EARTHQUAKE: THE LONG ROAD BACK : State Farm Ban on New Quake Policies Prompts Rebuke by Garamendi

Insurance Commissioner John Garamendi blasted State Farm Insurance on Friday for imposing a moratorium on earthquake insurance coverage over a vast area of California that stretches as far away as Tuolumne County.

Garamendi called the moratorium “blatantly illegal” and said he will take action to rescind it. He did not specify what action he is contemplating.

Other insurers have also imposed moratoriums, but apparently none apply to as large an area as State Farm’s.

State Farm, California’s largest homeowners insurer with nearly 25% of the market, defended the moratorium as within the law.

Kenneth Cooley, legislative counsel for State Farm, said California law permits insurers to refrain from offering earthquake insurance to new customers for up to 60 days after an earthquake.

Asked why the ban extends up to 250 miles and affects cities as distant as Modesto, Cooley said State Farm intended it to include not just areas directly affected by Monday’s Northridge quake but also those places with “significant seismicity.”

The moratorium, imposed Wednesday, covers 18 counties, including much of the California-Nevada border and the Central Valley, as well as Southern California. However, it does not include San Diego County, parts of which have felt tremors from this week’s quake and aftershocks.

“I will not permit the insurer of one in four California homeowners to impose a blanket and open-ended moratorium in areas wholly unaffected by the Los Angeles earthquake,” Garamendi said in a statement.

“There shall be no moratoriums in those specific areas where earthquake aftershocks are not occurring,” he said.

Part of Garamendi’s objection is that State Farm did not specify the duration of the moratorium, saying only that “past moratoriums have generally lasted 30 days.”

Cooley said State Farm does not expect the ban to last even 30 days.

Allstate, the second-largest carrier with 16% of the California market, has imposed a moratorium on the area within a 100-mile radius of Northridge.

Dick Donegan, regional underwriting manager, said Allstate was ready to lift its moratorium Friday, but strong aftershocks and reports of new damage prompted it to keep the ban in force.

Farmers Insurance Group, No. 3 in California, has a moratorium that covers “the affected area,” spokesman Jeffrey Beyer said.

Like State Farm, neither Allstate nor Farmers set specific terms for the moratoriums.