O.C. Case Spurs Examiners to Probe Farmers; Regulators: Insurance officials will look through unit's files seeking to determine if it is illegally denying liability claims.

By: THOMAS S. MULLIGAN and DEBORA VRANA
TIMES STAFF WRITERS



Citing an Orange County case that resulted in a $58-million
bad-faith judgment against a Farmers Insurance Group unit, Insurance
Commissioner John Garamendi on Monday announced a special regulatory
examination of Farmers.

In the "market-conduct examination," insurance examiners will visit
Farmers offices and look through files to determine how certain types of
claims are handled.

A spokesman for the state Department of Insurance said the examination
will be limited to cases where Farmers denied customers' large liability
claims--cases similar to that involving Surgin Surgical Instrumentation
Inc. of Tustin, which an Orange County Superior Court judge last month
awarded damages of $58 million.

The department is trying to determine whether there is a pattern of
Farmers illegally denying liability claims.
"If this abuse is widespread . . . we may have the authority to revoke
their license," Garamendi said Monday.
Judge C. Robert Jameson cited Truck Insurance Exchange, a Farmers
subsidiary, for failing to provide Surgin with a legal defense in a
patent fraud case.
Attorney Daniel J. Callahan of the law firm Callahan & Gauntlett,
which represented Surgin Surgical in its case, said Garamendi's action
Monday came in response to an Oct. 21 letter that Jameson ordered him to
send to the insurance commissioner.
"This is a message to the insurance industry to stop putting its
economic interests before those of the insured," Callahan said. "The
state of California is taking a stand that this practice will not be
allowed here even if it's the biggest insurer in California."
Callahan said the case is the largest won by his Irvine firm and the
largest punitive damage award against an insurance company in Orange
County.
Farmers, which says it will appeal the judgment as soon as Jameson
issues his order, contends that it had no duty to protect Surgin because
patent infringement is not covered by the commercial general liability
policy that Truck sold to Surgin.
Farmers said in a statement that, "out of respect for due process and
for the constitutional separation of powers," the examination should be
put off until the appeal is decided.
Formed in 1981, Surgin Surgical is a privately held company that makes
medical devices. The company now has about 40 employees in Tustin, where
it recently moved from Placentia.




Descriptors: CALIFORNIA STATE INSURANCE COMMISSIONER; SURGIN SURGICAL INSTRUMENTATION INC; FARMERS INSURANCE GROUP; INSURANCE CLAIMS; LIABILITY; INSURANCE INDUSTRY -- SUITS

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