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home / insurance / in the media

San Francisco Chronicle
Jun 13, 2000

by Lynda Gledhill

Documents Show Insurers Botched Quake Claims

Sacramento -- Confidential documents that Insurance Commissioner Chuck Quackenbush refused to give the Legislature show scores of cases in which insurance companies were cited for improperly handling claims from the 1994 Northridge earthquake.

State regulators found patterns of stalling and lowballing settlement offers by some companies, according to the documents.

Some observers say the documents contradict earlier statements by Quackenbush that his department let insurance companies avoid huge fines only because none of the cited shortcomings would stand up in court.

The documents, released yesterday by a state senator, are official Insurance Department reviews to determine whether policyholder claims were handled properly by the companies.

Whether the Insurance Department provided adequate oversight of several insurance companies after the Northridge quake has become a key part of the Legislature's investigation into Quackenbush.

``These are the smoking guns that expose the insurance companies' bad behavior after the Northridge quake,'' said Doug Heller, a spokesman for the Foundation for Taxpayer and Consumer Rights. ``Insurance companies signed a sweetheart deal when they agreed to making tax-deductible donations to Quackenbush's foundations, because as these reports show, they had a lot to hide.''

Heller said the documents clearly ``refute'' Quackenbush's assertions that there was insufficient evidence to press for fines.

Legislators are focusing on allegations that Quackenbush coerced insurance companies to pay $12 million into two nonprofit foundations he created in lieu of paying as much as $3.7 billion in fines for improper handling of policyholder claims.

Critics say the ``settlement'' payments to the foundations were then used to promote Quackenbush's own political fortunes.

Both Quackenbush and the insurance companies had argued that the violations were technical and would not stand up in court. Quackenbush and his top aides have said the settlement payments to the foundations were a way to get relief to consumers without years of protracted litigation.

But Quackenbush has acknowledged that none of the $6 million spent so far has gone to Northridge earthquake victims.

``Whatever wrongdoing, misfeasance, malfeasance or nonfeasance that occurred in the Department of Insurance, it seems clear that the insurance companies had some level of complicity in that,'' said Senate President Pro Tem John Burton, D-San Francisco.

About 600,000 claims were filed after the earthquake, which caused $15 billion in insured losses and killed 72 people.

Insurance Department regulators conducted a random survey of 2,000 policyholder claims filed with four major insurers: State Farm, Allstate, Farmers and 20th Century.

Those companies have denied wrongdoing and yesterday decried the releasing of confidential ``market conduct exams.''

``I am absolutely astonished that we are at the point now that state laws have no meaning, even to sitting members of the Legislature,'' said Bill Sirola, a spokesman for State Farm Insurance.

Sen. Marta Escutia, D-Huntington Park, who made the documents public, and others have asked the same insurance companies to release their written rebuttals to the exams.

But because that response is also confidential, Sirola said State Farm will not give out the information. He said the company is looking into possible action against Escutia and the Senate.

``This information is all part of preliminary examination, and there is good reason to keep it confidential,'' Sirola said. ``Our rebuttal to the exam is also confidential. We would love to be able to release it, but we don't feel any organization or individual has the right to say, `I am more important than the law,' which is what happened today.''

A review of the documents shows that 48 percent of State Farm's files had at least one citation. Allstate had 24 percent, Farmers had 40 percent and 20th Century had 75 percent.

Sirola disputed the findings for State Farm, however, saying, ``99.74 percent of the claims were handled without any complaint or outside litigation.''

Among the cited shortcomings were: offering unreasonably low settlements to many quake victims, failing to pay settlements within required time frames, slowness in investigating claims and using excessive property depreciation when calculating settlements.

In testimony last week, the former head of the market conduct bureau said the Northridge claims were handled differently than any other she had seen.

Leone Tiffany said that, in her experience, the four exams were the first not to be finished.

If the exams are not completed, they are not filed with the state in which an insurer is incorporated. Once a report is finalized, other states have access to the information.

Tiffany was ``rotated out'' of her position just before the settlements with the insurance companies were reached.

Meanwhile, the Assembly Insurance Committee announced it will hold another hearing Monday to hear from Quackenbush and one of his former top deputies, George Grays.

Three days of testimony from 40 witnesses last week before the committee raised many questions about the operations of the department and the operations of the foundations.

The attorney general's office is negotiating with Grays, who resigned from the department in April and has not spoken publicly. Many witnesses said Grays was running the foundation from inside the Department of Insurance. Quackenbush and other top aides have insisted the two entities were kept strictly separate.

``We're doing an investigation of the nonprofit foundation to see what problems occurred and how they can be remedied,'' Attorney General Bill Lockyer said yesterday. ``And there are related civil and criminal evaluations under way. We're just beginning this work.''

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