Wildfires have decimated swaths of California, leaving entire cities destroyed in their wake. Many of the homeowners affected by these fires have found too late that they were dramatically underinsured and cannot rebuild or buy a similar home. In essence, their insurance is useless to them.
The Department of Insurance is aware of the problem and issued regulations designed to combat underinsurance – regulations that the insurance industry fought all the way to the California Supreme Court. In 2017, the California Supreme Court upheld the Department of Insurance’s regulation, Section 2695.183, which seeks to hold insurance companies more accountable for providing accurate estimates of replacement cost. That regulation states that an insurance company can breach the implied covenant of good faith and fair dealing when the company chooses to provide an estimate of replacement cost without ensuring that the information on which it relies is accurate and updated.
It is no secret that the wildfires of the past decade have illuminated a huge problem with underinsurance in California. Since 2017, courts have slowly been reviewing, and ruling upon, claims against insurance companies for failing to fully insure homes, leaving their insureds unable to rebuild or buy a similar home to the one they lost. To date, only one California state court has evaluated how 2695.183 affects an insurance company’s obligations when insuring a home, and it provides valuable insight into what an insured needs to do if she wants to be protected in the event of the loss of her home.
In Vulk v. State Farm Gen. Ins. Co., No. C090073, 2021 WL 4317680 (Cal. Ct. App. Aug. 31, 2021), the trial court consolidated the claim of Gary Andrighetto, who lost his home in a wildfire and learned he was underinsured, with two other insureds. The trial court found in favor of State Farm, and Andrighetto appealed. The court upheld the decision against Andrighetto. Andrighetto testified that he had never reviewed his insurance policy, had never asked to increase his insurance, and had trusted State Farm to provide sufficient insurance. The appellate court agreed that, where Andrighetto had never asked State Farm about his coverage or sought to increase it, State Farm owed no duty to cover the underinsured property beyond what Andrighetto had accepted. The court specifically noted that, had Andrighetto inquired about the sufficiency of his policy, or specifically requested full replacement coverage, he would have a basis to bring suit.
The Vulk court confirmed that, if an insured wants to bring suit for underinsurance, the insured must be able to show that she asked about her insurance coverage and sought to ensure that it was sufficient to rebuild in the event of a disaster. Simply being underinsured is not enough. Insureds need to ask their insurance companies or agents – preferably in writing – if they have enough coverage. In the all-too-likely event that their agent or insurer responds with a phone call instead of an email, the insured should write back in an email to summarize the call.
Section 2695.183 provides a vehicle to hold insurance companies accountable for systemic underinsurance, but only if insureds take an active role in protecting themselves. Insureds should call their insurance agents, and ask if they have sufficient insurance coverage to rebuild. Especially insureds in fire zones – they should review their policies, ensure that the information listed about the house is accurate. Have there been updates made to the property? An addition? A new deck? If you do not inform your insurer, those improvements will not be included in your insurance estimate. And if you do not tell your insurance company about them, you are not insured for them.
And those insureds who did ask their insurer if they had enough insurance, only to find out later that their insurer was wrong – the Vulk court has confirmed that you do indeed have a good argument for seeking payment.