WILDFIRE INSURANCE ALERT

Unfortunately, after a home or business burns down, owners are often shocked to learn their policy limit is insufficient to cover the full cost of rebuilding. This is a common problem that may or may not give rise to a claim against the insurance company, insurance broker or insurance agent. Property owners who paid an extra premium for guaranteed replacement cost or extended replacement cost coverage, underinsurance should not face this problem. But those who purchased an actual cash value or replacement cost policy will likely not recover the actual cost of repair from their insurer.  Here are the most common property policies and what they cover:

            Actual Cash Value Policies.  In cases of total loss, these policies generally cover the fair market value when the loss occurred or the policy limit, whichever is less. Insurance Code § 2051(b)(1).

            Replacement Cost Policies. These are intended to compensate the policyholder for the shortfall in coverage that results from rebuilding under a policy that pays only actual cash value. Fire Insurance Exchange v. Superior Court (2004) 116 Cal.App.4th 446, 462.  These policies cover replacement cost, up to the limit.

            Extended Replacement Cost Policies. For an additional premium, these policies provide payment of up to a specific percentage or a specific dollar amount above the policy limit. Insurance Code § 10102.

            Guaranteed Replacement Cost Policies. These policies provide payment for the full cost of repair, rebuild or replace the damaged property, without regard to the stated policy limit.  Insurance Code § 10102(e),(f).

            If, at the time you purchased the policy,  your insurer, agent or broker under-estimated the cost of repair in setting your policy limit, they may be liable for the shortfall. The law governing insurance agents and brokers is complex. If you sustained an underinsured loss from a wildfire, contact an attorney.

Recovering from your insurance company for destruction of personal property usually involves five steps:

1. Make a claim for damage to your personal property;
2. Complete whatever sworn proof of loss and/or the personal property inventory your insurer provides.  Providing an inventory of your burned personal property is the hardest and most time consuming part of a fire claim.
3. The insurer will make an initial payment of the “actual cash value” of the property. Actual cash value is synonymous with fair market value. Used furniture and clothing frankly isn’t worth much. But insurers generally use depreciation schedules to determine the fair market value of, e.g., a ten year old couch. Depreciation schedules typically result in the payment of an amount greater than what you could have received in a sale of the item.
4. Replace the destroyed property;
5. Provide the receipt to the insurer to receive the difference between what you spent and what the insurer already paid. Note that you will generally have 24 months from the date of a wildfire to replace your personal property. Insurers may, but are not required to extend that limit.

Soot and ash damage is covered under all homeowner policies sold in California, as falling within the coverage for damage caused by fire. Soot and ash from a wildfire can be harmful to health and often must be cleaned by a professional remediation company. MWGJF attorney Dennis Neil Jones was one of the first attorneys in California who stood up to insurance companies regarding soot and ash claims. After the 2003 wildfires, insurers often took the position that homes impacted by soot and ash could be adequately cleaned by two or three Molly maids in one day. In 2003, Jones published an article in the Ventura Star entitled “Tips For Handling Soot And Ash Claims.” Recently, a few insurers attempted to impose a sublimit for soot, ash and smoke claims. This attempt is illegal and is currently the subject of multiple class action lawsuits.