Quake Insurance Firms Ask Court to Put Law on Hold

Fearing a flood of lawsuits, California’s insurance industry Wednesday challenged the constitutionality of a new state law that allows Northridge earthquake victims to reopen claims against their insurers.

In a petition to the California Supreme Court, the industry asked for an order stopping the law from taking effect until its constitutionality can be decided.

It argued that the law, which grew out of the scandal that forced Insurance Commissioner Chuck Quackenbush from office, violated the sanctity of contracts by extending the time period for possibly hundreds of thousands of earthquake policyholders to file claims.

Most of the earthquake policies, the industry’s petition said, had a one-year statute of limitations, giving homeowners only a year after the 1994 quake to sue insurers over the handling of their claims. The new law allows them an additional year, giving them from Jan. 1, 2001, to Jan. 1, 2002, to revive their claims.

“This unconstitutional abuse of government power poses a threat to the stability of every commercial enterprise in California,” the petition said.

Industry lawyers said they bypassed the lower courts in hopes of preventing “a yearlong tidal wave of litigation.”

The organizations filing the petition represent nearly every facet of the state’s insurance industry. They include the Assn. of California Insurance Companies, the Personal Insurance Federation of California and the National Assn. of Independent Insurers.

“We are hopeful . . . the court will recognize the far-reaching and unlawful nature of” this law, said Sam Sorich, vice president and Western regional manager of the independent insurers.

Lawyers who have represented victims of the 1994 quake predicted that the court challenge would not be successful, because the law addressed only the statute of limitations and not the substance of contracts.

“The U.S. Supreme Court has held for almost 55 years that the right to regulate statutes of limitation is left to the power of the states,” said Brian Kabateck, a Century City lawyer who has handled more than 300 lawsuits related to the Northridge quake.

Kabateck said the courts are likely to consider the circumstances surrounding the passage of the new law and the fact that the Legislature was responding to Quackenbush’s failure to protect Northridge policyholders.

The law was proposed by state Senate President Pro Tem John Burton (D-San Francisco) after revelations that Quackenbush had reached secret agreements with insurance companies, absolving them of any wrongdoing in their handling of Northridge claims--despite his department’s own studies showing that thousands of claims may have been low-balled or otherwise mishandled.

The agreements required six companies to make payments to nonprofit foundations that Quackenbush created. Funds from one of the foundations were used to pay for television spots featuring Quackenbush and designed to enhance his political image. At the time, the commissioner was considering running for higher office.

Quackenbush left office in disgrace in July. Earlier this week, Atty. Gen. Bill Lockyer and Quackenbush’s successor, Harry Low, asked a state court to dissolve the secret agreements.

“Quackenbush utterly and completely failed in his responsibility to policyholders, and this law was in direct response to that,” Kabateck said.

Bernie Bernheim, a Los Angeles lawyer who has represented Northridge victims, said the industry had taken part in “back-room deals” with Quackenbush and now is attempting to use the courts to prevent earthquake victims from getting further consideration of their claims.

“I think the courts are going to look at the equities here,” he said. “I think the courts are going to feel an obligation to help the victims.”