‘94 Quake Victims Still Fighting Over Damage Claims

Almost three years after the Northridge earthquake caused the most costly urban disaster in U.S. history, the first among hundreds of insurance claim lawsuits just now are reaching trial and several thousand other quake damage claims remain unsettled outside the courts.

The long wait for resolution has left many homeowners embittered and frustrated as they live in severely damaged houses and deal with lingering uncertainty.

And even a courtroom victory can feel a lot like losing.

Woodland Hills homeowner Roy Liebman knows this firsthand.

In August, a Los Angeles Superior Court jury found 20th Century Insurance guilty of bad faith in handling a claim Liebman filed after the quake damaged his home. The jury awarded him $36,571; a judge tacked on $38,632 for legal fees.

But Liebman hasn’t seen the money because the company is expected to file an appeal.

Liebman had sued 20th Century after the company denied a second quake claim, saying he’d filed it too late. But, as Liebman was to learn, 20th Century’s own claims adjuster concluded that its first appraiser had botched the job, underestimating the total quake damage on his home by about $100,000.

“I just want enough to fix my house,” Liebman says.

Of all the big insurers, 20th Century, based in Woodland Hills, seems to have been hit with the most quake damage lawsuits, about 200 in all. As in the Liebman case, the company, attorneys say, often denied earthquake claims because of a controversial one-year statute of limitations, even when doubts were raised about the accuracy of its first round of home inspections.

The company “has done that hundreds of times,” says Glenn Kantor, a Glendale attorney who has filed 30 quake suits against 20th Century, Allstate, Farmers and others. “They are saying you have no right to rely on what we told you” when an inspector comes out.

“The 20th Century problem is unique. I’m not aware of any company with the volume of situations where the first inspection was so poorly done,” yet follow-up damage claims are denied, says Jeff Lesser, Liebman’s attorney.

“No one was turned away who had a valid claim,” counters 20th Century spokesman Ric Hill. The company has paid out 10 times more for earthquake damage than it ever received from quake insurance premiums, Hill said.

The lawsuits filed against insurance companies vary from allegations of incompetence and mismanagement to intentional low-balling of damage estimates to avoid paying full claims. Many were filed by homeowners, like Liebman, who think they discovered significant damage that adjusters had missed, only to have their claims denied because the statute of limitations had passed.

Together, the suits raise questions about how the industry performed in the wake of an unprecedented natural disaster.

The insurance industry is quick to note that it has already paid out $12.5 billion to cover property damage from the Northridge quake--the second-highest total after Hurricane Andrew--and that about 99% of the 430,000 Northridge damage claims are settled.

But some experts say that many victims received far less than they should have for repairs and that those who are contesting their claims now in court are being put through a legal wringer.

From the first days after the quake, insurance companies badly underestimated their potential losses, and for months afterward, they kept raising their damage estimates, according to Robert Branche, an insurance analyst with the Branche Research Group.

As in any big catastrophe, insurance companies had to bring in out-of-state claims adjusters to handle the torrent of Northridge quake claims, Branche says.

But assessing quake damage is more complicated than fixing the cost of a hurricane, and with claims adjusters from the South and East who’d never seen earthquake damage before, inevitably some policyholders got shortchanged, he says.

“In hurricane regions, they pretty much know what hurricanes can do. But I do not think there are enough people who really have the experience” analyzing quake damage, Branche says.

“In the case of Northridge, a lot of damage claims developed later. . . . In other catastrophes, the damage is more clearly defined than in earthquakes. You clearly know if a roof blows away. You don’t know the significance if a wall is cracked.”

Insurance companies “will know more the next time around,” Branche says.

Others, however, see more sinister forces at work.

After the Northridge quake, insurance companies took advantage of the complex and costly wreckage left behind and manipulated damage claims, says John Metz, president of the Phoenix Business Group, a Santa Rosa consumer advisory firm.

Consumers have a right to expect insurance companies to “investigate the damage, say this is what you’re owed, and here’s your money. And that didn’t happen,” Metz says. In most cases, even those homeowners who got damage payments “settled for far less than they were entitled to.”

20th Century insured a heavy concentration of homes in the San Fernando Valley, and the Northridge quake nearly put it out of business. In 1994, the company lost $498 million, and its finances were so shaky that the Department of Insurance allowed it to phase out of the homeowners insurance business and write only car insurance. A New York insurance company has since pumped in about $225 million to buttress 20th Century’s balance sheet.

So far, 20th Century has paid $980 million in quake damage claims and estimates that its final Northridge damage tab will be $1 billion. Given the company’s current inventory of 790 unresolved quake claims, that would average about $25,000 for each claim.

20th Century spokesman Rick Dinon says the company is settling some cases out of court, through mediation or arbitration. He added that 20th Century is confident that it is following the law when it denies quake claims based on a one-year statute of limitations.

“Without time limits, you’d wind up with unlimited and open-ended liabilities. . . . A year is a very long time” to file a damage claim, Dinon says.

But attorney Kantor says that 20th Century fears reopening and paying off its remaining quake damage claims because if word got out, the company would be swamped with a lot of “me too” claims. “That’s what they are afraid of. They’ve got their finger in the dike,” trying to avoid a flood of new claims, he says.

Lawyers expect one of these homeowner suits to end up in the California Supreme Court and set a clear precedent about time limits on earthquake damage claims.

In the meantime, the legal chess game may take years to play out, and time is not Liebman’s ally. Stuck in a Catch-22, he is in a feverish rush now to finish his quake repairs before his bare-bones home insurance policy expires next spring; if his home still has a lot of quake damage, he won’t be able to get an insurance policy.

Liebman, a librarian, has lived in the same three-bedroom house for 18 years. A few days after the Northridge quake, he filed a damage claim.

20th Century sent out a claims adjuster. But the adjuster said the quake damage didn’t exceed the $15,900 deductible on Liebman’s house. In February 1994, 20th Century said Liebman was entitled to $7,000 for some yard damage from the quake, and the company sent him a check for that amount.

The next winter, Liebman noticed rain pouring into his house and assumed there was quake damage around his chimney. So he called 20th Century again.

The company sent out a new claims adjuster, who concluded that 20th Century’s first appraiser had missed a great deal of damage, and that the total quake repair bill on Liebman’s property was $122,000, not the $21,000 first tallied more than a year earlier.

“We found additional damage to this structure that was not written into the estimate at the time of the original inspection,” the second inspector wrote in an internal memo.

The second adjuster, and a structural engineer, detailed the repairs needed on Liebman’s home: A master bedroom and a living room wall “requires a complete gut-out,” a brick chimney needed to be taken down and rebuilt, a concrete floor slab in a family room “has separated from its concrete stem wall,” plus there was garage damage, a crack in the concrete foundation and stucco and plaster cracks.

But in July 1995, 20th Century rejected Liebman’s new damage claim. It wrote him that the claims adjuster “concluded that your loss was the result of the January 17, 1994, earthquake. Unfortunately, the period of time permitted by law and the policy for reporting your supplemental claim had already expired. . . . Therefore, there is no coverage for your supplemental claim . . . but [we] appreciate the opportunity to have looked into this matter for you.”

So Liebman sued. Three months after the lawsuit was filed, 20th Century changed its mind and sent him an additional $79,000 for quake damage.

Liebman’s policy had a guaranteed replacement provision, and, convinced that he needed a lot more money to restore his house to how it was before the quake, he pushed ahead with his lawsuit.

All told, Liebman has accumulated about $155,000 in damage payments and court awards since filing his lawsuit. His attorney will get about one-third for his contingency fee. But $75,000 of that sum is still up in the air, pending 20th Century’s expected appeal.

Another 20th Century policyholder waiting for her day in court is Josseline Ashkar.

Ashkar, 69, a widow who gets by on Social Security, has lived in the same Arleta house since 1964. Crime is a way of life in her neighborhood, so there is a metal security gate outside her front door. But she raised her three children there, and she plans to stay.

After the Northridge quake, she called 20th Century, and the company sent out a claims adjuster who inspected a damaged block wall in her yard and some cracks in the garage. But he refused to look at any quake damage inside her house, she says.

“I ask him, ‘You going in the house?’ ‘No I’m here just for the outside.’ I don’t know why. Maybe they were too busy,” she says.

She didn’t put any pressure on him. He was the expert. The company then sent her a $4,261 check to cover her yard wall and garage.

Then rain started seeping into her home. Her family called in a contractor, who said it would cost $55,000 to fix all the quake damage, including wall damage between a den and the rest of the house. Ashkar called 20th Century, which sent another claims adjuster, but the company denied her new claim, saying she was too late.

“The house is pretty close to the epicenter. It deserved a good exam. 20th Century’s adjuster declined to come in the house,” says Kantor, Ashkar’s attorney. “She is an invalid who cannot get around easily. She needed help from the insurance company and didn’t get it.”

Arthritis has gnarled Ashkar’s hands; she walks with a cane and wears soft padding on her feet to ease the pain. She looks frail but is ready to testify in court. “The hell with it. I’m willing to go. Absolutely.”

Anthony DeCaro was also turned down when he filed another claim. And he too has filed suit but still is awaiting a court date.

Meanwhile, DeCaro’s Woodland Hills home is like a fossil entombed in amber. He has left virtually untouched the damage scars from the Northridge earthquake. Cracks run like veins across his living room wall, the ceiling sags onto posts, stucco walls are marked with cracks several inches wide, and a 25-foot-tall makeshift plywood and tarp covering fills the hole where a two-story chimney stood until the quake leveled it.

DeCaro, 81, lives alone. He stares at the plywood wall in his home of 34 years.

“At first it bothered me. But I just got used to it,” he says. “It should be fixed.” His daughter says DeCaro is frozen into inaction by memories of the quake and the high cost of making repairs.

DeCaro did get $48,821 from his 20th Century earthquake policy for damage to his home, but his lawyer says the full repairs will top $150,000.

Some attorneys who have filed quake suits hope that a former 20th Century executive will turn out to be their ally in court.

Paul Castellani, 20th Century’s former group vice president of claims, filed a wrongful termination suit against 20th Century in July 1995, claiming he was forced out partly “for his ‘whistle-blowing’ activities” in connection with the company’s quake insurance policies, according to court records.

Castellani’s suit alleged that 20th Century demanded “that [he] utilize unqualified employees from other departments to inspect, appraise, and evaluate claim handling.”

But Castellani “consistently and repeatedly warned his superiors . . . that 20th Century was engaging in illegal and unethical insurance practices which posed danger and harm to both the company and to its insureds. The illegal and unethical practices [included] 20th Century’s . . . earthquake damage coverage,” according to the suit.

Castellani’s allegations are “groundless,” 20th Century says. Nonetheless, the company settled his lawsuit last winter.

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Northridge Earthquake Insurance Claims

The 1994 Northridge quake triggered 430,000 property damage claims. About 99% of them have been settled, with insurance companies paying $12.5 billion in quake damage claims, second only to the $15.5 billion paid after Hurricane Andrew. But hundreds of homeowners have filed lawsuits against their insurance companies over unpaid quake damage claims.

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Fireman’s State Allstate Farmers Fund Farm Number of 46,000 36,594 5,000 120,000 quake-related claims Claims still 1,483 604 100 Under 1% open Quake losses $1.5 billion $1.7 billion NA $2.7 billion to date Quake-related 83 126 Under 12 NA lawsuits

20th Century Number of 46,000 quake-related claims Claims still 790 open Quake losses $980 million to date Quake-related About 200 lawsuits

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NA: Not available

Sources: Company reports and Property Claim Services