‘Blatant’ Use of Redlining by Insurer Charged

In one of the biggest insurance discrimination cases in California history, state authorities Thursday accused an insurer of illegally refusing coverage for apartment and business owners in gay, minority and poor neighborhoods in San Francisco.

Authorities also charged that California Insurance Group broke the state insurance code by denying regular discounts to businesses in most of Los Angeles County and all of Orange County.

State Department of Insurance officials said they will seek a fine of up to $2.5 million in the case, which would be 2 1/2 times higher than the largest sanction ever won against a California insurer.

Monterey-based California Insurance Group operates branch offices across the state under the names California Capital Insurance, Eagle West Insurance and Monterey Insurance.

“The allegations against California Insurance Group constitute one of the most shocking violations of our state’s anti-discrimination laws ever suspected,” Insurance Commissioner John Garamendi said Thursday. “Never before have we seen such blatant evidence of systematic insurance redlining.”

California Insurance Group issued a statement expressing “astonishment” at the charges of redlining, the practice of discriminating economically against particular neighborhoods. It said company executives hope to meet with state officials “and get at the facts before any more damage is done to our reputation and our business.”

State authorities said their investigation was triggered in March by a former California Insurance Group employee who alerted the Insurance Department to the firm’s alleged practices. The former employee, among other things, provided a street map of San Francisco with large portions of the city highlighted in yellow.

According to sworn depositions from former and current employees, senior managers ordered them to deny coverage to most proprietors seeking coverage for their businesses in the highlighted areas.

Brian Soublet, a lawyer handling the case for the Insurance Department, said the affected neighborhoods were called “keep out areas” and “keep off areas” by company employees. They included largely black, gay and Latino districts.

Soublet said there was no evidence that the company applied different standards to Anglo business owners than to minority business owners in the affected neighborhoods. Rather, he said, the pattern showed discrimination on the basis of location rather than the ethnicity or sexual orientation of the proprietors themselves.

At the same time, he said, employees told the Insurance Department that senior executives commented that “we don’t want to write homosexuals or queers.”

Soublet said he could not indicate how many business owners were allegedly discriminated against by California Insurance Group, a small to medium-size insurer. The Insurance Department accused the company of 252 violations, but many of them stemmed from alleged destruction of records sought by investigators.

In all of Orange County and most of Los Angeles County, he said, an internal company bulletin instructed employees to depart from the normal practice of granting discounts up to 25% for businesses that lower their insurance risks. Instead, the order was to limit those discounts to 10%.

The areas that could still get 25% discounts in Los Angeles County included the San Fernando Valley north of the Ventura Freeway and west of the San Diego Freeway. The other preferred area in the county was designated as “northeast of the 210 Freeway,” apparently directed at northern San Gabriel Valley.

Under state insurance law, insurers can legally provide discounts to businesses that do such things as add burglar alarms or fire-resistant roofing, but they cannot alter insurance rates on the basis of arbitrarily chosen geographic areas. Officials said they were baffled by the areas chosen for preferential treatment in Southern California, but added that senior company executives told them that they wanted to do business in more “rural” areas of Southern California.

Consumer activists lauded the Insurance Department’s action.

“It’s nice to see John (Garamendi) bring the hammer down on these bad boys,” said Selwyn Whitehead, president of Oakland-based Economic Empowerment Foundation. “They’re saying we want to insure only wealthy white men, and maybe their families. . . . We as a society can’t stand for that.”

“The industry says that redlining doesn’t exist” and that they make business decisions based on documented risks, Whitehead said. And yet, those in inner-city communities who have trouble finding insurance at a price they can afford don’t see it that way, she said.

“What they’re doing is wholesale eliminating some communities with blacks, browns and single mothers. But some of those blacks, browns and single mothers are good risks,” Whitehead said.

In his statement, Peter Cazzolla, president and chief executive of California Insurance Group, called redlining “illegal and unethical. We do not and never have sold insurance on the basis of racial or personal characteristics. Even the Department of Insurance’s own investigation contradicts the charges, which result from the claims of a disgruntled former employee.”

Cazzolla also said the company does business within the areas identified by the Insurance Department and, in any event, those areas “do not follow any racial or ethnic boundaries.”

“Declining insurance coverage or using a rate schedule is not illegal, providing it is done on the basis of the risks involved,” he added. “The DOI charges involve commercial risks--apartment houses and businesses--and every insurer in the U.S. looks at the physical characteristics of such risks before accepting or rejecting and pricing coverage.

“Location is definitely a risk characteristic. Therefore, it is both appropriate and responsible for us to identify areas with legitimate problem characteristics--slope or unstable land, poor construction or maintenance, poor security, high congestion, etc.”

Times staff writer Nancy Rivera Brooks contributed to this report.