California Court Rules in Favor of Earthquake Policyholders

An insurance broker was a representative for the California Fair Plan Insurance Co. with regard to the Northridge earthquake revival statute, which gave policyholders another year to file lawsuits against their insurers in connection with the 1994 earthquake, California’s 2nd Appellate District Court recently decided.

In Jose Arocho vs. California Fair Plan Insurance Co., the court overturned a lower court’s ruling dismissing the case.

The state-established California Fair Plan is a Los Angeles-based association of property insurers in the state that provides insurance to owners who are unable to obtain coverage in a normal market. After the 1994 Northridge earthquake, Section 240.9 of the California Code of Procedure extended the statute of limitations to Dec. 31, 2001, for claims and lawsuits related to the quake provided the insured contacted the insurer or an insurer’s “representative” before Jan. 1, 2000, about potential damage.

Policyholders Jose and Maria Arocho had contacted their broker, James Stovall of Kosmos Insurance Agency in Santa Ana, Calif., shortly after the earthquake. The California Fair Plan said the couple was not eligible to receive benefits, however, because Stovall was a broker, and therefore not a representative of the plan.

The court opinion said it is “generally true” that an insurance broker acts on behalf of an insured, while an agent acts on behalf of an insurer. However, the Fair Plan instructed its insureds that in the event of a loss, they should give immediate notice “to us or our agent,” when the only “agent” most insureds would have dealt with would have been the broker-producers who sold them their Fair Plan policy, the court said.

“At a minimum, Fair Plan’s own policy language would mislead many, if not most, reasonable insureds to believe a contact with a broker or a broker’s agent was the way to provide the required notice,” the opinion said. “Having caused this reasonable belief, Fair Plan is hard-pressed to now complain a contact with such an agent does not qualify as a contact with one of its ‘representatives’ within the context of 340.9.”