Allstate Is Blasted by Regulators : Controversy: The insurer faces a $1.9-million fine and possible suspension for allegedly mishandling claims filed by victims of the 1991 East Bay fire.

State insurance regulators are seeking to fine Allstate Insurance Co. as much as $1.9 million and possibly suspend its license to sell fire insurance in California because the company allegedly mishandled claims filed by victims of the 1991 East Bay fire.

The complaint filed Wednesday by state Insurance Commissioner John Garamendi also charges eight Allstate agents with misleading customers about the amount of their homeowner’s insurance coverage. It proposes that the agents pay fines ranging from $10,000 to $320,000 and that their licenses be revoked or suspended.

The company could pay a $55,000 fine in lieu of suspension.

The legal action is the first taken against an insurer for abuses relating to the Oct. 20, 1991, Oakland and Berkeley hills fire, which killed 25 people, injured 150 and destroyed more than 3,000 homes. The amount of covered losses was estimated at $1.3 billion.

“I am committed to seeing that policyholders who lost their homes in the Oakland firestorm not be burned a second time by their insurance companies,” Garamendi said in a statement.

Allstate, based in Northbrook, Ill., responded to the accusations late Wednesday, saying its “objective has always been to quickly resolve all the claims that arose from the Oakland fire in a fair, reasonable and compassionate manner.”

“We are dedicated to getting to the bottom of the issues addressed by the Insurance Department and to resolving them as quickly as possible and in the best interests of our customers,” the company said in a statement.

According to the accusation, Allstate and its agents committed 153 violations of the state’s Unfair Practices Act.

The document charges that the company--a unit of Sears, Roebuck & Co. that boasts in its advertising: “You’re in good hands with Allstate”--failed to set reasonable standards for investigating and processing claims, took too long to approve or deny claims and failed to act in good faith.

The case, which details Allstate’s handling of 25 losses in the fire, is scheduled to be the subject of a hearing before an administrative law judge in San Francisco on Jan. 11.

In taking the action, Garamendi said he hoped to send the message to the insurance industry that “we’re not messing around any longer and will take action if necessary.” As of the end of August, the department reported earlier, 34% of the claims for homes that were destroyed remained unresolved.

Among individuals mentioned in the complaint were Ron and Betty Bugaj, physical therapists whose Oakland home was destroyed. Soon after, they learned to their dismay that they weren’t fully covered.

“Two of their sales agents over the six years we had the policy reassured us we had guaranteed replacement-cost” coverage, Ron Bugaj said in a telephone interview Wednesday. Bugaj added that Allstate mailed checks weeks after the promised date, causing problems when they were in escrow on a temporary residence, and delayed investigating the Bugajs’ contractor’s proposal for rebuilding their burned home.