Articles Tagged with homeowners

Because of the number of fires in California over the past several years, there are huge shortages of labor and materials for building homes. It can take well over a year for someone who lost their home in a wildfire to secure a contractor and get permits to be able to build.

The California Department of Insurance knows this. On May 18, 2019, the Insurance Commissioner issued a Notice requiring insurers to extend additional living expense (“ALE”) benefits to as long as 36 months if needed for claims made due to a state emergency such as a wildfire, regardless of any time limit in the policy. “Good cause” is specifically noted to be unavoidable delays in the construction process. This can be delays with obtaining permits, or finding a contractor, or getting materials. It can also be delays due to the pandemic.

Note that this extension does not increase the dollar limit of ALE, if any, in the policy, so if your rebuild is delayed, you want to minimize the monthly cost of your lodging and related expenses to stretch it out as long as possible. This extension only applies to fires that occurred on or after September 21, 2018. However, 29 insurance companies agreed to voluntarily provide this extension to victims of the 2017 wildfires as well.

With the massive increase in wildfires throughout California, the Department of Insurance has adopted what is now an annual tradition of ordering insurance companies to refrain from policy cancellations and non-renewals in wildfire areas.  This year is no exception. On August 19, 2021, the Department of Insurance issued a one-year moratorium on cancellations or non-renewals of fire policies in the areas affected by the Lava and Beckwourth Complex fires.  More than 26,000 homes are affected, in Siskiyou, Lassen and Plumas counties.  This area was already included in last year’s moratorium, but this new order buys those policyholders another year.

Commissioner Lara’s office has stated that he intends to issue a similar moratorium for the Dixie and Caldor fires, once the perimeters of those fires are better established. The Dixie fire is currently only 35% contained. The Caldor fire is currently not at all contained.

These moratoriums are temporary respites from the insurance industry’s practice of non-renewing homes that are in wildfire areas. For homeowners who do lose their insurance because of their location, the “option of last resort” is the California FAIR Plan. This plan offers bare-bones coverage for fire coverage only.  The Department of Insurance ordered FAIR Plan to offer personal property coverage and liability coverage as well in 2019. The insurance industry has been fighting that, and in July 2021 a California superior court ordered FAIR Plan to comply.  Where FAIR Plan will likely appeal that decision, the ability to access this expanded coverage may not actually happen for some time to come.

The California Fair Access to Insurance Requirements Plan Association or “FAIR Plan” was established by statute in 1968 to meet the needs of California homeowners unable to find insurance in the traditional marketplace. The FAIR Plan is a syndicated fire insurance pool comprised of all insurers licensed to conduct property/casualty business in California. All licensed property/casualty insurers that write basic property insurance required by Insurance Code sections 10091(a) and 10095(a) are members of the FAIR Plan. The FAIR Plan issues policies on behalf of its member companies. Each member company participates in the profits, losses, and expenses of the Plan in direct proportion to its market share of business written in the state.

Wildfires have caused insurmountable destruction in California over the last decade, causing many insurers to pull back from the California fire insurance marketplace. While many Californians have turned to the FAIR Plan for fire risk insurance, the FAIR Plan represents itself to the public as an “insurer of last resort” that provides only “basic property coverage.”  The FAIR Plan website states: “While we will support homeowners regardless of a property’s fire risk, unlike traditional insurers, our goal is attrition. For most homeowners, the FAIR Plan is a temporary safety net – here to support them until coverage offered by a traditional carrier becomes available.”  While attrition may be the goal, the reality for many California homeowners is that coverage from a traditional insurer has not become available, and likely will not, as fires continue to rage throughout the state year after year.  Insurers continue to notify homeowners who live in threatened areas that they will not be renewing their coverage.  With the marketplace having so few affordable options, many have no choice but to turn to the FAIR Plan.

Because the FAIR Plan was intended to provide only “basic property coverage” and not other types of coverage such as personal liability or theft, homeowners would have to buy a secondary insurance plan in order to have comprehensive coverage equivalent to a typical homeowners insurance policy.  In 2019, recognizing the economic disadvantage to Californians living in fire-threatened areas, the Insurance Commissioner ordered the FAIR Plan to begin covering more than just basic property coverage.  The order required, in part, that by June 1, 2020, FAIR Plan must offer for sale to California consumers a comprehensive homeowners property insurance policy.  The FAIR Plan sued, arguing the Insurance Commissioner’s order was illegal in that the Commissioner lacked statutory authority under the Basic Property Insurance Inspection and Placement Plan to require FAIR Plan to sell a comprehensive homeowners policy.  This month, the court held that that the Commissioner did have statutory authority to require FAIR Plan to offer insurance which includes liability coverage, but only if that coverage is related to the property. The full text of the order can be found HERE:

Most insurance companies unveiled national advertising campaigns in March 2020, promising to “pause” all policy cancellations or expirations for at least a month due to non-payment of premiums. Many continued this policy, stating that insureds simply had to ask to have their insurance payment plan extended during COVID-19.

Insurance companies did not do this out of the goodness of their hearts. In most states, the state insurance commissioner issued directives asking or requiring insurance companies to do exactly this. The federal government similarly issued regulations for policies governed by ERISA, extending the deadlines for appeals until after the pandemic ends.

Despite the state and federal mandates, and their own advertising, insurers have not all followed these requirements.  Many insurance companies did in fact still cancel or allow policies to lapse in the first month of the pandemic.  Many more put the onus on their insureds to reach out and request help, despite promises that all such extensions would be “automatic.”  Here is a summary of the positions taken by some of the major insurance companies:

First, a quick definition: A claim reserve is a reserve of money set aside by an insurance company in order to pay policyholders’ claims under their policies. Reserves are set by the insurance company in an amount that it anticipates having to pay out for the claim. Reserve information is important because it can show that the carrier undervalued the claim and never had the intent to pay the reasonable and necessary cost to repair the loss.

Despite being required by law to do so, homeowners’ insurers often improperly redact reserve information when producing claim file materials in litigation. Insurers also often to attempt to thwart an insured’s access to reserve information by objecting to deposition topics related to reserves. It is only when pressed that some carriers, whose counsel is aware of their untenable position, will concede and produce unredacted reserve information.

The Eastern District of California recently ruled on several discovery issues in a bad faith action involving a water loss. In Banga v. Ameriprise Auto Home Ins. Agency, No. 2:18-cv-01072-MCE-AC, 2021 WL 634955 (E.D. Cal. Feb. 18, 2021), a homeowner brought a bad faith action against her insurer after a dispute over insurance coverage for water damage to her home. As a result of high windstorm, the roof of the insured’s house was damaged, causing leakage that further damaged the interior walls and the vaulted ceiling of the house.

Did your insurance company cancel your insurance due to nonpayment of premium during COVID? Be aware that most states have either requested, or required, insurers to institute a moratorium on cancellations due to nonpayment during at least part of the pandemic.  If your insurance company cancelled your insurance during COVID, remind them of this fact and ask them to reinstate your policy.  If they refuse, you may want to talk to a lawyer.

The entire West Coast has seen their Departments of Insurance issue requirements on this subject:

California:  On March 18, 2020, California issued a “request” to all insurance companies on March 18, 2020 to provide insureds “at least” a 60 day grace period to pay insurance premiums, and to ensure that policies are not cancelled for nonpayment of premiums due to coronavirus. http://www.insurance.ca.gov/0400-news/0100-press-releases/2020/release030-2020.cfm

In California, it has long been the law that it is up to the homeowner to decide how much insurance she needs, and that if a homeowner is uninsured, it is her fault.  This is the law despite the fact that insurance companies set the amount of insurance offered in a policy and do not inform insureds that they have not just the right, but the responsibility, to confirm that the amount is adequate if they need to rebuild. As a result, most homeowners who find themselves needing to rebuild lack the funds to do so.

The California Department of Insurance is aware of the problem and created regulations to address the issue. Since 2010, there has been an insurance regulation in California requiring that insurers take steps to provide accurate replacement cost estimates for homeowner insurance.  This regulation, 10 CCR Section 2695.183, was tied up in California courts for seven years as the insurance lobby fought against it. In January 2017, the California Supreme Court ruled that the regulation was valid.

What does Section 2695.183 say? First, the insurance company or agent does not have to provide an insured with an estimate of replacement value, or provide a suggested amount of insurance. If the insurer chooses to do so, then the estimate must include certain elements. It must include the cost of labor, materials and supplies.  It must include overhead and profit.  It must include the cost of debris removal.  It must include the cost of permits and architect plans.  It must consider and include the specific features of the home to be rebuilt. That includes the type of foundation, the type of frame, the roof, the siding, any issues relating to slope, the square footage, the geographic area, the age of the structure, and the materials used in the interior and the finishes.

When a homeowner obtains insurance, she generally assumes the insurance company will accurately estimate the cost of rebuilding the home in the event of a disaster such a fire. Unfortunately, this is not often the case. Insurance companies rely on computer programs to generate an estimated cost to rebuild in an area. Some insurance companies will calculate the amount based solely on the square footage and age of the home. If an appraiser is not sent out when insurance is requested to inspect the home, upgrades such as vaulted ceilings, wood beams, updated kitchens and baths, hardwood floors, outdoor kitchens, finished basements or attics, or other enhancements will not be included in the amount allotted to rebuild your home.

Courts often decline to reform the insurance policy to fix errors in the estimated replacement cost, noting that the homeowner should have reviewed and contested the amount when she received the policy. Insurance policies often have extended policy limits that will add an additional 25% on the insured amount for just these situations. However, an additional 25% may not be enough to rebuild.

The West Coast is an especially high cost of living area, and that includes construction costs. The San Francisco Bay Area, for example, is currently the most expensive area of the country for new construction, with construction costing an average of $417/sq ft. Construction costs in California have been rising 5-6.3% per year. This is especially true in areas at high risk of wildfires. While many of those areas are more rural and populated with homes that are less expensive than those in major cities, the repeated years of fires and construction have affected the cost of construction in those areas.  It routinely costs $300-$350/sq ft to rebuild in rural wildfire areas.  Years of fires have created a huge demand for construction labor, and chronic shortages of materials.  County offices are also overwhelmed with permit requests. Delays have increased to the point that the California Department of Insurance has mandated that for wildfire disasters, the time provided by insurance companies to rebuild and to pay Additional Living Expenses be extended from 24 to 36 months.

Fire season is beginning again in California, and soon throughout the West. Thousands of people are still trying to recover and rebuild from the years of past fires and related devastation. It is often taking three or more years to rebuild a home because of difficulties obtaining permits, contractors, and materials.

Ideally, your insurance company will work with you in this difficult time in your life. You will need to obtain a copy of your insurance policy and review it carefully. This can be harder than it seems if you have just lost all your possessions in a fire, as you may not even have access to a computer for some time. It is important to understand that the amount the insurance company set to insure your house may be much less than it would cost to rebuild your house. The insurance company will also only pay to rebuild your house as it was before, it will not pay for upgrades.

You will be asked to provide lists of the contents of your home. Then the insurance company will likely only reimburse you for the “actual cash value” of the possessions you lost in the destruction of your home, which removes depreciation from the value of your items. If your policy covers it, once you actually replace the item, you may receive a second payment covering that depreciation. But if you do not replace the item, you never will.

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