Quake’s Insurance Shocks Reverberate a Year Later : Damage: Many Northridge claims remain unsettled and industry losses have soared. Solutions are elusive.

By the time that Northridge resident Morton Danker and his insurance company are finished wrestling over his earthquake claim, he figures both sides will have spent more than the amount in dispute.

As the United State’s most costly earthquake passes its first anniversary, Danker, 65, and his wife are sick of the fight.

“It’s taken a year out of our lives,” he said. “We’re very close to retirement age, and the prospect now of having to put scarce funds into a lawsuit--it’s terribly emotionally draining.”

When a wildfire burns your roof off or a mudslide takes out your living room, you see at a glance where you stand.

However, the story of the Northridge earthquake, from an insurance standpoint, is the story of hidden damage.

That includes physical damage to wooden beams, steel girders and masonry that doesn’t show up until inspectors look behind the hairline cracks on the walls. But it also includes the emotional damage to quake victims who have been struggling for a year to get back to normal and the slow-to-surface financial damage to insurers.

Indeed, a few days after the earthquake, some experts were predicting insurance losses of between $1 billion and $2 billion. That projection has since ballooned to $10.4 billion, making the Jan. 17, 1994, temblor the most costly urban disaster in U.S. history. And the toll keeps rising. Just this week, Allstate Insurance Co, the state’s second-largest insurer, boosted its loss estimate by $200 million, to $1.5 billion.

Moreover, the reverberations are still rocking the California housing market, where both earthquake and homeowners insurance have become more expensive and harder to find.

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And recent events--particularly this week’s devastating earthquake in Japan and a report by U.S. scientists on the dire seismic outlook for California--will work against quick improvements in the price or availability of earthquake insurance.

The California Legislature and new Insurance Commissioner Charles Quackenbush are groping for solutions. Quackenbush believes that homeowners insurance companies need to be freed from the state law requiring them to also offer earthquake insurance.

He and others have said that the industry--socked with more than $10 billion in claims from what was, after all, only a 6.7-magnitude earthquake--may not survive a much worse event. They are calling on the federal government to adopt a national risk-sharing system such as the proposed Natural Disaster Recovery Act, which would pool reserves from catastrophe insurance premiums nationwide to cover claims from all kinds of disasters, from hurricanes to earthquakes to winter storms.

At the same time, frustrated policyholders have banded into action groups to pressure their insurance companies, and consumer advocates are accusing the industry of orchestrating a crisis in the homeowners insurance market in order to obtain premium increases and duck their responsibility for providing quake protection.

“If there’s no earthquake insurance, are people going to want to live here?” asked Gina Calabrese of the Proposition 103 Enforcement Project, a Los Angeles-based consumer group.

Danker, who has been forced to live in a rental home since the quake, said he has met with a parade of adjusters, engineers and consultants sent by his insurer, 20th Century Insurance Co. He said he also has had to hire his own engineer, consultant and, finally, a lawyer in an effort to reach a settlement that he considers reasonable. The gap has narrowed, but the two sides are still about $70,000 apart, he said.

“There’s no reason in the world the insurance company shouldn’t be able to settle the claim if they’re really trying to resolve it instead of just rebutting me,” Danker said.

A spokesman for Woodland Hills-based 20th Century said the company cannot comment on individual cases but that it has resolved about 94% of the 45,000 earthquake claims it has received. The company estimates that its losses from the earthquake will reach $900 million.

Overall, surveys of insurers by the trade organization Property Claims Services indicate that more than 95% of the 390,000 claims from the Northridge earthquake have been settled to policyholders’ satisfaction.

But that implies that nearly 20,000 claims remain in dispute, or at least uncompleted.

The Insurance Department has received about 11,000 consumer complaints arising from the Northridge earthquake, said Greg Butler, deputy insurance commissioner for policy. He added that the department is working through a large backlog of complaints and is unable to gauge how many of them represent continuing problems.

“There is not an industrywide conspiracy, but there are some individual bad actors out there,” Butler said.

Activist groups have attracted throngs of earthquake victims. A group representing State Farm policyholders claims 550 to 600 members; the Allstate, Farmers and 20th Century groups each claim between 400 and 500 members. The groups hold frequent meetings and share information about insurance laws and strategies for improving settlements.

Frustrated with seemingly fruitless negotiations, a large number of others have filed lawsuits.

On Tuesday, the quake anniversary date, more than 250 policyholders filed a series of related lawsuits in Los Angeles Superior Court, accusing insurance companies and agents of wrongdoing that ranges from “low-balling” of claims estimates to deliberate concealment of potential health hazards from asbestos.

The industry cites genuine concern for its own health.

Fearing that another earthquake could mean bankruptcy, nearly all of California’s largest insurers have tried to reduce their earthquake exposure by either halting or severely restricting their writings of new homeowners and earthquake policies.

When the companies began announcing their moratoriums last summer, Gov. Pete Wilson warned that a lack of fire or homeowners insurance--generally required by mortgage lenders--could bring real estate sales to a halt and wreck the economy.

However, although more than two-thirds of the industry maintains the freeze on new policies, there is little evidence of a crisis afflicting home sales.

“There’s no question that you can obtain fire insurance and earthquake insurance--it’s just that the premiums are astronomical,” said Richard Hartman of D&G; Escrow in Encino. He said home buyers are having a harder time finding coverage, but he has yet to see a home sale fall through because of lack of insurance.

Still, an aide to state Sen. John R. Lewis (R-Orange), sponsor of a bill to remove the link between homeowners and earthquake insurance, said that its primary purpose is to alleviate the homeowners insurance availability crisis; the secondary goal is to reduce insurers’ exposure to earthquake losses.

Quackenbush has said he would not favor de-linkage unless current policyholders are allowed to renew their policies and some provision is made to cover new policyholders.

The new commissioner, whose election campaign was largely fueled by insurance industry contributions, has challenged the industry to propose “creative products” that would help make earthquake insurance available to consumers without exposing the companies to financial ruin.

No companies have come forward publicly with any such proposals, and recent events appear to make solutions even harder to find.

The earthquake that struck the Japanese city of Kobe on Tuesday, killing more than 3,000,is expected to tighten the world’s catastrophe insurance markets, eventually resulting in higher premiums for quake insurance in California.

And last week, researchers at Caltech, USC and the U.S. Geological Survey warned that the Los Angeles Basin may be overdue for a barrage of earthquakes the size of Northridge or larger.

“The whole issue is a crisis,” said Dan Dunmoyer of the Personal Insurance Federation, a trade group representing State Farm and other large insurers. “Do we want to force private carriers into selling a product that we know today they can’t cover?”