Two wildfire victims are suing California’s top insurance regulator, alleging the state failed to protect Californians from unscrupulous, out-of-state adjusters working illegally in California who mishandled claims.
The Department of Insurance is fighting the case in court, saying in documents that the suit is “an attempt to manufacture a ‘crisis’ that does not exist.”
Yet Insurance Commissioner Ricardo Lara has endorsed a newly signed law designed to prevent some of what the plaintiffs are complaining about: untrained, out-of-state adjusters who bungle insurance claims.
“As I have met with survivors of California’s devastating wildfires, I have seen first-hand that a well-trained insurance adjuster often makes the difference in resolving their claims,” Lara said in a May press statement supporting the bill. “Given the unfortunate likelihood that California will face large-scale wildfires in the near future, Senate Bill 240 will help ensure that out-of-state adjusters and insurers have the training to provide accurate information to survivors.”
The new law requires unlicensed and independent adjusters — who otherwise might be familiar with disasters like tornadoes and hurricanes, not wildfires — to read California regulations. The insurance agency can also authorize a civil penalty of up to $500 for adjusters who engage in misconduct.
Both the law and the lawsuit are the result of the aftermath of the deadly 2017 and 2018 fires, in which hundreds of out-of-state and unlicensed adjusters flocked to California to handle an influx of thousands of claims.
Insurance adjusters are required to register with the state insurance department. They also have to be licensed, with two exceptions: if the adjuster is an exclusive employee of a licensed firm, or if there’s a declared emergency and an unlicensed adjuster is registered with the department and is supervised by a licensed worker.
Complaints about adjusters
State Sen. Bill Dodd, D-Napa, who sponsored the bill, said inaccurate guidance from insurance adjusters has in some cases delayed wildfire reconstruction and frustrated victims.
“I talk to people all the time. They’ve had four or five different adjusters,” Dodd said. “And in some cases, they would report that (the adjusters) took them down the path to lower compensated coverage when in fact they should have had more coverage. It’s absolutely a major issue in the state of California, no doubt about it.”
The lawsuit alleges many of the adjusters were working in California illegally because they were misreported as employees, not independent workers.
“The whole basis was to get the people in charge to do their job, to protect consumers,” said Jeff Sengstack, a plaintiff in the lawsuit. “The agencies set up to protect consumers ought to do that.”
Sengstack lost his Santa Rosa home in the 2017 Tubbs Fire, which destroyed parts of his city and killed 22 people. He turned to Jon B. Eisenberg, a friend and Healdsburg attorney, for a place to stay and for assistance in handling his State Farm insurance claims.
Sengstack said that two of the estimated 10 adjusters handling his filings were out-of-state independent contractors, one from Texas and the other from Alabama. They gave him information that conflicted with California insurance law, Sengstack’s lawsuit alleges.
“It’s an arduous and painful process,” Sengstack told The Bee. “I’ve experienced the absolute worst thing that I’ve ever experienced. The aftermath, though, is nearly as painful and prolonged.”
Eisenberg, the second plaintiff and an attorney on the case, was in a position to help. He’d lost his home during the 1991 Oakland fires and had volunteered his counsel to dozens of fire survivors in Santa Rosa in the wake of Tubbs.
Sengstack submitted a formal consumer complaint in November 2017 to the insurance department, alleging that adjusters were working illegally in California.
That same month, former Insurance Commissioner Dave Jones issued a formal notice that reminded stakeholders of California’s laws.
Eisenberg filed another consumer complaint with the department in January 2018 following what he said was a lack of urgency by the agency to remedy their concerns.
Weeks later, the two filed suit.
Who’s an employee?
Eisenberg and Sengstack allege in their complaint that companies falsely report out-of-state independent adjusters as employees to avoid state registration and supervision requirements.
According to the lawsuit, adjusters wrongly told homeowners they wouldn’t receive full replacement cost benefits if they didn’t rebuild in the same location and offered incorrect time frames and expiration dates for collecting full replacement and additional living expense benefits.
“At issue here is the fundamental integrity of (the department), of former Commissioner (Dave) Jones and of current Commissioner Lara,” the lawsuit states, continuing that the insurance agency “has been complicit in a massive fraudulent scheme by insurance companies and adjusting companies.”
Jones did not respond to requests for comment.
In San Francisco Superior Court, Lara’s department is now arguing the new law renders the legal dispute a “moot” action. State attorneys have filed motions to dismiss the case.
“This lawsuit is trying to fool the public by taking advantage of legitimate concerns about adjuster training, when it would do nothing for them,” said department spokesman Michael Soller.
Eisenberg said the department’s analysis of SB 240 as a cure-all to the problem is incomplete.
He should know, he said. He helped write the law.
In a quirky turn of events, Eisenberg admitted in a settlement offer to the department last week that as the case progressed in the last year, he was working behind the scenes with Capitol staff, steering amendments and crafting elements SB 240 to accomplish much of what he was aiming to prove in his pleas.
The lawsuit goes further, however. It seeks to compel the department to investigate “unfair or deceptive practices” and to “take action on consumer complaints within a reasonable time” of 30 days.
The department argues that the agency already holds adjusters accountable, and that it’s within the discretion of the commissioner, not the courts, to enforce insurance codes to crack down on the workers.
Department of Insurance spokesman Soller said the department does not see a conflict between its support of the new state law and its effort to dismiss Eisenberg’s lawsuit.
“The law provides the department with discretion, and in this case, we determined that clarifying the rules to the industry was in the public interest, rather than prosecuting the specific companies as plaintiffs wanted,” Soller said.
Eisenberg and Sengstack say they are “fully prepared” to continue fighting for what they describe as the remaining “loose threads.” Under SB 240, they note, insurance commissioners aren’t required to investigate consumer complaints and report the results.
Eisenberg sent a second settlement proposal to the department’s state attorneys on Friday that largely echoed a January offer, sans an original portion to increase training requirements for certain adjusters.
“It’s absolutely clear to me that they have decided to fight me tooth and nail until the bitter end,” Eisenberg said.