High Court Turns Down Quake Insurance Case

The U.S. Supreme Court on Monday turned away the insurance industry’s challenge of a California law that gave thousands of property owners a second chance to claim damages from the 1994 Northridge earthquake.

“Obviously, we’re disappointed,” said Fiona Hutton, a consultant with 21st Century Insurance Co., formerly known as 20th Century, which asked the high court to hear a case involving a Culver City homeowner. The court refused the request without comment.

Under most homeowners’ insurance policies, policyholders had just one year to file quake-related claims. But years after the deadline, some homeowners discovered serious structural cracks or other damage that might have been caused by the magnitude 6.7 temblor.

Insurance companies told policyholders it was too late to file claims, even if an adjuster had examined their homes in 1994 and assured them that no quake damage had occurred. In response, the Legislature passed a measure that gave those policyholders one more year to file claims after finding damage. This second-chance option expired at the end of 2001.

More than 1,000 lawsuits were filed in Los Angeles Superior Court that contained new claims of quake damage. It could not be determined Monday how many claims remain unresolved. The lawsuits were brought against numerous insurance companies.

Hutton said 21st Century had set aside $70 million to pay late claims, some of which have been settled.

Homeowner Linda Ahles, whose case was the basis of the Supreme Court appeal, filed a new quake claim after a termite inspector found severe damage in the crawl space of her Culver City house. In July 1994, an engineer sent by 20th Century had inspected and reported minimal damage.

When Ahles brought her claim in L.A. Superior Court, the insurance company said it should be dismissed. But it lost in that court and in the state Court of Appeal.

Last October, the California Supreme Court refused to hear the insurance industry’s challenge.

Ahles and her attorney could not be reached Monday.

Santa Monica attorney Gary Paul, who represented about 30 homeowners in quake-related disputes with several insurers, said he was surprised that 21st Century challenged the law. He said most states allow policyholders more than a year to file claims for property damage. “Extending the deadline for filing a claim was the only reasonable thing to do,” Paul said.

Insurers say they paid about 600,000 claims totaling $15.3 billion as a result of the Northridge quake. More than $1 billion in claims was processed by 21st Century, Hutton said Monday.

In their appeal to the U.S. Supreme Court, 21st Century lawyers called the state waiver law an unconstitutional, retroactive changing of a contract. They said companies should not be forced to pay belated claims.

“This retroactive legislation, by dramatically upsetting settled expectations, is a wholesale assault on economic rights,” said David S. Ettinger, an Encino lawyer who helped represent 21st Century.

But lawyers representing policyholders said the insurers exaggerated the effect of the law. Moreover, the Supreme Court for more than 200 years has said the ban on retroactive statutes applies only to criminal laws, not civil measures like the insurance regulation.