CA. Dept. of Insurance Investigation Reveals Massive Wrongdoing by Insurers in Northridge

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Under California state law, the Insurance Commissioner has the primary responsibility of policing insurance companies. At least every five years, and more often if the commissioner deems it necessary, the California Department of Insurance (CDI) must conduct a detailed examination, known as a “Market Conduct Exam,” of every insurance company in the state pursuant to Insurance Code Section 730. During 1997 and 1998, CDI career staff determined that examinations of major companies were needed after the Department received a high volume of consumer complaints as a result of insurer handling of claims that arose after the 1994 Northridge Earthquake.

California law — Insurance Code Section 790.03 — bars insurance companies from a range of unfair claims practices, including undervaluing settlements and not informing policyholders of their entitlements under the insurance policy. The Market Conduct Exams of three companies — State Farm, Allstate and 20th Century — found that these companies had committed massive violations of §790.03. The companies were found to have routinely delayed, denied, low-balled and misled their customers. Commissioner Quackenbush has refused to release these reports, the results of which were revealed in an April 2, 2000 Los Angeles Times article. Commissioner Quackenbush has also rejected FTCR’s request, made under the California Public Records Act, to disclose the exams. State law allows the Commissioner to make the exams public.

According to the Los Angeles Times, The California Department of Insurance found the three companies to have violated numerous insurance claims handling laws in the processing of Northridge earthquake claims. The Department’s investigators and attorneys recommended heavy fines and a remediation fund to repay previously underpaid earthquake victims.

Company Actual number of affected policyholders* Size of Sample Examination* % of Files with

Extrapolated estimate of policyholders defrauded by insurer CDI recommended repayment fund for policyholders* CDI recommended fines against company*
State Farm 117,000 825 Nearly 50% Approxi-mately 57,000 $114.7 Million $2.38 Billion
Allstate Not reported 808 24% Presumed to be thousands $73.7 Million $172 Million
20th Century 46,000 431 75% 34,500 $44.2 Million $819 Million

*Source: Los Angeles Times 4/2/00

Commissioner Quackenbush issued only a $100,000 fine against 20th Century and asked the three companies to make tax-deductible contributions of between $2 million and $6.5 million into private foundations established by Commissioner Quackenbush.

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