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Insurers Put Riot Costs at $200 Million

By Albert B. Crenshaw
Washington Post Staff Writer
Tuesday, May 5, 1992; Page C01

Property insurers said yesterday that the riots in Los Angeles over the past few days are expected to be the most costly civil disturbance in the nation's history, easily topping the 1965 disturbances in the Watts section of the city.

Total damage over the past few days is being estimated by public officials at $500 million to $750 million, and insurance officials said they expect their industry will pay out at least $200 million, and perhaps much more.

The Watts riots resulted in insured damages of $44 million at the time, which in today's dollars would be about $182 million, according to the Insurance Information Institute, an industry-sponsored organization.

Insurance industry officials said most homeowners, renters and business insurance packages cover civil disturbance, and that coverage has been available in the riot areas. Most business owners and riot-area residents who had insurance can expect to receive payment, they said.

"Riot is a named peril. It is covered," said John Kozero of Fireman's Fund Insurance Co., which wrote extensive coverage, primarily for business, in the Los Angeles area.

Kozero said "we have no idea at the moment" what the extent of the company's losses will be, and "the circumstances are such that we prefer not to guess." However, he said, Fireman's expects claims to be "not insubstantial."

A spokesman for Farmers Insurance Group, the nation's third-largest writer of homeowners and auto insurance, said his company is expecting to pay out $60 million to $70 million as "our share of the exposure."

These and other companies said they are assembling teams of adjusters to begin assessing claims now that the curfew has been lifted and calm apparently has returned. The true extent of the exposure will not be known for some days, they said, because cases have to be assessed individually.

Business claims can be especially tricky, they said. In addition to property damage insurance, some business owners also carry "business interruption" coverage, which reimburses the owner for lost income because the store was closed. With this coverage, an adjuster may have to evaluate how much the owner lost because of the curfew as well as any physical damage suffered.

Jerry Parsons of State Farm Insurance Co. said his firm has 7,000 policies in and around the affected area. "We are really struggling to try to come up with anything" in the way of a damage estimate, he said. "Usually, in a regular tornado or something" companies have experience and can look at the severity of the event "and simply project."

"Here, we can't do that," he said.

California insurance regulators said they are monitoring the situation as well, both to make sure that claims are paid promptly and fairly, and to make sure that insurers don't improperly refuse to write new coverage in the area. Any delays or cancellations would likely slow efforts to get the affected areas back on their feet by preventing businesses from rebuilding.

"Historically in depressed areas, there have been major problems" with insurance premiums being too expensive or insurers refusing to sell coverage, said Bill Schulz, a spokesman for California Insurance Commissioner John Garamendi. "We have seen much of it and some redlining in these areas. This is something that we're going to be looking at in the aftermath of the civil unrest."

Special industry- and government-sponsored insurance plans also are in effect in California and a dozen other states for property owners in troubled areas who cannot get regular coverage.

Schulz said, "There is no evidence that we see that insurers will not pay (claims), but certainly we have seen, especially with respect to the Oakland fire" last year, that insurers were delaying payments and "relying on very technical grounds to refuse coverage."

Every insurer contacted insisted it would pay as promptly as possible, and all were expecting large payouts. This was in part because of the number of policies they had written, but also because the bulk of the damage seems to have been to private property. This was in contrast to the 1989 Loma Prieta earthquake in Northern California, where much of the damage was to publicly owned facilities, such as roads and bridges.

Although that quake caused $6 billion in damage, insurers paid out only about $960 million, according to industry figures.

The losses are another in a string of catastrophes to rock the property-casualty insurance industry. And while these costs probably will not exceed the $4.2 billion for Hurricane Hugo in 1989, or the roughly $1.2 billion for last year's fire in Oakland (insurers are still paying claims on that one), they are expected to further squeeze industry profits.

"Losses have been horrendous ... ," said the Farmers Group spokesman.

However, industry reserves are more than adequate to cover the expected claims, officials of the Insurance Information Institute said.

© Copyright 1992 The Washington Post Company

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