Gains, Lingering Pain : Merchants File Sweeping Suit to Recover Money From Insurers


It is a bitter anniversary for Charley Chang, robbed once by the mob and robbed again by a phony insurance company.

Chang and his wife, Esther, spent 24 years building their business--a one-block strip mall at Vermont Avenue and El Segundo Boulevard that is dominated by the Shell station where Chang got his first job in America.

At the gas station and convenience store, refurbished after being stripped and burned in the riots, business is picking up. That is cold comfort for the Changs, however.

Without insurance payments to cover more than $400,000 in damage, the Changs’ bank forced them to sell Charley’s Total Auto Care and the rest of the property in January. They didn’t clear enough to even cover their loans.


“It affects me like thunder,” said Chang, 49.

The Changs and 109 other small-business owners--most of them Korean-Americans--announced a sweeping lawsuit Thursday against about 50 insurance firms, wholesale brokers and agents who sold the merchants insurance that proved worthless when the riots came.

Three-quarters of the merchants have been unable to reopen their businesses.

The merchants say their unpaid claims total at least $15 million. In the suit, filed Wednesday in Los Angeles Superior Court, they are pressing for that money plus an unstated amount in related losses and punitive damages.

The list of defendants includes 10 insurance companies registered in the Bahamas, British West Indies or other offshore locations. At least eight of them have been banned by the state Insurance Department from doing any more business in California.

Chief among them is First Assurance & Casualty Co. Ltd. of the Turks and Caicos Islands, responsible for about $7 million in unpaid claims by nearly half the plaintiffs in the lawsuit, according to attorney Scott E. Alumbaugh of the Los Angeles firm of Brobeck, Phlegler & Harrison, which is helping handle the suit.

State Insurance Commissioner John Garamendi last week banned First Assurance from selling in California, calling the carrier insolvent. Among its purported assets, he said, was a $3-million bond issued by “New St. Paul Baptist Church,” supposedly a Texas nonprofit corporation. Investigators could find no listing of the church on the Texas nonprofit registry, however.

The lawsuit accuses the insurance companies and their brokers and agents of negligence, fraud and breach of contract, among other charges.


“The companies were started offshore, mostly by people who we can only assume had no intention of ever paying claims,” said Al Osterloh, insurance specialist for Rebuild L.A. and a consultant on the suit.

Offshore insurers that are unlicensed--or “non-admitted"--in California are allowed to sell policies here only through specially licensed “surplus lines brokers,” several of whom are named in the suit.

Garamendi has tightened regulations against non-admitted carriers, boosting to $5.4 million the amount of capital they are required to have on deposit in the United States.

But activists supporting the merchants’ lawsuit are pushing for even tighter regulation, now before the Legislature, to require prior approval by the insurance commissioner before such carriers could operate in California.


While the insurers use Caribbean islands as their domiciles of convenience, “many of the people who own these companies and received the money from them are U.S. citizens whose assets can be seized,” said attorney G. Larry Engle of Brobeck, Phlegler.

For Charley Chang, any recovery will probably come too late.

He had been paying $15,000 in annual premiums to a legitimate, California-licensed carrier for a $500,000 commercial insurance policy. But nine months before the riots, a friend referred him to the James Ha Insurance Agency in Koreatown, where he was offered the same amount of coverage for $5,000 from an offshore company called Freedom Insurance Co. Ltd.

Money was tight, it looked like a good deal and the Ha firm came well recommended.


“I wasn’t suspicious,” Chang said. “The insurance agency was working very hard. I didn’t have a thought of any doubts about insurance.”

On the day of the Rodney King verdict, it was tense at Chang’s gas station but there was no serious trouble. That came the next day, when the unarmed Changs found themselves unable to defend the station or store against swarms of looters. The looters smashed windows and carried away tools, machinery--everything of value.

For several hours on that Thursday, the Changs were forced at gunpoint to pump gas for looters--"free of charge, of course,” Charley said with an ironic smile.

“They were putting a gun on my wife and me and shouting all the ‘F’ words,” he said. “It was just miserable, and from time to time these memories come back.”


When Chang tried to file a claim, he was unable to contact Freedom. It was as if the company didn’t exist. He asked for help from Ha, who said he could do nothing.

Ha, a defendant in the suit, did not return a phone call for comment Thursday. Freedom Insurance, also a defendant, was banned in October by Garamendi, who said its assets “were of questionable value or could not be proven to exist.”

In a galling Catch-22, Chang said, he was unable to secure a federal Small Business Administration loan to rebuild. He didn’t qualify, the agency said, because he was awaiting an insurance payment.

Last winter, the pressure from the Changs’ bank got so intense that it was either sell or be foreclosed.


Their sale price in a depressed real estate market was $1.4 million, $300,000 short of what they owed the bank and $900,000 less than what Chang had been offered for the property in 1991. He had turned down that offer, believing that the place would be worth far more once construction was completed on the nearby Harbor Freeway.

Charley Chang is a college graduate trained in international trade.

He needs a job.