Quakes Generate a Political Jolt : Recovery: Temblors come as Commissioner Garamendi is trying to repeal state insurance program. But he expects all claims from last week’s earthquakes to be paid.

SACRAMENTO — The earthquakes that struck Southern and Northern California during the past week also sent a political jolt through the state Capitol, because they came just as Insurance Commissioner John Garamendi and some state legislators were pushing to repeal the state’s innovative earthquake recovery program.

Garamendi said Monday that he expects the state to pay all claims generated by the unrelated quakes--centered near Palm Springs and Eureka. But now he is more committed than ever to shutting the program down.

He said the state dodged a bullet when the temblors hit rural areas. If either or both had struck a heavily populated region, Garamendi said, the earthquake fund would have been depleted--exactly the peril he had warned about when he called for the program to be fixed or dismantled.

“This kind of quake in an urban area--which is likely--would bankrupt the fund,” Garamendi said after assessing damage reports from the North Coast.

The Legislature and former Gov. George Deukmejian enacted the earthquake program when they realized after the 1989 Loma Prieta quake that most California residents do not buy private earthquake insurance, which typically does not begin to pay off until damage has exceeded $10,000 or $20,000.

The state program is known widely as earthquake insurance, although it really is not.

Instead, the program assesses every homeowner a surcharge of between $12 and $60 on their residential hazard insurance policy. In return, it promises payment for damages up to $15,000, after a deductible of between $1,000 and $3,500, depending on the value of the home.

Unlike private insurance, the state program does not guarantee the benefits it advertises and is not required to have reserves sufficient to meet the need. The lawmakers who crafted the program assumed that if a major quake depleted the fund, the Legislature would step in to bail it out or benefits would be prorated until the fund was exhausted.

The program, which went into effect Jan. 1, has generated about $3 million to $5 million from surcharges, with another $20 million to $30 million in the pipeline.

Although payment of the surcharge is supposed to be mandatory, the law provides no penalty for not doing so. Residents may file a claim if they have paid the surcharge or have not been billed. Those who have been billed but have refused to pay are ineligible.

If 700 claims are filed, and all are for the maximum amount, the fund will owe about $10 million.

Garamendi contends that the state can expect earthquakes costing an average of $350 million a year. The fund is expected to generate only $313 million annually, if 100% of residents comply.

It is that annual projected deficit that prompted Garamendi to call for changes in the program even before taking office in January, 1991. When the Legislature balked, Garamendi urged repeal. The program’s supporters concede that it needs changes but argue that it can work the way it was intended.

The bill that would kill the program is stuck in a Senate committee because of a procedural battle. Garamendi said he did not know whether the recent quakes would help or hurt his case for repeal.

“People now recognize the reality, that the state is morally and, we believe, legally obligated when this thing runs out of money,” Garamendi said. “But there also is a great fear among legislators that they will vote for repeal the same day that there’s an earthquake in their district and suddenly they’ll be on the political hook.”