Insurance Bill Would Streamline Quake Payouts

State Sen. Tom Hayden (D-Santa Monica) introduced a bill Tuesday that would require insurance companies to make most checks for earthquake damage payable directly to homeowners, rather than to homeowners and their mortgage holders.

The bill would permit homeowners to cash such checks without obtaining the endorsement of a lender or anyone else with a security interest in the damaged property “unless whoever had the security interest provided proof such coverage was required by the lending agreement,” said Kip Wiley, a Hayden legislative aide.

Lenders often insist that homeowners carry fire insurance, but not earthquake insurance. Since the Jan. 17 temblor, however, many homeowners who bought earthquake insurance on their own have been angered when they received claims checks naming their lenders as co-payees.

Mary Crystal, regional manager of Western Insurance Information Service, a Los Angeles group that represents about 125 residential lenders, said, “If it does indeed completely relieve the insurance companies from any potential lawsuit, then we don’t have a real problem with it. However, I don’t know that it does that.”

Hayden decided to introduce the legislation after state Insurance Commissioner John Garamendi dropped a plan earlier this month to take action on the co-payee issue.

Garamendi backed off that plan last week when lenders promised to respond with a lawsuit. Garamendi said such a suit would only continue to hamper the rebuilding effort.