Bill Protecting Homeowners on Claims Fails

Amid heavy lobbying by the insurance industry, California lawmakers rejected one of the few consumer-protection measures that emerged from the 2003 wildfires in Southern California.

The legislation would have prohibited insurance companies from dropping customers simply because they filed a claim, a so-called “use it and lose it” scenario that an increasing number of homeowners have complained about, state officials say.

But despite winning approval in the state Senate with relative ease earlier this year, the legislation got only six votes Wednesday in the business-friendly Assembly Insurance Committee. It needed nine to advance.

“There is going to be a major problem in the Southern California firestorm area as a result of this,” said Insurance Commissioner John Garamendi, sponsor of the legislation. “We already are seeing homeowners being non-renewed as they try to build their homes and are facing significant surcharges.”

The insurance industry said the legislation would have forced companies to accept policyholders with a high number of claims and would have required premium increases across the board. And it said that, by adding another requirement for an already heavily regulated industry, the measure would have discouraged insurance companies from entering the California market.

Sen. Martha Escutia (D-Whittier), author of the measure, had significantly narrowed the legislation to appease Democratic committee members concerned that it would force up insurance premiums, but the bill was rejected anyway.

Insurance companies have donated $525,188 to the 17 members of the Assembly Insurance Committee in the last year, according to the Foundation for Taxpayer and Consumer Rights.

“It’s the same thing that happens to me time and time again in that committee,” Escutia said, “and that is that the chokehold insurance carriers have on that committee can be insurmountable.”

Modeled in part after a Texas law, the California legislation was one of four insurance-related measures that emerged after the wildfires last year. The fires have resulted in about 19,000 claims expected to require more than $2 billion in payouts from insurance companies, the industry estimates.

With the Escutia measure dead, three other bills that emerged after the fires remain alive in the Legislature. They would extend the amount of time homeowners had to rebuild and still receive insurance settlements; establish a mediation program in the Department of Insurance to resolve problems; and prohibit insurance companies from deducting the cost of labor when determining a settlement -- unless the customer agreed in writing.

The original measure would have prohibited insurance companies from adding a surcharge or dropping customers who made two or fewer claims over a three-year period. Escutia narrowed the measure to apply to government-declared disasters such as the Southern California fires and to weather-related damage.

The insurance industry still objected.

“What they did leave in the bill is weather-related claims. That’s still 50% to 70% of all claims,” said Dan Dunmoyer, president of the Personal Insurance Federation of California, which represents nearly half of the homeowner insurance carriers.

Dunmoyer nevertheless said the percentage of policyholders who were not renewed was extremely low, less than 1% among most carriers.

Some fire victims from Southern California were upset about Wednesday’s vote, particularly because eight lawmakers on the Insurance Committee were present but refused to vote at all.

“I was very disappointed they would not look us in the eye and ran out of the room and let it die by not voting,” said Rebecca Huston, 42, a TV producer who lost her home to fire in the Lake Arrowhead area.