State Farm Settles 06-19-98

LOS ANGELES (AP) - State Farm Insurance Co. quietly paid more than 100 policyholders a total of $100 million to settle a lawsuit that accused the company of covertly trimming coverage years before the 1994 Northridge earthquake, the Los Angeles Times reported today.

State Farm admitted no wrongdoing in the settlement, which was reached in September and is the largest known single payout by an insurer involved in post-earthquake claims, the newspaper said.

According to an internal company memo in September 1984, executives considered informing policyholders about restructure plans but decided against it because it would ``appear inconsistent with our marketing philosophy.''

The lawsuit said two insurance plans were ultimately replaced by a less expensive policy, and the company eliminated the notion of ``guaranteed replacement,'' which would require the insurer to replace homes destroyed by a quake even if the cost surpassed a policyholder's coverage limit.

Instead, State Farm sent policyholders notices that described the coverage as ``new'' or different'' without disclosing that it amounted to less coverage, according to the lawsuit filed by 117 homeowners.

In May 1997, a Superior Court judge ruled that the company failed to give notice in ``clear and understandable language,''' as required under state law. State Farm's appeal of the ruling was pending when the settlement was reached.

``Ultimately, settlement, although a bitter pill, is the best way to go,'' said Bill Sirola, a spokesman for the Bloomington, Ill.-based company. ``There are business considerations that must be weighed.''

The deal could leave State Farm vulnerable to other suits by up to 25,000 other homeowners whose coverage was reduced, plaintiffs' attorneys and homeowners advocates said.

By June 1997, State Farm had paid $2.7 billion in claims to more than 116,000 policyholders for damage from the Northridge quake.