Faced with the threat of a lawsuit that he said could hamstring homeowners' efforts to recover from the Northridge earthquake, Insurance Commissioner John Garamendi on Wednesday backed off his earlier plan to bar insurers from naming mortgage lenders as co-payees on earthquake claims payments.
Instead, Garamendi said he would establish a telephone hot line to help resolve disputes between homeowners and their lenders.
Many homeowners were surprised--then angered--to discover that they could not cash insurance claims checks because the insurer had made them out to the homeowner and the lender. The Insurance Department has received about 300 complaints on the subject, Garamendi said.
A typical case is that of Karen Gold, whose home in Woodland Hills was badly damaged in the quake. Lying on her dresser is a large insurance company check made out to her and her husband--and their mortgage lender.
Gold says it is galling that homeowners who had the foresight to buy the insurance must give up control of the money during the repair process.
Garamendi said he still believes a lender has no legal right to demand a two-party check for quake insurance proceeds unless it is specified in the loan agreement or the insurance policy.
However, he said that during negotiations last week with mortgage industry representatives, the lenders vowed to file a lawsuit if Garamendi ordered insurers to write claims checks exclusively in the homeowners' names.
Garamendi acknowledged there is conflict between insurance law and banking law over the lenders' stake in insurance payments. A long legal battle would only freeze the insurance payments and delay the rebuilding process, he said.
Garamendi said his staff will assist in resolving disputes and refer consumers to federal or state banking regulators where appropriate. The Insurance Department's toll-free consumer hot line is (800) 927-HELP.