Farmer’s Insurance & Quake Victims


SACRAMENTO–Insurance Commissioner Chuck Quackenbush signed a confidential agreement absolving Farmers Insurance of any wrongdoing in its handling of Northridge earthquake claims without ever completing an investigation of the company’s settlement actions.

In the agreement, obtained by The Times, Quackenbush pledged to stop a Department of Insurance examination of the company’s Northridge claims actions and not to levy fines or penalties for its performance after the earthquake. Even if future evidence of improper claims handling were to be uncovered, “there will be no regulatory action by the commissioner,” the agreement said.

In return, Farmers promised to donate $1 million to an educational foundation run by political allies of the commissioner. And eight months after signing the agreement, Farmers contributed $10,000 to the political accounts of the commissioner, who used it to help repay a personal loan made by his wife to her failed state Senate campaign.

“I’ve never heard of anything like this in my life. I’m trying to say something printable here,” said state Sen. Martha Escutia (D-Whittier) who is a lawyer and who reviewed the agreement. “It gets [Farmers] free and clear of liability, even if the insurance commissioner finds out later they have done something wrong.”

In several interviews, Quackenbush said that because more than five years had elapsed since the 1994 Northridge earthquake, he felt pressure to settle with Farmers–even without a formal investigation–to protect consumer interests.

A spokesman for Farmers said the company agreed to make the $1-million contribution after the Department of Insurance’s chief legal counsel, William Palmer, “confronted us with some preposterous allegations . . . that were based on no evidence.”

The allegations were contained in a proposed order to fine the company $450 million for mishandling Northridge earthquake claims.

The proposed order acknowledged that an investigation of the company’s earthquake settlements had never been completed but suggested that if Farmers’ actions followed the pattern of other companies, evidence of unfair claims practices would be pervasive.

Company spokesman Mark Toohey said Farmers was then “presented with a proposal to fund what would appear to us to be a worthwhile public education program and we made a decision to accept that proposal.”

The agreement with Farmers is similar to one the commissioner reached with Fireman’s Fund, which also avoided an investigation by agreeing to make a donation to a Quackenbush-created foundation. The Farmers money went to the California Insurance Education Project, a foundation set up by Quackenbush with $1.3 million in insurance company contributions to disseminate information on earthquake safety. So far most of its funds have been spent on the public relations firm he hired to set up the foundation.

The Farmers and Fireman’s Fund agreements, and settlements with other major insurers including State Farm, Allstate and 20th Century, will be the focus today of an Assembly Insurance Committee hearing. The committee is investigating whether Quackenbush took all the steps necessary to ensure that Northridge earthquake claims were handled properly by insurers.
Farmers serviced 37,000 claims and paid out more than $1.9 billion after the 1994 quake, making it one of the companies hardest hit by the disaster.

Department of Insurance officials said they entered negotiations with Farmers after receiving numerous complaints from policyholders that their claims had not been handled adequately.

David Langenbacher, deputy commissioner for consumer services, said budget cuts had left the department without enough staff to conduct formal investigations–called market conduct surveys–of all the insurers affected by the quake.

In Farmers’ case, officials decided to seek an agreement, he said, requiring the company to survey all its Northridge policyholders to determine if they were satisfied with the handling of their claims.

“By the survey . . . we could cast the net more broadly than we typically would,” he said. “It gave every Farmers claimant an opportunity to come back to Farmers and say what they were and were not pleased with.”

Langenbacher said Farmers submitted the results of the survey to the department, where they are now being audited.

But a lawyer who won a $20-million settlement against the company for a homeowners association that complained of unfair claims practices said the survey worked against consumer interests.

North Hollywood attorney Bernie Bernheim said that under the terms of the agreement between the Department of Insurance and Farmers, any policyholder who answered the survey automatically waived his or her right to sue the company.

“You cannot ask someone to give up their right to go to court in return for [payment of] a claim,” he said. “Here the commissioner is allowing them to set up a system where people can do that without knowing any better.”

Bernheim, who reviewed the agreement, called it one-sided, saying that there was no finding of wrongdoing against Farmers, no attempt to thoroughly investigate its claims handling and no opportunity for any future probe of its Northridge actions.

“Every clause has something favorable to Farmers,” said Bernheim, who noted that the agreement was written on the stationery of the company’s lawyer. “I mean, the worst disaster we as Californians have ever experienced and our elected official, who is supposed to supervise the aftermath, doesn’t do his job, that’s clear to me.”

Kyle Kyllan, managing director for Community Assisting Recovery (CARE), a nonprofit group that assisted victims of the earthquake, said Farmers was one of several companies found to have shortchanged homeowners attempting to recover from the effects of the quake.

“The insurance commissioner was supposed to be a regulator and instead of assisting [the] insurance industry he should have assisted the homeowner,” he said. “He did absolutely nothing to assist the homeowner except to posture.”