Insurance a New Hazard for Park La Brea Retailers

Industry spokesmen said Tuesday that the methane gas explosion that gutted a dress store in the Fairfax District four months ago has forced insurance companies to increase their rates or refuse coverage entirely for businesses in the immediate area.

“The change in underwriting circumstances is pretty obvious to anybody,” said Richard J. Olsen, vice president of the Transamerica Corp., which declined to renew its coverage for the Value Rite drugstore next to the site of the March 24 blast and fire.

“In contrast to the standard drugstore operation, you now have one in the middle of a methane gas field that already demonstrated explosion hazard,” Olsen said.

His comments came after City Councilman John Ferraro criticized insurance companies for “red-lining” the area around the blast, which occurred at the corner of 3rd Street and Ogden Drive.

Many Leases Require Insurance

“These things worry us,” Ferraro said in an interview. “Many of these leases require the stores to provide insurance. If they can’t get it they’ll have to leave, and if all those shops are empty it’s going to be a bad situation.”

A Ferraro aide said that at least two other businesses in the Park La Brea shopping center have been notified that their annual premiums will be increased, from $30,000 to $230,000 in one case and from $375,000 to $1.7 million in the other.

Ferraro’s aide said the councilman spoke out in the hope that publicity would embarrass the industry into changing its negative evaluation of the area.

But Olsen of Transamerica said his company does not have the engineering know-how to determine if it is safe to offer insurance in the area. Other companies would have similar concerns, he said.

Expects ‘Profound Effect’

“I would expect that the March 24 incident had a profound effect,” Olsen said.

The explosion came as insurance companies nationwide were attempting to recover from a period of sustained losses, according to John McCann, regional vice president of the Insurance Information Institute, a group sponsored by the insurance industry.

“Last year you might have been able to write that risk, whereas this year you have to be very selective and choose the risk that’s going to present the smallest chance of loss,” he said.

Increased medical and legal costs have contributed to the problem, he said. Price-cutting over the previous six years was another major factor in the industry’s $21.3-billion losses on insurance nationwide in 1984, McCann said.

Can’t Write ‘Risky Business’

“Many companies are just not going to be able to write the risky business any more,” he said. “Fewer companies are going to be interested than last year, so you’re going to have a pharmacy with this kind of risk potential exposed more today than last year or the year before.”

Not all companies have given up on the area, although prices clearly have risen. After a 2 1/2-month search, the Value Rite drugstore found a new insurance company this week, with a quote that was 50% higher than what he paid before, owner Brian Holt said.

“It’s going to be a lot more money, and it’s not one of those things that’s competitive,” he said. “It’s the only game in town--take it or leave it.”

He said stores in the Park La Brea shopping center have been suffering from lack of business since the closure of the dress store. But the refurbishing job is moving along and the dress shop is expected to reopen next month and bring in more customers.

Gambling at this Point

“We’re all gambling at this point,” Holt said. “Once it’s open, we’ll see.”

According to a city task force, the source of the methane that exploded March 24 was an underground deposit of decaying plant matter.

The resulting gas was forced upward by a rising water table and gathered in the basement of the dress shop, where it was apparently set off by an electrical appliance in an employee lounge.

The task force suggested that vents and gas detection devices be installed in buildings in an area designated as high-risk, but Ferraro’s aide said those recommendations may not be adopted by the City Council.

“You hate to hang a label like that on somebody’s house unless it’s justified,” he said.