Mix-Up Over Policy Prompts Couple to Sue Insurance Co. : Riot aftermath: Insurer belatedly admits it erred in canceling the renters’ coverage of a family that lost its home in the unrest.

When Caren and Alan Smith’s two-story rented condominium was torched and looted six weeks ago in the riots, there was a single saving grace. They had secured and paid for a $250,000 renters’ insurance policy months before.

At least that is what they believed when they gazed upon the charred remains of their home on Indiana Avenue in Venice after it was burned and looted April 29 by about two dozen rioters.

But when the couple called their Allstate Insurance Co. agent the next morning, they were told that their policy had been terminated because of poor credit and that a notification had been mailed to them.

The Smiths said they never received a termination notice, and their frustrations grew exponentially as many attempts to reach the company for further explanation proved futile. Finally, they filed a lawsuit early this month against the company and the agent for “declaratory relief, breach of duty, of good faith and fair dealing and negligence.”

In the meantime, the Smiths spent several weeks moving from hotel to hotel with their 5-year-old son. Their dog had to be put in a kennel before their landlord had another apartment available for them.

But after a reporter made calls this week to an Allstate executive about the Smiths’ situation, an in-house investigation ensued that revealed in a few hours that the underwriter of the Smiths’ policy had made an error. The result: immediate reinstatement of their policy.

Jodi Vicaro, senior territorial underwriting manager for Los Angeles Allstate Insurance Co., explained the mistake this way: “We made an in-house error. Originally, (the Smiths’ policy) was rejected because they had poor credit. But what we found during our investigation was that under the California Department of Insurance code, every company must make a decision to either accept or reject an insurance application within 60 days. And in certain areas of L.A. designated (high-risk areas, such as Venice), we have only 27 days to make decisions so that if applicants wanted to apply for another type of insurance, they could.

“In this particular situation, we went over (27) days. I feel bad because it went this far. I’ve contacted the claims department, so they are contacting the customer.”

Allstate officials said they have tried to contact the Smiths, but the Smiths’ lawyer has advised them not to take the calls. The Smiths say that Allstate’s error has caused them enormous grief. They have used up all their resources on hotel costs and “de-smoking” clothes that survived the fire. The Smiths say they are having difficulty taking the company at its word.

“ ‘You’re in Good Hands With Allstate,’--ha!” Caren Smith said angrily. “The bottom line is I have been in living hell for the last month. If they had come through, we wouldn’t have had to have stomachaches every day for the last month. How do you make up for something like that? I am a little stunned (at the series of events). Now that they’ve admitted they’re wrong, maybe they’ll pull through. If they come through, I might get my career back (as an artist). I had no place to work and the idea of painting with expensive paints (that we couldn’t afford) sounded ridiculous.”

Alan Smith was even more disbelieving. “I can’t believe my confidence is so shaken in the system, but it is,” he said. “I want to be happy. It is all so unreal. After what happened to us that night, and then they tell us when we call the next day that we no have insurance. If you could have heard the way they told us we were terminated, you would understand. I just don’t believe them when they say we now have insurance. I got up this morning . . . and it was like I had this crazy dream last night.”

Native Texans who moved to Venice in May, 1991, to pursue their art and design careers, the Smiths estimate that they lost about $140,000 in personal belongings to the fire and looting, and in subsequent living expenses.

And there is “no way to put a price tag on the emotional damage and loss in time we have incurred,” said Caren Smith, who added that numerous hours spent on the telephone to the Federal Emergency Management Agency and to Allstate fueled their feelings of impotence and frustration.

The Smiths acknowledge that their credit was less than good, something that Allstate representatives say is taken into consideration when they underwrite renters’ insurance policies. The Smiths said they incurred debts in 1985 when a Texas interior design business in which they were partners went belly up. Rather than file bankruptcy, the couple chose to pay off the debts incrementally until they were cleared with a final payment in April, 1991.

In December of 1991, they said, they made their first payment of $150 on their renters’ insurance before taking a business trip to Mexico. Their agent, who asked them to get written appraisals of their jewelry to complete the policy, assured them that they were covered even though they did not have a written policy in hand. He never discussed their credit rating with them, they said.

“They convinced me that we were, in fact, insured,” said Caren Smith. “We wanted to make sure everything was OK while we were gone in Mexico.”

The Smiths say that the insurance company’s reinstatement of their policy is not enough and that they plan to go forward with the lawsuit, seeking unspecified damages.

“These people went through hell,” said Gerald L. Kroll, the Beverly Hills attorney representing them. “But they got a lawyer and went public with their story. Think of all the people out there in the same situation that we don’t know about, whose insurance companies do this kind of thing, and can’t get any help or any answers.”