Garamendi Cites Examples of Coverage Denial

State Insurance Commissioner John Garamendi, defending new regulations restricting the rights of insurance companies to deny sales based on past customer claims, cited several cases Thursday in which he claimed homeowners coverage had been denied unfairly.

In one case, Garamendi said, a man who moved to San Francisco was turned down for homeowners coverage because he had made a claim for a theft of a bicycle under a renters policy several years before in Baltimore.

In a second case, the commissioner said, a Pacific Palisades woman was turned down for a homeowners policy because she had made a $393 claim on a purse stolen from her while she was visiting Montreal.

Garamendi also expressed concern about a case reported to The Times Thursday by a West Hills woman who said she and her husband had been forced to buy “a substandard policy at three times the normal price” when an insurer discovered that the previous owner of the property had a $5,000 water damage claim in the house the year before.

Lamenting what he said was misuse by insurance companies of a computerized database that contains old claims, the commissioner charged that “an insidious blacklist of homes and individuals is being created” in California in which “whole classes of people are not insurable.”

Garamendi is pushing new emergency regulations that restrict the use of the outside data systems by insurers when deciding whether to offer coverage. This has sparked legal battle with insurers.

Asked to respond to Garamendi’s examples, two big insurers -- Farmers and Safeco -- gave different versions of what happened.

Farmers spokeswoman Mary Flynn challenged the account of the facts in the first example given by Garamendi, of San Francisco resident James Mullarney being turned down for homeowners coverage because of a prior bicycle theft in Baltimore.

Mullarney said in an interview he had first been accepted by Farmers and charged $2,500 last summer in advance as an annual premium.

However, he said, Farmers later demanded that he pay $150 for an inspection of his home, and then informed him the policy sale was being canceled because of the prior $700 to $900 claim he had made for the bicycle theft.

Flynn said Farmers checked back into the matter Thursday afternoon and found that Mullarney had failed to disclose in his application for a policy that he had had two prior claims in Baltimore.

At the time last summer, Flynn said, Farmers did not sell homeowners coverage to people who had prior claims. However, she said, just July 1 of this year, Farmers changed its policy and now will make such sales.

Mullarney responded by insisting that he had never been asked by Farmers whether he had made prior claims.

Meanwhile, Mike LaRocco, chief operating officer of Safeco Personal Insurance, responded in general but not specific terms to an allegation by West Hills resident Jennifer Levinson that she and her husband had been denied coverage because of the water damage claim by the prior owner.

LaRocco said Safeco, which announced Wednesday it has stopped selling homeowners policies to new customers in California, does not disagree with Garamendi that there ought to be indications of future risk, not just past claims, to justify refusals to sell policies.

He said the company is trying to reach a compromise with Garamendi and has not joined three Sacramento lobbying associations in trying to get the courts to stay Garamendi’s regulations, pending a legal review.

LaRocco suggested that Levinson, as a home buyer, could have purchased a computerized report on her home on the Internet for $12.95 and found out if there were prior claims on the property the couple was buying, and therefore possible insurance problems. The computer database, known as CLUE, keeps records dating back five years.

“Incidents of water damage claims have gone up,” the company executive said. “Companies have become concerned, and we want to know whether the past problems have been fully resolved.”

A Sacramento judge Wednesday had denied a stay of the Garamendi regulation, with a spokesman for the Personal Insurance Federation suggesting that denial would be appealed. However, Thursday, the spokesman, Jerry Davies, said it had not been decided whether it would be appealed.