It’s Time for Quake-Claim Relief

On a long, hot day last summer, the insurance industry lobbyists in Sacramento earned their money.

While the California State Assembly debated legislation to help victims of the Northridge earthquake get claims paid, a group of insurance company hired guns pulled out all the stops to persuade lawmakers to oppose the relief measure.

When the dust settled, the lobbyists had succeeded in stalling an important bill, leaving it 12 votes short of passage.

The issue that day was a bill I authored to assist victims of the Northridge earthquake whose claims for damage had been rejected by their insurers because the damage was not discovered within 12 months after the quake.

Many homeowners initially failed to discover complex, difficult to see structural damage, only to realize later the extent of the destruction. Even worse, many were told by adjusters that the damage fell below policy deductibles. Taking bad advice from insurance companies, many consumers did not file claims within the one-year time frame. When hidden damage was found later, the insurance companies told them it was too late.

My bill to fix this problem is eligible for one final State Assembly vote that must be taken this week. It’s time for my colleagues, especially those who represent the earthquake-prone San Fernando Valley, to decide which side they are on.

My proposal would make clear in state statutes what the courts have already ruled: that the normal one-year statute of limitations for standard homeowner insurance policies cannot be applied to hidden-damage claims. California courts have asserted that the statute of limitations does not begin to run until hidden damage is actually found by the policyholder, or at least until the policyholder should have discovered it.

By reinforcing in the code books that the statute of limitations does not start until hidden damage is discovered, my bill could protect Northridge victims who have not discovered damage but may yet do so. The proposal would require consideration of claims up to 10 years after an earthquake, giving victims ample time to discover hidden damage. It would also ensure that victims of future disasters would not be subjected to similar unfair treatment by insurers, and it would offer a legal life preserver to many Northridge victims caught in this bind. The law cannot promise that their claims will be paid but it could and should ensure that their cases are considered.

Approximately 500 lawsuits have been filed against homeowner insurance companies for nonpayment of claims for hidden damage posted after the 12-month cutoff. Just last summer, two highly publicized cases were won by policyholders, both awards exceeding $7 million. Both cases are being appealed.

Clearly, the Northridge earthquake shook the insurance industry to its core. Some companies ignored pertinent case law and instead decided after the fact that the statute of limitations on claims began the moment the quake struck and ran out one year later. Many policyholders were not even notified that the claim filing period was limited. Little did they know that their insurance company had rigged a system to do the opposite of what they thought they had been paying for. Twentieth Century Insurance has admitted to refusing 2,000 claims on the basis of a one-year statute of limitations. Other insurers, including Allstate, Farmers, Fireman’s Fund, Prudential, State Farm and Transamerica, have not disclosed how many claims they have denied.

At a hearing state Sen. Herschel Rosenthal (D-Los Angeles) and I held, a lobbyist representing the Personal Insurance Federation boasted that 99.2% of all Northridge claims were handled satisfactorily. Therefore, he argued, there is no need for corrective legislation. Yet in their scare tactics to persuade legislators to vote against my bill, the industry claims that the economic effect of paying these few remaining claims would be so severe as to cause dramatic premium increases.

Common sense says that it must be one way or the other. If the number of claims in dispute is insignificant, then why not pay them and provide homeowners with the services they are entitled to? If, on the other hand, the damages are great, we have paid for that protection with our premiums.

This month marks the fourth anniversary of the Northridge disaster. I still vividly remember how my wife and I ran to gather our children under the protection of our bedroom door frame. Most of us have been able to put that frightening day behind us and get on with our lives. But for those unfortunate people whose homes suffered extensive damage and who have not been compensated fairly by their insurers, the nightmare never ends.