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home / insurance / in the media

The Daily News of Los Angeles
Apr 30, 2002

by Evan Pondel, Staff Writer

QUAKE APPEAL SHUT OUT; SUPREME COURT REFUSES TO HEAR INSURER

The U.S. Supreme Court refused to hear a challenge to a California law that entitled Northridge Earthquake victims to reopen insurance claims years later.

The state law has enabled thousands of victims from the 1994 Northridge Earthquake to refile insurance claims seven years after the disaster. So far, 21st Century Insurance Co., which sought the Supreme Court opinion, has paid out more than $1 billion in claims and has set aside around $70 million to cover future claims related to the Northridge Quake.

"The company is obviously disappointed the court will not hear the case," said Fiona Hutton, a spokeswoman for Woodland Hills-based 21st Century.

State lawmakers approved the legislation, which was in place through the end of last year, following reports that insurance companies were intentionally overlooking earthquake damage to cut costs.

One such case involved Linda Ahles, a Culver City resident, who said that a 21st Century adjuster didn't report quake damage to her home. After the damage was discovered four years later by a termite inspector, Ahles sued the insurer, according to documents filed with court. Ahles could not be reached Monday.

Her case serves as a prime example of why 21st Century is concerned with the constitutionality of the law, according to David Ettinger, an attorney representing 21st Century. He said Monday that the legislation essentially says its OK to breach a contract. And, the California Legislature has not complied with several provisions that protect contracts, he said.

Consumer advocates praised Monday's Supreme Court refusal to hear 21st Century's case.

Harvey Rosenfield, president of the Foundation For Taxpayers & Consumers Rights, said the insurance companies have to realize that the courts and state Legislature will go to great lengths to protect the consumer. As for other insurance companies that deal with quake claims, there's no reason why they should actively oppose the law.

"The issue is dead as of now," Rosenfield said.

Yet the quake's financial aftershocks continue to plague the industry. Insurance carriers have paid out more than $12.5 billion in 630,000 claims related to the Northridge Earthquake, according to the California Department of Insurance.

In 21st Century's fourth quarter, the company said it would take a $50 million charge related to earthquake claims.

Though the number of claims currently outstanding was not available, at least 475 cases remained open between Allstate and 21st Century as of two years ago. And that number has probably not dropped off substantially given the law - which revitalized many claims, state officials said.

Before 21st Century approached the Supreme Court, the company went to California appeals court, which turned down the challenge.
The law has prompted American International Group to take a $20.4 million charge in the fourth quarter, according to reports.
Blair Sanford, analyst with Cochran, Caronia & Co., said he sees the court's decision as "unfortunate."

"Although a lion's share of the insurance claims have already been settled diligently at the time of quake," Sandford said. "As for the future and what this law means to the insurance industry, it's unchartered territory."


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