Small Insurer Falls Victim to the Rioting : Underwriting: The state seizes Western International of Huntington Beach. The strapped firm is likely to be liquidated.

A small Huntington Beach insurance company, swamped by $22.4 million in claims stemming from the Los Angeles riots, failed on Monday.

With its capital and surplus wiped out, Western International Insurance Co. was seized by the state Department of Insurance on Monday afternoon under a conservatorship order from an Orange County judge.

A team of insurance regulators will oversee the insolvent company until it either gets an infusion of cash, finds a merger partner or is liquidated, said Bill Schulz, an Insurance Department spokesman.

Policyholders will be covered up to $500,000 by the state insurance guarantee fund if Western is liquidated, which state regulators say is likely. It is not known how many claims exceed $500,000, but the average claim is just under $100,000, Schulz said. The Insurance Department has asked for a liquidation hearing to be scheduled Aug. 20, he said.

Privately owned Western did a lot of business in riot-torn parts of Los Angeles, insuring numerous dry cleaners and other small businesses. Its 232 riot-related claims put it among the insurers hardest hit by the upheaval touched off by the Rodney King verdict April 29.

In the weeks after the riots, the Insurance Department received more riot-related complaints against Western than any other insurer. Many small-business owners accused the company of foot-dragging in paying claims, causing extreme hardship for some.

For example, Jose Camarena, co-owner of a small chain of dry-cleaning stores in Los Angeles, said that by the time he received a fractional payment of $40,000--more than two months after his largest store burned down--he had already been forced to borrow a far greater amount.

Western officials did not return calls for comment Monday.

In the most recent financial statement that the company provided state insurance examiners, Western showed assets of $19.65 million and liabilities of $22.09 million, for a deficit of $2.44 million, Schulz said. Western is required to maintain a surplus of $750,000, so the actual shortfall is $3.19 million, Schulz said.

The shortfall takes into account $3.3 million in net riot-related losses after the company collects on its reinsurance policies, which insurers purchase to reduce their own risk, Schulz said.

Western has been scrambling to find a source of new capital in recent weeks. After granting the company a reprieve over the weekend, the Insurance Department finally pulled the plug Monday afternoon, seeking the conservatorship order in Superior Court in Santa Ana.

The riots were the second major financial blow to Western this year. In April, the company paid $2.35 million in an out-of-court settlement with former executive Lin Wu Lan.

Lan, one of the firm’s founders, accused Western of waging a slander campaign to destroy her career after it ousted her in 1987.

Ironically, Lan is one of the people that Western approached in its efforts to find investors to help keep it afloat, said her lawyer, Daniel J. Callahan of Irvine. She declined.