n the seven years since the Northridge earthquake on January 17, 1994, California insurers spent more than $16 billion honoring earthquake claims from insureds in Northridge and the surrounding communities.

During this period, it became clear that many homeowners suffered earthquake damage that was not readily apparent upon initial inspection. There were a number of insureds whose claims were barred by the one-year "Suit Against Us" provisions in their insurance policies at the time they became aware of the full extent of their losses.

In response, the Legislature passed SB1899, Code of Civil Procedure section 340.9, which became effective on Jan. 1, and which allows insureds to "revive" Northridge earthquake insurance claims under specified circumstances.

While certain portions of the statute are fairly straight-forward, key provisions appear to be internally inconsistent with respect to claims where insureds previously settled and signed settlement agreements. The statute is also somewhat vague with respect to the types of claims that are revived. Attorneys for insureds are already claiming that it resurrects not only contract claims for property damage but bad-faith claims, as well.

One issue which must eventually be addressed by either legislative amendments or clarifying judicial decisions is whether the statute allows new claims by insureds who previously signed settlement agreements and resolved their claims with the insurer. In the absence of SB1899, if an insured sued an insurer on such a claim, the insurer would presumably invoke the settlement agreement as an affirmative defense and move for summary judgment on the grounds that the claim was barred by the prior compromise and release.

At first blush, it also would appear that SB1899 would not apply to such claims, since Code of Civil Procedure Section 340.9(a) states that the statute only applies to claims that are barred "solely because the applicable statute of limitations has or had expired."

Claims previously settled through a written settlement agreement would not be barred "solely" by the statute of limitations ‹they would be barred by the settlement agreement itself. Thus, such insureds would not fall within the class of claimants to whom the statute extends its protection.

However, Section 340.9(d)(2) states that the statute shall not apply to "any written compromised settlement agreement which has been made between an insurer and its insured" where the insured was represented by a California lawyer who signed the agreement. The obvious implication is that insureds who have settled their claims and signed a settlement agreement but were not represented by counsel, do not fall within the group of "excepted" claims.

The problem is that such claims weren't within the purview of the statute in the first place, and one would think that if the Legislature intended to deprive insurers of substantive defenses to earthquake claims in addition to the statute of limitations defense, it would have included an express provision to that effect.

If the courts construe the statute to revive claims that previously had been settled through written settlement agreements, the effect would be to completely deprive insurers of the benefit of the bargain of those settlement contracts. Such a substantial interference obviously would risk violating the state and federal prohibitions against laws impairing contracts. See, e.g., U.S. Constitution, Article I, Section 10, Clause 1; California Constitution, Article I, Section 9; Energy Reserves Group Inc. v. Kansas Power and Light 459 U.S. 400, (1983).

If SB1899 truly revives only those claims that are barred "solely" by the statute of limitations, one logical way to reconcile the apparent conflict in the statutory language is to limit its application to prior settlements that did not include a release of all claims.

Perhaps the most critical issue presented by this legislation is whether it revives only insurance claims for damages caused by the Northridge earthquake or whether it also allows insureds to resurrect extra-contractual claims, such as breach of the implied covenant of good faith and fair dealing, unfair business practices and claims for punitive damages.

Based on the express language of the statute, it would appear that the legislation is designed to revive only the insurance claims‹not claims for bad faith. The newly authorized cause of action is created in the singular ("a cause of action thereon may be commenced") and is limited to "any insurance claim for damages arising out of the Northridge earthquake."

There is no mention of extra-contractual claims, and it is certainly arguable that claims for bad faith, unfair business practices and punitive damages do not "arise out of the Northridge earthquake." Rather, they "arise out of the claims handling practices of insurers adjusting claims arising out of the Northridge earthquake."

If the Legislature had intended to create or revive bad faith claims with this legislation, it certainly knew how to do so, particularly in light of its recent (ultimately unsuccessful) efforts to restore Royal Globe liability via SB1237. See Royal Globe v. Supreme Court 23 Cal.3d 880 (1979).

It also appears that reviving extra-contractual claims was not the intent of the Legislature. The motivation for this legislation was the plight of homeowners who discovered hidden damage after the time limit for bringing claims on the policy had already expired.

For example, the records of the Assembly Committee on Judiciary on June 20, 2000, described the "key issue" in this legislation as: "Should victims of the 1994 Northridge earthquake be permitted an extra year to seek redress for their quake-related losses?" This reference to "quake-related damages" appears repeatedly in the various digests and summaries of the legislation in Senate and Assembly hearings and is admissible to establish legislative intent. See, e.g., Frio v. Superior Court 203 Cal.App.3d 1480 (1988); Main San Gabriel Basin Water Master v. State Water Resources Control Board 12 Cal.App.4th 1371 (1989).

Assuming that SB1899 survives constitutional challenges (presently before the Second District Court of Appeal in Basich v. Allstate, B132634), any remaining Northridge claims will, hopefully, be completely and finally adjusted. Then both policyholders and insurers will be able to put the most expensive earthquake in the history of the United States behind them.