Firm Agrees to California’s Largest Redlining Fine : Insurance: Monterey company to pay $500,000 for illegally discriminating against homosexual, minority and poor consumers in San Francisco.

An insurance company accused of illegally discriminating against homosexual, minority and poor consumers in San Francisco agreed Thursday to pay a $500,000 fine, California’s largest sanction ever for redlining.

In an unusual arrangement, California Insurance Group will pay $100,000 of its penalty to minority and gay organizations to finance community improvement, safety and crime-prevention programs aimed at making their neighborhoods better insurance risks.

Insurance regulators last month charged the Monterey-based insurer with 252 violations of law, including refusing to sell apartment and business coverage in designated areas of San Francisco and denying regular discounts to businesses in most of Los Angeles County and all of Orange County.

Company employees told Insurance Department investigators that affected San Francisco neighborhoods--mainly black, gay and Latino districts--were called “keep-out areas” and quoted executives as saying that “we don’t want to write homosexuals or queers.”

Peter Cazzolla, president and chief executive of California Insurance Group, who had initially dismissed the charges as “the claims of a disgruntled former employee,” joined state Insurance Commissioner John Garamendi at a San Francisco news conference Thursday to announce the settlement.

Acknowledging that “writing insurance in metropolitan areas is more complex than in the rural and suburban areas where our company’s business was previously focused,” Cazzolla pledged to conduct anti-discrimination training for company managers and underwriters and to set a corporate goal of writing $3 million to $4 million a year in additional premiums in “historically underserved” California communities.

California Insurance Group operates statewide under the names California Capital Insurance, Eagle West Insurance and Monterey Insurance.

The fine is stiff considering the company’s modest size. Its largest unit, California Capital, wrote $25 million worth of homeowners insurance in California in 1991; market leader State Farm wrote nearly $500 million.

“This sizable assessment sends a message to the entire insurance industry that we are serious about ending redlining,” Garamendi said.

Selwyn Whitehead, president of the Oakland-based Economic Empowerment Foundation, hailed the settlement not only because of the fine but because she said it may help stimulate insurers to increase their business in cities.

“It’s important that they realize there’s a buck to be made in the urban areas if they would only reach out,” Whitehead said.

The Insurance Department investigation began in March when a former company employee alerted authorities to the alleged discriminatory practices. Among the evidence the informant provided was a street map of San Francisco with large portions highlighted in yellow.

Employees were ordered to refer to the map and deny commercial coverage for buildings located in the highlighted areas, authorities said.

When he brought the charges last month, Garamendi said, “Never before have we seen such blatant evidence of systematic insurance redlining.”

In Southern California, the company was accused of instructing employees to depart from their normal practice of granting discounts of up to 25% for businesses that lower their insurance risks. The order was to limit such discounts to 10% in all of Orange County and in most of Los Angeles County.

The areas of Los Angeles County still eligible for the 25% discounts included the San Fernando Valley north of the Ventura Freeway and west of the San Diego Freeway.

The other preferred area was described in a company memo as “northeast of the 210 Freeway,” apparently indicating the northern San Gabriel Valley.