Earthquake Claim Extension Bill to Be Reintroduced

Emboldened by a recent multimillion dollar jury award against 20th Century Insurance, a state legislator said Tuesday he will revive a bill to give homeowners more time to file insurance claims for damage caused by the 1994 Northridge earthquake.

Standing before the earthquake-damaged home of Barbara Shugar, whose insurance claim was denied by 20th Century last year, Assemblyman Wally Knox (D-West Los Angeles) urged insurers to support his bill and avoid costly suits by thousands of other policyholders with pending claims. Insurance company advocates at the news conference opposed the bill.

The bill, AB 1120, died on the Assembly floor by a 41-29 vote in May. But Knox hopes it will find new life after a $6.75 million punitive damage award to a Tarzana couple last week by a Superior Court in Los Angeles.

The couple sued 20th Century, headquartered in Woodland Hills, for denying their claim based on a controversial reading of a one-year damage reporting deadline in state law. Lawyers say the verdict may open the way for additional suits against insurance companies.

“20th Century admitted there were 2,000 claims denied on the basis of a one-year limitation on damage claims,” said Knox. “We urge the insurance industry to do the math, to do the right thing, and settle with the San Fernando Valley citizens on an equitable basis.”

According to Knox, future settlements and verdicts could cost the industry billions of dollars more than if companies settle now.

But a phalanx of industry advocates at the news conference voiced their strong opposition to the bill, which they said would unduly increase insurers’ liability, drive up insurance premiums and generally harm California’s economy.

“It’s too open-ended,” said 20th Century Vice President Ric Hill. “Basically what you’re doing is giving people the ability to make claims year after year after year.”

Hill said 20th Century might agree to an extension of the time limit, but not to the indefinite period Knox proposes.

Jerry Davies, a lobbyist for the insurance industry, said his clients, including State Farm, Farmers and Colonial Penn, do not support any change to the one-year time limit.

Last spring, state Insurance Commissioner Chuck Quackenbush blasted the insurance industry, saying the companies were hiding behind an inexcusable interpretation of the one-year statute to avoid paying claims. Shortly afterward, 20th Century sued the commissioner on the grounds that Quackenbush could not make public statements about cases in litigation. Last Friday a judge threw out the lawsuit.

While 20th Century and other insurance companies argue that the year limit begins at the time of the earthquake, Knox’s bill would begin the period when the damage is found by the policyholder. That should be the way the law is interpreted now, he says.

“Delayed discovery is the law in California,” said Knox, arguing that insurance policies, like all written contracts in California, are subject to a four-year statute of limitations. “That’s been the law for decades.”

Knox said he hopes the commissioner will pressure fellow legislators to pass the bill. But he admits he has an uphill battle to get the bill passed.

“Last time we were ambushed by the insurance lobby,” he said. “I still need to convince people to join me in support of this bill. We still have a long way to go.”

After the news conference, Shugar pointed out a maze of fine cracks along the exterior walls of her home. She discovered the damage last year, only after a contractor began remodeling her house. Since then, 20th Century, citing the one-year statute, has refused to pay her claim and Shugar, an HMO administrator, has spent more than $12,000 of her retirement savings to repair her home.

“I’m 62, I was supposed to retire this year,” she said tearfully. “Instead I had to refinance my house--I’m going to be working for a while longer. It just makes me so mad that I had to pay for something that I paid 20th Century to do. I never missed a premium payment and all I’ve gotten from them is aggravation.”