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home / insurance / in the media

San Diego Union-Tribune
Mar 30, 2003

by Emmet Pierce, Copley News Service

The high stakes of an insurance claim

Wonder if those repairs are covered?

Don't ask.

Seventy-one-year-old Ken Pfeffer of Carlsbad, Calif., is steaming mad.

"I feel like I have been really violated," the retiree said. "I've always been a law-abiding citizen. I always pay my bills on time. Boy, it makes my blood boil."

The object of Pfeffer's ire is State Farm Insurance. The former Rohr Industries buyer said the cost of his homeowner policy increased by 50 percent after his wife, Patricia, called the company to inquire about the extent of their homeowner coverage in mid-2001.

She disclosed that faulty plumbing had caused a small leak in the garage. Although the leak had caused no damage to the home, the Pfeffers called to know if the cost of repairing their plumbing was covered by their policy. They were told that it was not.

In late 2002, the Pfeffers were surprised to learn their annual homeowner insurance bill was going up from about $600 to $900 per year.

"I called them and they said, 'Well you filed a claim.' ... They put it in CLUE, the database they use," Pfeffer recalled.

The Claims Loss Underwriting Exchange, or CLUE, is a computer database that is used by insurers to gauge risk and establish rates. Patricia Pfeffer acknowledged speaking to her insurance company's claims department, but she thought the matter was closed once her company determined that her loss wasn't covered.

Her mistake is a common one. Insurers maintain that it's fair and reasonable to contact CLUE about all reports of home damage, even when no claims have been filed. Such reports are considered to be indicators of future losses, said Peter Moraga, spokesman for the Insurance Information Network of California.

"Even if you don't file the claim, it does not mean that the damage did not happen," he said.

The industry's position is there is no difference between a claim and an inquiry under California law, said ChoicePoint spokesman Chuck Jones. Whenever you ask your agent about a problem, you risk ending up in the CLUE database, he added.

"Every company has its own criteria," he said. "It depends upon what the inquiry was about. An individual agent could decide, 'No, I am not going to report that as a claim,' or he could decide, 'Yes I will.' "

To hold their annual cost to about $635, the Pfeffers said they increased their deductible with State Farm from $500 to $5,000. That means they are on the hook for anything short of a catastrophic loss. A State Farm spokesman declined to comment on the case, citing client confidentiality.

West of Lemon Grove, Calif., near the College Grove Shopping Center, Jesse Bumpus was angered by a recent nonrenewal notice. Bumpus, 54, said his homeowner policy was dropped because his company incorrectly thought his tar-and-gravel roof was made of less-sturdy rolled material. An inspector from Farmers Insurance didn't show up at his home until after the policy had been dropped, he said. A Farmers spokesman declined to discuss the case.

Bumpus and the Pfeffers have joined a growing chorus of homeowners who have taken insurance complaints to Sacramento. Bumpus contacted the Department of Insurance. The Pfeffers contacted Assemblyman Mark Wyland, R-Del Mar.

Wyland has authored Assembly Bill 81, which would allow policyholders to make insurance inquiries without the risk of being added to CLUE. Supported by state Insurance Commissioner John Garamendi, it's one of several reform measures now pending. Legislative action is expected by mid-year.

Assembly Bill 227, authored by Juan Vargas, the San Diego Democrat who chairs the Assembly Insurance Committee, seeks to prohibit insurers from using credit information to underwrite, classify or rate automobile and property policies.

California law bans insurers from using credit scores to determine risk for auto insurance, but not homeowner's insurance, officials said.

"What is prohibited is any practice that is discriminatory or unfair and the department (of insurance) believes credit scoring is discriminatory," said spokeswoman Nanci Kramer. "It is another form of redlining. It gets into the idea that if you are undesirable to the insurer" you can't buy a home.

While no companies use homeowner credit scoring in California, Allstate has applied to do so, Kramer said. Senate Bill 64, a measure by state Sen. JackieSpeier, D-Daly City, chairwoman of the Senate Insurance Committee, seeks to prohibit the use of credit scores. It also would prohibit companies from reporting simple insurance inquiries to CLUE.

SIDEBAR - Steps you can take:

Consumers may not be able to prevent homeowner insurance rates from increasing, but there are meaningful steps they can take to cut their losses:

Do your homework: Before buying a home, find out if it has a history of insurance claims. When establishing rates, insurance companies can use both the applicant's claims record and claims that were made by previous owners of the home, dating back five years. Request that the seller provide a copy of the property's Claims Loss Underwriting Exchange (CLUE) report.

Shop around:
There about 165 companies in California that sell homeowner insurance. The largest, State Farm, Farmers and Allstate, control more than half the market, officials say. Under state law, each company calculates rates subject to California Department of Insurance (CDI) approval. You can make comparisons on the CDI Web site at, or by calling the CDI Hotline at (800) 927-HELP. The Web site also contains downloadable complaint forms.

Review your policy deductible:
Deductibles typically start at $250. By raising your deductible to $500, you could save up to 12 percent; $1,000, up to 24 percent; $2,500, up to 30 percent; and $5,000, up to 37 percent, depending on your company, according to the Insurance Information Network of California. The network can be reached by calling (213) 738-5333 or on the Web at

Weigh the risk:
While insurance companies are forbidden by law from discouraging clients from filing claims, it's helpful to determine if the amount you would receive outweighs what you stand to lose in increased insurance premiums. If your deductible is $500 and an anticipated home repair costs $600, you might not want to risk triggering an insurance rate increase.

Maintain your water system:
Water damage is one of the chief causes of major property losses. Something as simple as replacing worn washing machine hoses can save you thousands of dollars in repairs. An inexpensive water pressure meter will help determine if your pipes are overburdened.

Be assertive:
Not everyone thinks you should avoid filing claims to protect your insurance rates. Some who believe rate hikes are unjustified are urging consumers to continue filing legitimate claims and contact their elected officials with any problems. "Let your legislators know that you want to know they are fighting so you can use your homeowner insurance," said Doug Heller of the Santa
Monica-based Foundation for Taxpayer and Consumer Rights. The foundation can be
reached at or by calling 310-392-0522.

Read your policy:
It may sound simple, but insurers say many conflicts could be avoided if consumers would take the time to familiarize themselves with the terms and conditions of their homeowner policies.

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