Consumer Group Says SB 658 Will Help Policyholders in Future Disasters Avoid Problems of Northridge Quake, East Bay Hills Fires

Sacramento — Important consumer protection legislation, SB 658 (Escutia) sponsored by the Foundation for Taxpayer and Consumer Rights (FTCR), was signed into law by Governor Davis late Monday. The legislation provides disaster victims and other policyholders with protections against a series of low-balling and delay tactics used by insurers after the Northridge quake of 1994 and other natural disasters such as the East Bay Hills fires.

“Californians victimized by the elements should not be victimized a second time by their insurance company,” said consumer advocate Douglas Heller, with the Foundation for Taxpayer and Consumer Rights. “Under the Quackenbush administration, insurance companies were allowed to extend and manipulate the claims process at a great expense to disaster victims. Only when Mr. Quackenbush and his administration were investigated did we learn the extent of the problem. This legislation rewrites California insurance law to ensure that future disaster victims won’t face the kind of double-whammy that Northridge victims suffered through during the insurance claims process.”

According to FTCR, SB 658 offers practical reforms to an insurance claims process that does not currently provide an even playing field for policyholders in the wake of tragedy. The bill, authored by State Senator Martha Escutia, is the second major reform jointly developed by FTCR and Senator Escutia to respond to the Quackenbush scandal that led to the former Insurance Commissioner‘s resignation. Last year’s SB 1805 requires the Department of Insurance to place examinations of insurance company conduct on the internet for public review.

SB 658 was developed in consultation with other consumer groups, disaster support groups, insurance adjusters, consumer attorneys and the insurance industry. Under the new law:

• The expensive and time-consuming appraisal process becomes voluntary for disaster victims. Currently, insurers can force disaster victims into the appraisal process without their consent. The appraisal process is an extra-judicial arbitration of a claim and typically costs the disaster victim approximately $25,000 out-of-pocket, and sometimes much more. This private setting for assessing the value of a claim often becomes a money pit for many policyholders and a graveyard for many claims. Disaster victims will now be able to opt-out of the appraisal process. The bill leaves the appraisal process in non-disaster claims mandatory, but eases the burden on policyholders by making the process “informal,” unless both parties agree to a more expensive “formal” proceeding. Informal proceedings reduce legal and expert witness costs dramatically;
  

• The Examination Under Oath (EUO) process is reformed to protect policyholders against abusive interrogations, inappropriate and unnecessary questioning and insurance company “fishing” expeditions. The EUO has become deposition-like environment in which insurers treat claimants as though they were criminals, as though every claim was an attempt to defraud the company. Prior to this law, policyholders did not have standard deposition, due-process rights during an EUO. SB 658 affords policyholders rights and protections during this process;
  

• Insurers must maintain a status report when the company rotates adjusters three or more times during a six-month period. This will protect against a delay tactic used by some insurers (and an inefficiency of others) in which adjusters are changed frequently with the new adjuster starting the claims process over at square one rather than building off of previous adjusters’ work;
  

• Consumers will be able to more easily access documents related to their claim. SB 658 requires insurance companies to provide the policyholder with a series of claims-related documents, at the policyholder’s request, which identify important information such as the insurance company’s assessments and evaluations of the damage.
  

• Policyholders must be informed as to their rights to a fair claims process once they file a claim with their insurer. SB 658 requires insurers to provide their policyholder with a copy of the state’s Unfair Claims Practices Act.