State Farm Quake Policy Suit Settled

A Sherman Oaks couple who alleged that State Farm Insurance defrauded earthquake policyholders have settled their lawsuit for an undisclosed amount of money.

State Farm continued to deny any wrongdoing.

Krista and Roderick Taylor had accused State Farm of forging customer forms and cheating policyholders out of claims arising out of the Northridge earthquake.

The Taylor case was the latest in a series of lawsuits alleging misconduct by insurance companies in handling earthquake claims.

Last week, Farmers Insurance agreed to pay clients $10 million to settle claims over earthquake damage. Last month, a Los Angeles jury returned a $7.2-million judgment against 20th Century Insurance, a case in which homeowners claimed they had been cheated out of earthquake insurance coverage.

Under the 65-page draft agreement, State Farm, the largest insurer in California, denies the company has “any program involving forgery, fraud or any misbehavior that could harm policyholders,” according to a statement issued by both sides in the case.

According to the statement, the agreement will end the case, but the amount paid to the Taylors was not disclosed.

“I am very happy that we are working toward a resolution,” said Bernie Bernheim, lawyer for the Taylors. “With the accumulation of all this [evidence], there comes a point when the defense has to think they are just not going to win,” he said.

State Farm attorneys would not comment on the agreement except to say that it was only a few signatures away from becoming official. Bill Sirola, a spokesman for the company, said State Farm officials were also pleased that a resolution is within reach.

In preparing their case, lawyers for the Taylors collected documents and allegations against State Farm. The strongest, Bernheim said, was the affidavit of Amy Zuniga, a former State Farm paralegal who worked in the company’s regional office in Newbury Park in Ventura County. Sworn testimony included accusations that State Farm forged earthquake coverage declination forms and cheated policyholders out of claims arising from the temblor.

According to Zuniga’s declarations, she was aware that there were many claims arising out of the Northridge earthquake “involving unauthorized signatures by State Farm agents.”

Two days after those statements were filed, State Farm sued Zuniga for allegedly revealing trade secrets and violating a “code of conduct” she had signed while working in State Farm’s litigation department. State Farm also sought an injunction from the court to silence Zuniga.

On May 16 Los Angeles Superior Court Judge Aviva Bobbdenied the injunction and threw out State Farm’s lawsuit on grounds that the action was intended to punish and prevent Zuniga from revealing State Farm’s alleged criminal practices.

“State Farm simply runs the risk of its alleged fraud being exposed,” the court ruled. “State Farm has not demonstrated the falsity of Zuniga’s allegations.”

At one point, the company asked an appellate court to seal the file, but was rebuffed by a judge who decided, in part, that “to preclude disclosure of information . . . would work a fraud or injustice.”

Stephen Prater, a Santa Clara insurance lawyer who has served as an expert against State Farm in several lawsuits around the country, said the impact of the Taylor case will probably be felt for years to come. Zuniga’s declarations, he said, have now become part of a canon of court papers circulating through a loose network of lawyers around the nation who are fighting State Farm.

“I think we’ll see more whistle-blowers,” said Prater, who believes Zuniga’s testimony may embolden other State Farm employees to come forward with allegations of wrongdoing. Sources inside the company say State Farm’s defense bills alone will be more than $2 million.