Investigation of Insurance Firm’s Collapse Demanded

There were calls from several quarters Tuesday for a comprehensive Insurance Department investigation into the collapse of Coastal Insurance Co., and one industry source said he had been informed that there will be an official inquiry.

Meanwhile, it was learned that all California auto insurance policyholders will be assessed a surcharge of up to 1% on their premiums so that the state-appointed, industry-administered California Insurance Guarantee Assn. can pay off claims against Coastal’s 200,000 auto insurance policies in the state.

Association Director John W. Gates estimated Tuesday that this will cost between $80 million and $100 million. That means California’s approximately 13 million auto insurance policyholders each will pay an average of $6 to $8 extra to meet Coastal’s claims obligations.

Insurance Commissioner Roxani Gillespie stopped short of saying that there will be an investigation of Coastal’s demise.

“Any and all actions taken by the Department of Insurance in the Coastal matter will be taken to the court,” said Gillespie, referring to the Coastal bankruptcy case. “The matter is pending before the court and there will be no statements from the department apart from those proceedings.”

But Harry O. Miller, chief executive of the defunct company, said he had no doubt there will be an inquiry.

“Basically, the Department of Insurance always conducts one (in such bankruptcies), and I’m sure they will here,” he said.

He has attributed the collapse of Coastal to mounting claims and an adverse environment for the auto insurance business in Los Angeles and Orange counties.

Those calling for an inquiry said they thought it should go beyond a cursory exploration and provide a detailed public explanation of why Coastal failed.

On Monday, in an uncontested action, Los Angeles Superior Court Judge Dzintra Janavs complied with a Gillespie request and ordered Coastal liquidated.

Citing the general policyholder surcharge to pay off Coastal claims, some consumer representatives said Tuesday that the Insurance Department should be required to explain why its regulatory oversight was unable to prevent Coastal’s failure.

Steven Miller, head of the Insurance Consumer Action Network, criticized Gillespie for being unwilling to provide information thus far. Miller, no relation to Harry Miller, said Gillespie has been referring everyone to the documents filed by her department when it sought the liquidation order. But he said he had perused the documents and they provided no details about what caused the company to fail.

“It is incumbent on the insurance commissioner to go into this entire matter,” said Westwood attorney Joseph Moreno, who said he represented a number of clients in claims against Coastal that were not honored.

Moreno said Coastal had stopped paying its claims in December, several weeks before Gillespie’s Feb. 2 action placing the company into conservatorship.

Many of Coastal’s own highest-paid salesmen were kept uninformed that the company was in financial difficulty, said Donna Miccio, wife of Coastal salesman John Miccio, who also urged an investigation. The Redondo Beach housewife said her husband had come back from a week’s vacation in February to be told that he and 1,300 other employees were out of their jobs.

Going beyond calling for an inquiry was Harry Snyder, West Coast director of the Consumers Union. He said a seizure of assets from Coastal managers should precede any surcharge on policyholders.

“The rest of the state’s policyholders should not pay one penny until all the officers and shareholders of Coastal have been required to give up all their gains,” Snyder said. “This is another case where the executives leave a trail of disaster to be picked up by the average citizen, while they continue with their high-living ways.”

He noted that Harry Miller, the chief executive of both Coastal and its parent company, Advent Management, was responsible last year for giving or lending more than $5 million to support an insurance initiative rejected by 87% of the electorate. He questioned why there should be a policyholder surcharge to pay off such losses.

Harry Miller declined comment on Snyder’s points.