State Offering Mediation Services to Settle Disputed Quake Claims

Homeowners who have been at odds with their insurance carriers since the Northridge earthquake will soon have somewhere to go other than the courts to resolve disputed claims--a mediation program to be launched Monday by the state Department of Insurance.

The two-year pilot program will initially target about 300 policyholders who have already filed complaints with the Department of Insurance, said David Stolls, chief of the department’s Claims Services Bureau.

But other property owners with insurance grievances stemming from the January 1994 Northridge earthquake who have not yet sought state intervention, as well as those whose claims arise out of future earthquakes, will also be eligible for mediation if they complain to the department, Stolls said.

“There are 300-plus complaints we have pending and many of them have been pending for some time,” Stolls said, adding that his office has handled a total of 2,500 disputes since the Northridge quake.

“But there are other claims out there still outstanding that we don’t know about.”

The only cases ineligible for the program are those already involved in lawsuits and disputes over an area of “major coverage,” such as whether a claim was filed within the amount of time required by a policy.

For property owners, the program is voluntary. But insurance companies will be compelled both to participate and to bear the cost of mediation if their customers opt to go through the process. Under the terms of the program, the cost to the insurers would be a maximum of $400 per complaint.

As a result, the state is giving the carriers a 28-day grace period to resolve disputes with consumers on their own before sending unresolved cases to mediation, Stolls said.

First, the department plans to contact all carriers with unresolved complaints pending, and give them 28 days to resolve the issue. After that, if it is still unsettled, the policyholder will be notified that mediation is available. New quake-based complaints against insurers will go through the same process.

The Insurance Department has contracted for the services of about 40 professional mediators to staff the program. Stolls noted that although the mediators cannot force the two parties to reach a settlement, the state of Florida established a similar program in the wake of Hurricane Andrew and “the vast majority of cases were resolved.”

The California program was created under a law sponsored by state Sen. Herschel Rosenthal (D-Van Nuys), which was approved by the Legislature in October. An aide to Rosenthal said Monday that the senator was motivated by the stories of San Fernando Valley homeowners whose homes remained damaged more than a year after the Northridge quake because their insurance companies refused to cover the cost of repairs.

Stolls said that even though the Insurance Department has succeeded in persuading carriers to settle some cases voluntarily, the agency lacks the authority to force companies to pay claims unless legal violations are involved. Cases that the department can’t settle, therefore, frequently end up in court, he said.

In establishing the mediation program, Insurance Commissioner Chuck Quakenbush said he hoped it would provide another, less expensive and less aggravating avenue.

Stolls said the unresolved claims in the department’s files now are all “very complex.” Some involve disputes over whether damage was in fact caused by the earthquake, while others center around whether or not asbestos discovered during the course of repairs needs to be removed, he said.