Settling Earthquake Claims Is Sound Insurance Policy : Quick resolution would be preferred to lengthy lawsuits

Perhaps the worst thing policyholders can say about their insurance company is that, well, it acts like an insurance company. Although it’s been 3 1/2 years since the Northridge earthquake damaged wide swaths of the San Fernando Valley and the rest of Southern California, hundreds of residents continue to bicker with their insurers over claims that have either fallen through the cracks, been rejected on technicalities or intentionally ignored. So while most of the rest of the Valley has rebuilt and moved on, hundreds of families continue to live in damaged homes with no money for repairs.

That’s no way to serve customers, or even to protect the bottom line. Angry policyholders in recent months have won lawsuits against foot-dragging insurance companies, which have been socked by unsympathetic juries with multimillion-dollar damages far exceeding the original claims. Big judgments in cases from Santa Monica, South Los Angeles and Tarzana ought to prompt insurance executives to carefully review their files and work out fair settlements where appropriate. And customers ought to accept them. Regardless of the outcome, no one truly wins when a case lands before a judge or jury.

To their credit, the vast majority of insurance companies reacted quickly after the January 1994 quake. Their prompt payments--along with huge infusions of federal disaster money--helped restore relative normalcy to the Valley in record time. Overwhelmed by both the size and number of claims, some companies teetered on the brink of insolvency as they honored commitments to policyholders. The crisis was so severe that most firms simply stopped offering new homeowners insurance policies. That’s why the state created the California Earthquake Authority, which offers pared-down coverage at prices beyond what most homeowners paid before the quake.

But that does little to help those customers with claims or lawsuits still pending under old policies. Many of the lawsuits focus on the way insurance companies interpret a state law that limits the time in which a claim can be filed to one year--even if damage is discovered later. Clearly, strict interpretation of the law is unfair because much quake damage reasonably could not be detected until repair work actually began. Bills to extend the time period have failed in Sacramento, but that should not stop companies from acting on their own to do the right thing and honor legitimate claims on damage discovered late. It’s the right thing for customers who diligently paid their premiums. And given the size of recent jury awards, it’s the right thing for insurance companies’ bottom lines.