State Probes Insurer on Quake Claims

20th Century Insurance Co. is being investigated by the state Department of Insurance over complaints that the company dealt unfairly with policyholders in connection with the Northridge earthquake, state officials confirmed Tuesday.

The investigation is the first of its type to result from the 1994 disaster.

According to a copy of a letter obtained by The Times, state regulators notified the Woodland Hills-based insurer on May 7 that it was the subject of a “market conduct examination.”

The letter stated that investigators would look into “the manner in which California consumers are treated with respect to [quake-related] claims” and the way the company has processed those claims.

20th Century has been singled out because of an “excessive” number of complaints about it, said department spokeswoman Sheri Inouye. The agency has received complaints from consumers by letter and on its complaints hotline.

The company, which had the second-largest number of claims resulting from the Northridge quake, has a disproportionately high number of unresolved claims referred to the department’s consumer services bureau, said Candysse Miller, another department spokeswoman.

The bureau has been called on to help resolve 138 open claims involving 20th Century, she said.

By contrast, the bureau has intervened on only 11 cases involving State Farm--the company with the largest losses resulting from the Northridge quake, she said.

Overall, 45% of the open claims referred to the division involve 20th Century, she said.

State Department of Insurance officials said that the investigation does not mean 20th Century has done anything wrong. Its purpose is just to “see if they followed the law in handling claims,” said Miller. “Sometimes when claims drag out it’s the company’s fault, sometimes it is the policyholders’ fault,” she added.

If 20th Century is found to have violated the law, the firm could draw state sanctions.

But under state insurance codes, the company must pay the cost of the investigation, regardless of the outcome, Inouye said.

20th Century downplayed the significance of the investigation. “We would expect the Insurance Department to conduct a review after a disaster of this magnitude,” said Rick Dinon, a spokesman for the company. “We believe this is a routine review at least to the extent that anything related to the Northridge earthquake is routine.”

As of Dec. 31, 20th Century had paid out $953.5 million, Dinon said. The company estimates its total quake-related costs at $1 billion, he said.

The company received about 46,000 claims following the destructive temblor. Of those, just 1,200 remain to be settled, 400 of which involve disputes, Dinon said. “We are confident [state investigators] will continue to be satisfied with company’s overall claim handling,” he said.

Market conduct examinations are triggered by a high volume of complaints or individual allegations of misconduct against companies, said Inouye. The examinations are also sometimes conducted randomly to make sure firms are following the rules, Miller said.

However, the examination of 20th Century is unique because it is the only one to result from the Northridge quake and because of its vast scale.

A “larger-than-usual crew” of investigators was dispatched to 20th Century’s office this month to begin the huge task of reviewing the company’s files, she said.

The copy of the letter the department sent asked 20th Century to provide regulators with all claims stemming from the Northridge earthquake and disclose to them the location of all its quake-related files.

Miller said the examination could take months. The company is cooperating, said spokesman Dinon.