Candidates Side With Policyholders : Quake: Contenders for insurance commissioner want victims, not mortgage lenders, to control claim proceeds.
No matter who wins the November race for state insurance commissioner, thousands of angry earthquake victims will gain a valuable new ally on at least one controversial issue.
Both candidates for the post, Democratic state Sen. Art Torres and Republican Assemblyman Charles W. Quackenbush, agree with owners of damaged homes and businesses that their mortgage lenders should have no control over how they spend the insurance proceeds.
Mortgage lenders have insisted that insurers make out quake insurance checks to them, as well as to policyholders, so the lenders control how homeowners spend the proceeds.
Many homeowners, particularly those not required by their lenders to carry quake coverage, want the freedom to spend the money as they choose.
Similar disputes arose after the 1991 Oakland fire, but it has never been legally settled.
With more than $7 billion in insurance claims pending, a brewing legal battle could finally decide the issue. A San Fernando Valley-based consumer group is threatening to sue dozens of insurers and lenders to force them to back down.
The nonprofit Citizens Against Unfair Treatment by Insurance and Mortgage Companies has sent letters to dozens of insurers and lenders, putting them on notice that they face a lawsuit unless they back down.
The issue raises the hackles of both Torres and Quackenbush.
“It’s a serious problem when people are trying to get their lives back together and they continue to be victimized by banks, insurance companies and mortgage companies,” said Torres, chairman of the state Senate insurance committee.
If the consumer group makes good on its threat, both candidates said they are resigned to a tough court battle.
“Lenders should be helping quake victims instead of fighting them on shaky legal grounds,” Quackenbush declared. “I don’t see that they have a leg to stand on. Mortgage companies that are trying to get a foot in the door now ought to have been courageous enough to put something specific in their contracts to begin with.”
Incumbent Insurance Commissioner John Garamendi did not seek reelection in order to run for governor in this spring’s Democratic primary. He lost to state Treasurer Kathleen Brown.
Garamendi was also unsuccessful in his attempt to settle the payout conflict peaceably. He said he gave up after insurers and lenders threatened to go to court--and withhold all payments to quake victims until the issue was resolved.
Both Torres and Quackenbush said they would have taken a tougher stand.
When the problem first surfaced after the Jan. 17 temblor, “I would have issued a regulation and let them (insurers and lenders) take me to court,” Torres said. “Instead, now homeowners have to pay for their own attorneys, go through a lawsuit. It’s another victimization.”
Quackenbush said: “The current commissioner jumped into this thing as some type of honest broker, but I don’t think he needed to get into the argument. I would insist that the insurance companies pay off to homeowners. I don’t think anybody should be able to bully their way between an insurer and a policyholder.”
He said the threat to withhold insurance payouts was empty. “Threats don’t work real well with me,” Quackenbush said. “The insurance commissioner can’t give in to threats from any industry. You have to be tough, have to stand your ground and do the right thing.”
Quackenbush said that unless lenders insist homeowners carry quake coverage, they have no right to the proceeds, though he conceded, “In those cases where a lender has required earthquake insurance, the argument isn’t quite as strong.”
Most banks and mortgage companies don’t make quake insurance a condition of their loans, as they do with fire insurance.
Banks and mortgage companies contend they have the right to protect their financial interest in quake-damaged properties that are used to secure their loans to homeowners.
They fear that on their own, quake victims who have waited months for their insurance checks may use the cash to pay bills that have piled up or meet other expenses.
“If somebody wants to abandon a piece of property, there are other legal means of going after a person who walks away from their contractual obligations,” Quackenbush said.