Wildfire Complaints

Revised: 09/22/2006

One year after California fires, widespread insurance complaints

ELLIOT SPAGAT
Associated Press

SAN DIEGO - More than 22 percent of homeowners who sought money from insurance carriers after losing homes in last year's Southern California wildfires have complained to the California Department of Insurance - 20 times higher than the normal rate of complaints.

The agency, in a report to be issued Monday, says 316 of the 676 complaints it fielded by Oct. 4 concern inadequate coverage. These policyholders say insurance companies and their agents misled them about how much they would need to replace their homes.

About 3,000 homeowners claimed a total loss of their homes in the October fires, the worst in modern California history.

Insurance Commissioner John Garamendi said he would investigate six companies with the highest percentage of complaints, including State Farm Insurance Co., The Allstate Corp. and the Farmers Insurance Group of Cos.

"While some of this increase can be caused by the extra publicity resulting from the wildfires, it is these spikes that indicate that a major problem has occurred in the market that must be investigated and addressed," the report said.

The department typically has fielded one complaint for every 100 claims filed. For example, California drivers submit at least 1 million auto insurance claims every year, resulting in only about 10,000 complaints to the regulator.

After last year's fires killed 24 people, burned 740,000 acres and destroyed more than 3,600 homes, hundreds cried foul, particularly those who bought what was billed as "full replacement" or "extended replacement" coverage. Garamendi and others speculated that agents deliberately undervalued homes in an effort to offer lower premiums - and sell more policies.

Insurance companies have resisted Garamendi's overtures to guarantee replacement costs when they write policies, arguing that it is ultimately a homeowner's job to determine adequate coverage. Garamendi
challenged industry executives at a daylong hearing in San Diego last week during which he questioned them about their sophisticated techniques for calculating replacement costs.

"If they are going to make an estimate, then they must be responsible for the accuracy of that estimate," Garamendi said Sunday in an interview.

The report comes within days of a deadline for policyholders to file lawsuits over disputed claims. Garamendi's attorneys argue that insurance companies should suspend the deadline while insurers conduct their own investigations. One plaintiff's attorney, Jerry Ramsey of Los Angeles, said last week that he expected to have filed 220 lawsuits by Monday about inadequate coverage limits.

Garamendi said he would investigate Farmers, Allstate and Century National Insurance Co. for claims handling and underwriting practices. He identified three others for underwriting practices only: State Farm, First American Corp. and Travelers Group.

Garamendi said penalties can range from a $10,000 fine for each offense to loss of license.

Here's a breakdown by company, with the number of claims submitted, number of complaints filed for claims handling, and number of complaints filed for underwriting practices:

- State Farm: 4,431 claims, including 611 for total or major loss; 32 complaints for claims; 90 complaints for underwriting.

- Allstate: 3,188 claims, including 487 for total loss; 58 complaints for claims; 65 complaints for underwriting.

- Farmers: 3,674 claims, including 491 for total loss; 45 complaints for claims; 47 complaints for underwriting;

- First American: 410 claims, including 67 for total loss; 13 complaints for claims; 10 complaints for underwriting;

- Century National: 406 claims, including 74 for total loss; 13 complaints for claims; 13 complaints for underwriting.

- Travelers: 184 claims, including 33 for total loss; three complaints for claims; six complaints for underwriting.

An online information service of the United Farmers Agents Association, Inc.