Reports on Quake Claims Made Public

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Insurance: Confidential records released by state Senate leaders show 20th Century, State Farm and Allstate mishandled hundreds of cases.

Los Angeles Times

SACRAMENTO–State Senate leaders Monday released confidential state reports showing that three of the nation’s largest insurance companies–20th Century, State Farm and Allstate–mishandled hundreds of claims following the Northridge earthquake.


Sen. Martha Escutia (D-Whittier) said she was taking the unusual step of disclosing confidential documents because it was the only way to make public how companies had treated their policyholders after the 1994 disaster. Escutia would not reveal where she obtained the documents.


Republican state Insurance Commissioner Chuck Quackenbush, who commissioned the reports, has insisted they are secret. But in his dealings with insurance companies, he threatened to make the studies public if the companies did not agree to settlements requiring millions of dollars in payments to nonprofit foundations.


 Senate President Pro Tem John Burton (D-San Francisco), who supported Escutia’s decision to go public with the information, said the reports clearly showed that insurers had “complicity” in the scandal enveloping Quackenbush.


“This is fairly damning stuff,” Burton said after the hearing. “It indicates that there was a pattern and practice of bad faith and deception on the part of major insurance carriers who may or may not have been patrons of his reelection.”


The foundations, now under investigation by two legislative committees and Atty. Gen. Bill Lockyer, used the settlement money to finance ads featuring the commissioner, conduct political polling and make contributions to organizations associated with him. None of the money was spent on earthquake research, as the companies had been promised by Quackenbush.


As a result, both Republican and Democratic lawmakers have said pressure is mounting for Quackenbush either to resign or face impeachment. “Should Quackenbush step down? I think he should, I really do,” state Sen. Cathie Wright (R-Simi Valley) said Monday.


The decision to release the state claims examinations came under immediate fire from angry insurance company officials, who accused the senators of an “egregious act” that violates one of the very laws the Legislature passed. Under California law, the surveys, called market conduct examinations, are confidential unless the commissioner chooses to make them public.


“Sen. Escutia has placed herself above the law today while at the same time criticizing others in these hearings as placing themselves above the law,” said Jerry Davies, a spokesman for the Personal Insurance Federation, a trade group that represents homeowner, automobile and earthquake carriers.


James Mattesich, an attorney for State Farm Insurance, said Escutia had kept her intentions to release the reports quiet so that insurers were precluded from seeking court action to stop the disclosure.


Escutia said she believes her rights as a lawmaker to obtain information from agencies the Legislature oversees supersede “any confidentiality statute.”


“Our job is to find out whether or not insurers committed large-scale violations of claims handling laws . . . after Northridge and whether . . . they were subjected to appropriate disciplinary action,” she said. “Without those exam reports, it is literally impossible for this body to do its job.”


Escutia said now that she has seen the exams, it is clear Quackenbush was not truthful when he described them as showing mostly technical violations. Nor, she said, had the contributions to the foundations been adequate punishment for the claims handling violations uncovered by examiners.


The surveys, reported in The Times two months ago, concluded that 20th Century, State Farm and Allstate had repeatedly low-balled claims, failed to inform policyholders of their benefits and forced many claimants to sue to get full payment.


An analysis of the reports by Douglas Heller of the Foundations for Taxpayer and Consumer Rights found that State Farm failed to properly explain benefits or misled policyholders in 37% of the 825 claim files that were reviewed in the report. In the case of 20th Century, he said the exam showed that policyholders were low-balled in 32% of the 432 files examined.


Allstate improperly deducted the cost of wear and tear on possessions, he said, in 16% of the 808 files that were scrutinized.


In testimony before the Assembly Insurance Committee, Quackenbush‘s deputies have said they ordered the examinations after a flood of complaints from policyholders. Although companies paid more than $16 billion in claims, auditors conducted their examination by reviewing only a sampling from each insurer.


William Sirola, a State Farm official, insisted the reports gave an unfair picture because the settlements stopped them from being completed. He said in their final form they would have included the companies’ reaction to each finding. He said State Farm officials, for example, believe they can refute each of the conclusions reached by examiners.

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