A Fault In The System

The aftermath of an earthquake five years ago has turned into one man's long-running disaster. CBS News Economics Correspondent Ray Brady looks at a fault in the Earth and the system.

The fault in the system, according to some homeowners, is the shaky ground they're on when they try to claim insurance.

Dr. Robert Connelly is still shaken from the earthquake that left cracks all over his house and that shattered the Northridge suburb of Los Angeles five years ago.

"There are cracks in all sorts of places," he says.

At first, Connelly thought the damage to his house wasn't all that bad, and his insurer immediately agreed.

"And what he said to me was, 'Well, it looks like it doesn't exceed your deductible - wouldn't bother to submit a claim,'" Connelly says.

Connelly's house sits on pillars. Months after the quake, a plumber working under the house discovered that the pillars had shifted. The cracks kept widening, including ones on the roof.

"When the rains come in the winter, we just sit here with buckets," he says.

A little more than a year after the earthquake, Connelly filed a claim.

Then came the aftershock: His insurer, Farmers Insurance Company, denied his claim.

"They said, 'Well, you're too late; go away,'" Connelly says.

Farmers Insurance only paid for water damage, even though his agent wrote him a letter, saying he had extensive quake damage that should be covered.

The company's own man said that the company should pay his claim and it just said, "No deal," Connelly says.

"I don't think the agent is necessarily siding with the client vs. the company," says Jerry Carnahan of Farmers Insurance.

Carnahan, Farmers' point man on the Northridge earthquake claims, says Connelly did indeed file his claim too late.

"The policy is very specific, and the insured either has one year to resolve the claim or file suit," Carnahan says.

That's exactly what Connelly is doing: suing Farmers Insurance, arguing the company did business in bad faith. This is a charge the insurer flatly denies. And Connelly is finding insurance companies can be tough to take on.

Attorney Bill Shernoff, who handles insurance cases, says the companies can make them long and drawn out. "You put in a claim; their attitude is you're trying to get something for nothing," he says.

"Some of these people have to fight these insurance companies for years, and it drags on and it drags on. It is to the insurance company's interest to be slow, because they will make interest on their money," he adds.

Carnahan denies that, pointing out that it paid nearly 35,000 claims from the Northridge earthquake but that doesn't satisfy Connelly.

He estimates that the damage now totals several hundred thousand dollars: "This huse could not be sold as a house now. We could sell it for land value but the house itself nobody would want to buy it."

Connelly is still waiting to settle with his insurer, and he's got plenty of company: There are estimates that thousands of homeowners, victims of the Northridge earthquake five years ago, have yet to settle their insurance claims as well.

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