AIG agrees to pay up to $ 46 million in California Wildfires

American International Group Inc. has agreed to pay an additional $37 million to $46 million to insured California homeowners displaced by wildfires late last year.

The California Department of Insurance said it intervened on the homeowners' behalf after AIG first said it would pay a smaller percentage reimbursement on each claim than the policyholders believe they were owed.

November's Sayre Fire in Sylmar destroyed 485 mobile homes -- 370 of which were insured by AIG (NYSE: AIG), according to the insurance department. Regulators maintained all AIG policies included a stipulation providing for either 110% or 125% for additional coverage in the event of a total loss. However, according to the department, the policy provisions actually called for 10%-25% of additional coverage.

After the department initiated talks with AIG following a number of complaints, the New Hampshire Insurance Co., an AIG subsidiary, agreed to provide the larger interpreted amount, according to regulators. The result is an average of $100,000 to $125,000 in additional coverage per policy, Insurance Commissioner Steve Poizner said.

"I am pleased that through our decisive action and firm negotiations, the Department of Insurance and AIG were able to enter into an agreement that will secure up to $46 million in additional coverage for wildfire survivors," Poizner said in a statement.

The insurer previously paid out $51 million to affected policyholders, according to a company statement. "Over the past week, AIG Programs has been working with the California Department of Insurance to resolve all remaining claims in a way that is both consistent with the policy terms and will lessen the burden of those policyholders affected by this tragedy. Our agreement with the Department of Insurance will permit policyholders, who have suffered total losses, to replace their homes with like-quality residences without further hardship," according to the statement.

Together with two contemporary wildfires, the Sayre Fire burned through about 42,000 acres and destroyed nearly 1,000 homes, including apartments, according to the Insurance Information Network of California. Upscale mansions in the Montecito area in Santa Barbara County burned to the ground. Here, 210 homes were destroyed by the Tea Fire. The Freeway Complex and Sayre fires destroyed about 500 modular and mobile homes as well as 86 apartment units were lost, the information network said (BestWire, Nov. 17, 2008).

Poizner declared an insurance emergency, allowing insurance companies to use out-of-state adjusters to handle claims (BestWire, Nov. 18, 2008).

Most AIG insurance companies currently have a Best's Financial Strength Rating of A (Excellent) with a negative outlook.

Shares of AIG were $1.42 in late trading on April 22, down 0.7% from the previous close

The top five writers of homeowners multiperil in California in 2007, according to A.M. Best Co. state/line product information based on direct premiums written, were: State Farm Group, with a 20.2% market share; Farmers Insurance Group, with 16.8%; Allstate Insurance Group, with 13.3%; California State Auto Group, with 6.7%; and Auto Club Enterprises Insurance Group, with 4.3%.