Battles Raging as Final Earthquake Claims Get Filed

By HOWARD FINE

Staff Reporter

Nearly eight years after the Northridge earthquake, California insurers are bracing for what could be a final flurry of thousands of claims from the 1994 temblor as a state-granted extension to reopen old claims expires on Dec. 31.

Yet that very extension is the subject of an intense legal battle being waged by trial attorneys and insurance carriers that could result in either thousands more claims being brought or most of the just reopened claims being dismissed.

Prompted in part by an aggressive marketing campaign by local law firms, several thousand property owners already have reopened claims against their insurers. In the first nine months of this year, 1,200 claims were reopened against 21st Century Insurance Group alone, and several hundred more are expected to be reopened in the closing weeks of the year.

Similar figures are expected from other major carriers, including Farmers Insurance Group, State Farm Insurance and Allstate Insurance.

The extension is the result of a law that was passed in the wake of the scandal last year involving former state Insurance Commissioner Charles Quackenbush. Quackenbush resigned after allegations arose that he misused insurer settlement funds for his own political gain.

“The money we’re talking about here is in the hundreds of millions of dollars,” said Brian Kabateck, partner with the Century City law firm of Quisenberry & Kabateck LLP and one of the authors of the state extension.

Class-action lawsuits

What’s more, several local attorneys have class-action lawsuits pending that could open the doors for thousands more claims, even after the Dec. 31 deadline. They say too many property owners don’t know about the extension or have simply walked away from their properties altogether.

“The vast majority of property owners that would be eligible for this bill simply don’t know about it and that’s why we’re trying to get the class action certified,” said Encino attorney Howard Snyder.

Insurance carriers, though, are challenging the constitutionality of the one-year extension. They have appealed their case all the way to the U.S. Supreme Court; if they prevail, many if not all of the claims that have been reopened in the past year could be summarily dismissed.

“We believe this law sets an unfortunate precedent that any contract between an insurer and the insured can be voided by legislative fiat,” said Martin Cooper, spokesman for 21st Century Insurance.

The insurance industry also maintains that the vast majority of claims arising out of the Northridge quake have been adequately addressed.

“You will always have a few people who are not satisfied. But there are hundreds of thousands of people who filed claims and are satisfied with the results,” said Candysse Miller, executive director of the Insurance Information Institute of California, a trade group. “These reopened claims are only one-half of one percent of all the claims.”

At the center of this dispute is the one-year extension.

In the months following the Northridge quake, 600,000 property damage claims were filed, one of the largest totals in U.S. history from a single disaster. At the same time, complaints streamed in from property owners and trial lawyers that insurers had been “lowballing” and stalling on quake claims until the one-year statute of limitations ran out allegations denied by the insurance carriers.

Quackenbush’s staff investigated many of the claims and recommended multi-million dollar fines against several insurers.

But Quackenbush instead reached settlements with insurance companies that required them to make much smaller contributions to nonprofit foundations that he had set up. Those foundations, in turn, helped finance public service ads featuring Quackenbush and charities in which he had a stake, like a $500,000 contribution to the Sacramento Urban League.

When these settlements and foundations were revealed in the press, they sparked numerous state conflict-of-interest and corruption investigations, ultimately prompting Quackenbush to resign and relocate to Hawaii.

Law creates extension

To give relief to homeowners who believed they had been deprived of due process in having their claims considered, state lawmakers passed AB 1899, allowing claims to be reopened for a year.

Under the law, a claim now can be reopened if it was initially barred because the statute of limitations had run out one year to the day of the quake or a settlement had been reached in which the property owner was not represented by legal counsel. As a check on totally new or fraudulent claims being submitted, the law states that the claimant had to have made contact with the insurance company within that first year.

However, in a victory for the insurance industry, the law did not require either the insurance companies or the state to inform property owners that they had a one-year window to reopen claims. That’s one reason why Snyder and other attorneys representing quake victims are pushing for class-action status.

It’s also why law firms have mounted a direct mail and local media ad campaign in recent weeks targeting San Fernando Valley and Westside homeowners.

The biggest challenge in reopening claims, though, may lie in demonstrating them.

“A number of people came to us with claims that would be very difficult to prove,” said Evangeline Garris, an associate attorney with the Claremont law firm of Shernoff, Bidart & Darras. “The more time that has passed, the more difficult it is to prove that the damage was indeed caused by the Northridge quake. Repairs have been made, properties have changed hands and often the damage may be due in part to other factors.”

Garris said she has only accepted two individual cases of reopened claims and has one more case she is preparing against the insurer of a condominium complex.