Major Insurer of Small Businesses Drops Riot Coverage in South L.A.

Fearing more civil unrest, a major insurer of South Los Angeles small businesses has notified about 1,200 of its customers in the area that their riot coverage is being dropped.

Crusader Insurance Co. will continue to sell liability insurance to business and apartment owners, but policies will no longer cover riot damage.

“Due to our large number of inner-city customers . . . we are now faced with an inability to (cover) the risk of future riots,” Crusader Executive Vice President Cary L. Cheldin said in a letter to about 1,200 customers. “Without such capacity we regretfully find it necessary to discontinue your insurance coverage.”

Crusader only dropped coverage for customers who had filed riot-related claims. The company covered about 1,500 South Los Angeles businesses such as liquor stores, cleaners and clothing shops, and paid $21 million in claims resulting from last spring’s civil unrest. Cheldin said in an interview that the cancellation of riot coverage was a prudent business decision.

“We cannot jeopardize the well-being of this company at the expense of these people,” Cheldin said of South Los Angeles customers.

Dropping riot coverage is legal because insurance companies can cancel or opt not to renew policies at any time, said Elena Stern, a spokeswoman for the state insurance commissioner’s office. However, Stern was critical of Crusader’s decision.

“It’s just not fair for those hit by the riots to be hit again in the form of unfair rate increases or by having their policies not renewed,” Stern said.

Bernita Lindsey is general manager of Delcomber Communications, a Crusader-insured business notified that its riot insurance was being dropped as of April 11. Lindsey is now shopping for a new insurance company.

“I think the main thing . . . is that we have some type of insurance for April not knowing what the outcome is going to be from the (Rodney G. King civil rights) trial. . . . Any type of coverage, as long as it covers riots,” Lindsey said.

Crusader officials said dropping riot coverage was their last resort. In October, the Woodland Hills-based company asked the state to approve a 25% rate increase to offset riot loses. However, Stern said the request would have translated into a 93% hike for inner-city customers, while rates for the company’s 6,500 other policyholders throughout the state would have remained the same.

“We did not turn them down,” Stern said. “We would have considered a lower increase for all Crusader policyholders since all policyholders are potentially vulnerable to some sort of problem.”

In the letter notifying customers that riot coverage was being eliminated, Crusader referred clients to the California FAIR Plan, a state-sponsored insurance company that is a last resort for business owners. While the FAIR plan covers riot damage along with fire and vandalism, it does not cover liability, theft or water damage.

“We have always been the tail behind the dog,” said Mike Harris, a spokesman for the FAIR Plan. “An agent does not use us as (primary) market. They use us as a accommodation market.” Because of the difficulty in finding affordable insurance, many business owners go without insurance or use foreign or out-of-state companies.

A state Insurance Department survey of riot victims revealed that half the victims did not have insurance. More than 40% of that group said they could not afford to buy insurance and 21% said they could not get insurance.

Like Lindsey, Sherman Draper, the owner of Sherman’s Barbecue, has a lease that requires him to have liability insurance.

Before the riots, Draper, whose Crenshaw business was not affected by rioting, was insured by Western International of Huntington Beach and paid a $1,700 annual premium. Western International went out of business after being hit with $22 million in riot-related claims.

Draper now has insurance through an unregulated foreign company, but is searching for a state-regulated policy. So far, quotes from regulated companies have ranged from $3,000 to $5,000 a year. “The prices pushed me out the door,” Draper said.