeowners until Jan. 2, 2002 to submit claims for quake damage even if they had previously missed the deadline to file.

To be eligible to file a revised claim, policyholders, however, must have submitted a claim to their insurers that was denied for not being filed within a year after the quake.

To succeed, homeowners will also have to prove any damage to their home was a result of the Northridge quake. That will be a tough task given that the damage could have been caused by settling or subsequent temblors.

But insurance industry officials agree that it could be tremendously expensive doing additional investigative work and then resolving new legal disputes.