A Letter to the California Insurance Commissioner John Garamendi

January 31, 2003

By Elizabeth McMahon (View author info)
Copyright AHRC News Services

Dear Mr. Garamendi,

First of all, congratulations on winning the race for the office of California Insurance Commissioner in the November 2002 election. Homeowners of both parties voted for you not on the basis of party, but on the basis of their conviction that you have a genuine concern for the welfare of all Californianas.

I am writing per your request as a follow-up to our phone conversation last year during your campaign. I discussed with you some of the major problems with the homeowner association insurance that is mandated by law. You asked me to contact Sen. Jackie Speir, but I informed you that many homeowners had already done so for three years to no avail. There are 3 salient problems:

1. Homeowner association insurance has become a sword against homeowners, not a shield.

2. Insurance companies in this field, primarily Chubb and CNA, have been bribing managers of homeowner associations to buy their insurance products.

3. These same insurance companies have been bribing boards of directors to do the same thing.

I will elaborate on each point.

1. This homeowner association insurance is mandated by the Davis Stirling Act. The insurance was made mandatory at the insistence of those lawyers whose dominant business is homeowner associations. The alleged intent of this insurance was to provide a shield for homeowners. However, it has been turned by these very same lawyers into a sword against homeowners. If a homeowner believes that board members are acting improperly or illegally, and sues the board, these lawyers use this insurance to defend the board members - even when they know that the board members are egregiously doing wrong.

Thus, these lawyers are using this financial clout to make it prohibitively expensive for any homeowner to maintain any viable suit to seek redress from errant boards. The insurance was primarily meant to protect homeowner associations and its members from outside third parties. It has been converted by these lawyers into a cash register for themselves at the expense of homeowners.

2. Chubb Insurance, which claimed to have over 80% of the homeowner association insurance market, has been in effect bribing managers of homeowner associations to market and sell their policies. They do this, inter alia, by offering to provide these management companies with liability insurance for free. This creates the following strange and dangerous situation. When a homeowner sues a management company, the homeowner is paying the insurance premiums for the defence of that management company against himself. I know of no other industry where a company pays the insurance premiums of a vendor who fails to perform. Such bribes should be outlawed.

3. Chubb Insurance has also in effect been bribing boards of directors to purchase Chubb insurance for their association. One of the ways that it does this is by offering for a nominal sum (e.g. $100) to provide AD&D insurance of $100,000 to boards of directors and their families. This is a clear conflict of interest by the board.

Though the problems of homeowner associations (in California, about 1 in every 5 lives in one)go far beyond the insurance problems, still, resolution of those insurance problems would go a long way towards eliminating some of the most pressing problems. The insurance monies are a tempting source for the litigation lawyers to both create problems for homeowners and to profit handsomely from.

This problem extends beyond California. For example, in Texas, homeowners mounted a spirited attack on Chubb and eventually drove them out of the state. However, CNA has taken Chubb's place and is marketing its policies using similar tactics.

Therefore, I request that you undertake an urgent investigation of this whole issue. I will be happy to provide whatever further information that is necessary.

Thanks for your attention, and best wishes in your new job

Some background:

Add: California homeowners did not vote for party when they selected you. They watched you and believed what you promised.

When we spoke you had asked us to call on Jackie Speier , the Chair of the Senate Housing Commitee. We told you many victims had been peitioning her for four years without success

We picketed and exposed CHUBB's activities nationally and Texas victims fought back with several lawsuits and drove CHUBB out of the market. CNA took it's place

CNA gives kickbacks to CAI, the lawsuit industy lobby