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.