SHERMAN OAKS : Lawsuit Over Quake Payments Studied

A Valleywide effort to sue insurance companies for making earthquake insurance checks payable to lenders as well as to homeowners is being studied by a committee of the Sherman Oaks Homeowners Assn.

The group established the committee Wednesday night at an association meeting attended by about 200 people, according to organization President Richard Close.

Close said the committee, which he foresees being made up of eight to 10 representatives from homeowners associations throughout the San Fernando Valley as well as United Policy Holders, will decide whether to file a class-action lawsuit in three or four weeks. United Policy Holders is a start-up group whose purpose is to help earthquake victims get the maximum amount owed them by insurance companies.

Many homeowners were angry when they learned that they could not cash insurance claims checks because their insurers had made them out to the homeowner and the mortgage lender. Close said he was disappointed that state Insurance Commissioner John Garamendi had recently backed off a plan to bar insurers from this practice.

Insurance companies have been doing this because they do not want to end up making two payments--one to the lender as well as the policyholder--if, for example, the homeowner absconds with the claim payment. But homeowners say banks should not be named as co-payees for insurance policies that they neither required in the trust deed nor paid for.

Close predicted that lenders will impose restrictions on homeowners as a condition for signing over the check. Banks may get to decide what gets fixed first. And they may require homeowners to complete all of the needed repairs itemized by the insurer, even if it means that the homeowner would have to pay some costs out of his or her pocket because the insurance payment is insufficient, Close said.