Under Covered : Insurance Advocacy Group Aids Victims of Oakland Fire

Nancy Vankat thought little of it last May when she got a call from her insurance agent saying that he no longer was authorized to sell homeowners coverage for the Hanover Co., which had been insuring her Oakland hills home, and wanted to transfer her to another company.

Vankat remembers asking--and her agent, John Ferguson, agrees that she asked--whether her new coverage with Fireman’s Fund would be the same as before. Both agree that he answered yes.

But when the deadly Oakland hills fire hit in October and Vankat’s home was among the 3,000 destroyed, she discovered that the new policy was not the same. Her new policy did not include a guaranteed replacement clause. The difference, she says, would amount to $277,000.

In her case, the story may have an upbeat ending. Fireman’s Fund, citing an inadvertent error by the agent, voluntarily added a “full cost replacement” clause to Vankat’s coverage and paid an additional $79,000. Company spokesman John Kozero said Vankat could get more money if it can be verified that her previous policy contained a more generous “unlimited” replacement clause.

But four months after the flames swept over the hills, many here say their experiences should be a warning to homeowners all over the state to check the adequacy of their insurance policies.

Like Vankat, hundreds of home-owners were surprised to find that the wording of their policies left them underinsured for the tremendous losses they suffered.

Because of some well-placed pressure by a nonprofit organization called United Policyholders, many insurers have retroactively upgraded their customers’ policies, agreeing to pay higher settlements without filing lawsuits.

United Policyholders is the creation of Ina DeLong, a former claims adjuster with State Farm who founded the group to press for better insurance settlements after the 1989 Loma Prieta earthquake in the Bay Area.

She expanded its activity to help fire victims. Her tactic has been to call meetings of all homeowners who have policies with a given company and invite a company official to hear complaints. In several cases, the insurers have agreed to work out higher settlements with the property owners.

More than 1,100 Oakland homeowners, about one-third of the total who lost homes, have been active in United Policyholders, and DeLong says that about 350 of them have had their coverage retroactively upgraded.

Fireman’s Fund, State Farm and Safeco are among the companies that have increased their settlements on a case-by-case basis. Two companies, California State Automobile Assn. and California Casualty, went much further and entered into collective talks with their policyholders that led to blanket upgrades.

California State Automobile Assn. said in letters to customers that it would pay “actual replacement cost” on all burned-out homes to be rebuilt, regardless of the limits on policies. The company conservatively estimates its total additional cost at $10 million to $15 million.

“Sitting in the meetings in Oakland with our policyholders, it was very evident that those people were not prepared to accept an insurance contract as limiting them,” spokesman Barry Shiller said. “The public has a perception that insurance in such a disaster will meet all the needs of the victims.”

The company had raised coverage retroactively after floods in 1981-82, and decided to follow that precedent, he said.

DeLong lauds the action by California State Automobile Assn., but she has less admiration for the insurers who upgraded their settlements only on a case-by-case basis. She called it a tactic to “divide and conquer” consumers.

The number of case-by-case upgrades by some major carriers, including Allstate and Farmers, has been few, DeLong said.

Nonetheless, DeLong said her group is working to avoid costly litigation over insurance settlements. Although she expects some lawsuits to develop, only one has arisen.

“I don’t want litigation,” DeLong said. “I tell people, the fire was disaster one. Dealing with the insurance companies is often disaster two. But litigation lasting for years and then much of the winnings going to lawyers’ fees can be disaster three and the worst of all.”

Many homeowners learned after the Oakland fire that the face value of their policies was grossly insufficient to pay the costs of rebuilding--even when there were replacement clauses in the policies.

Policies that provide for “full cost replacement” actually have a cap on what will be paid--commonly 150% of the policy’s face value, often not enough to pay the full cost. Even when there is “unlimited” guaranteed replacement, the settlement paid may not cover updates in building codes that add to the cost of rebuilding.

Policy riders exist that pay some of the expense of code updates, but they usually cover only 50% of this cost. Code updates are extensive in the Oakland hills because it was an older neighborhood and located on steep slopes, but such codes exist elsewhere.

Oakland homeowners also found that coverage for the personal property lost in their homes--and for living expenses while the home is rebuilt--was often seriously deficient.

The lesson, DeLong said, is that consumers should not accept what they are told by their insurance company or agent.

“One common denominator is that people who have relied on their insurance company to set limits on their policies and tell them what coverages were available have done so to their detriment,” DeLong said. “And those who have been with the same agents longest, and trust them the most, often suffer the most.”

One such policyholder in Oakland was Walter Perker. Perker, 89, had lived in the home for 45 years and carried his homeowners insurance with State Farm the entire time.

When the fire came, Perker discovered he had only $145,000 in coverage and no guaranteed replacement clause. The estimated cost of rebuilding his home was $370,000.

On Dec. 15, Perker wrote State Farm a letter asking for a retroactive upgrade. He complained that his agent had never told him of the more complete coverage.

“We relied totally on State Farm,” he wrote. “I expected that if any disaster struck, we would be adequately covered to allow complete restoration of the damaged property.

On Jan. 29, State Farm wrote that it would upgrade Perker’s policy to cover the cost of rebuilding his home with no dollar limit.

A State Farm attorney, Clarke Holland, said: “Given that long-term relationship between Mr. Perker and the agent, the company felt it should change Mr. Perker’s policy.”

But, he said, State Farm is refusing to upgrade some other inadequate policies when the agent was not at fault.

“If, for example, someone called up an agent and said he wanted a policy of $250,000 limit and ‘send me a bill,’ and the agent had no input or advice, then we would not have acted as we did with Mr. Perker,” Holland said.

Besides, he added, many customers are not receptive when agents call them to tell them they should add coverages.

“They say the agent is just out to milk me for another premium,” Holland said. “For most people though, the property insurance on their house may be the single most important contract they have.”

While State Farm has selectively agreed to upgrade its coverage, some other carriers have not.

Richard Felter said that his longtime agent, a fellow Rotarian and friend who died last year, had told him he had a “top of the line” homeowners policy with the Republic Insurance Co. But after the fire, Felter learned that the coverage was $150,000 short of paying his loss and contained no guaranteed replacement clause, although this would have cost $5 more a year.

Felter and his present agent made a plea to Republic for an upgrade, saying he had never been informed of the existence of the guaranteed replacement coverage. But Republic refused, saying it was too late to second-guess their agent.

“As you know, our role as the insurance company is to provide the coverage requested by our agents,” wrote Bob Pihl, a Republic supervisor. “The determination of what best suits a client’s particular insurance needs is left to that person’s insurance counselor, the independent insurance agent.”

Felter, in a recent interview, said: “I kick myself for not knowing what I needed. But how would I have known? My wife and I don’t sit around and talk about insurance.”