A Guide to Homeowners’ Insurance for California Wildfire Losses
Commentary by William Bennett, Special to California Business Journal
In 2017 and 2018 alone, California experienced the two largest and the first and fourth deadliest fires in its history.
Sadly, a University of California report predicts that the frequency and potency of these fires will only continue to increase in the coming years and decades, increasing the importance of knowing about insurance.
Insurance companies are in the best position to forecast potential losses resulting from this California wildfire trend. In 2017, the insurance industry paid out nearly $16 billion as a result of wildfire damage. In 2018, wildfire losses are expected to exceed $19 billion.
Historically, insurance companies do not just accept these losses and move on. They pass the cost back to policyholders, wherever possible, and otherwise retreat from the market. They do this through premium increases, denials of uncertain claims and aggressive adjusting practices.
Case in point: Florida. In the wake of massive flood losses arising from hurricanes, enough insurers retreated from that market that the federal government had to step in to bridge the gap and help fund flood insurance in the state. It remains to be seen whether similar patterns will emerge in California, although the California legislature has generally been protective of policyholders in this regard.
Insurance companies have — and will — continue to make the cost of coverage for wildfires account for the expense of the coverage they provide for those losses. They will also take advantage of every opportunity available to them to minimize payments made on claims. Homeowners should be aware of the tools available to them to maximize the coverage afforded by the policies they pay for.
The crucial first step in any insurance claim is making the insurance company aware of the loss. Wait too long and you could lose your claim. Contact the company too soon, however, and you may not be properly prepared to present the claim in a favorable light. I recommend you quickly contact the insurance company to determine what the timeline is for making a claim and then set up a schedule to complete the process in a timely manner.
First, set a deadline to complete your inventory of lost or damaged belongings. Then determine where you will live in the interim period when you are unable to live in your damaged or lost home. Next, set up a time to have a contractor and an adjuster from your insurance company come to the house and agree on a cost to rebuild in the current market, which will likely be inflated due to the number of people in the same area and in the same situation.
Replacing Your Home
There are two people that are key in your process of maximizing the coverage you receive for repairing or replacing your damaged or destroyed home. The first is the insurance adjuster. Your insurance company will send this person to examine the site. Remember that he/she represents the insurance company and, to at least some extent, has its best interests in mind. The other key person is the contractor who will provide a cost estimate.
The adjuster and contractor will not undertake this process together. However, push the issue. If one of them puts out a financial number independently and you then get a much different number from the other, it is substantially harder to get the other to adapt his number to match. It is easier to press them to work together to come up with a number that works on both ends. This minimizes the chance that you could be left with an insurance check that does not fully cover the cost to rebuild your home.
Documentation and Contents
Make an inventory of what you own. Note everything of value – even things of minor value can be substantial in aggregate. Take pictures of everything in your inventory. Note what the item is, its age, the life expectancy of it (for calculating depreciation), the cost to replace it (including tax) and the name of the store or website where you can obtain the replacement. This preemptive documentation is invaluable in the claims process. Store this documentation off site in a secure location or scan and save it in the “cloud.”
If you have not completed these preparations and you do suffer a loss, don’t worry — you can still get coverage for your lost property. It may just take extra work. Put together a list of everything you can think of that you lost. When you are able to return to the burned structure, look around for any belongings – burned, melted or intact. Take pictures of these items and incorporate it into your list.
When the adjuster gets to your claim, it will obviously be one of many claims. The more documentation you can provide to the adjuster, it will be for them to make decisions and obtain a better settlement value for you quickly.
Additional Living Expenses
If you have lost your home or been temporarily displaced while it is being fixed, you will need to find alternative living arrangements. Coverage for these expenses can vary from policy to policy; however, the key is that this coverage is intended to cover additional living expenses. This means that anything added to what you must continue to pay for your destroyed home will be covered.
For example, if you have a mortgage payment, you can expect to get coverage for the rent cost associated with a similar property. You probably will not be covered for the cost of the utilities at the rental property because the utilities at your lost home ceased when the house burned down. You may be entitled to additional, less obvious coverage, such as gasoline costs due to a longer commute.
Ancillary Fire-Related Losses
Some policies cover costs associated with fire that do not actually involve losses caused by the full or partial burning of the house. Smoke and ash damage, for example, is destructive and may be covered. If your home was exposed to smoke or ash from a wildfire, have an inspection performed to evaluate its impact, especially since it is not always visible to the layman’s eye.
As we pointed out, insurance companies use adjusters of their choosing and this may not be in your best interest. If you suspect that the adjuster is not doing a proper inspection, consider pushing for an independent examination from a qualified expert paid for by the insurer. The insurance company may reject this, leaving you with the option to pay for it yourself. This is a judgment call, but where the damage is significant, it may be worthwhile for you to pay the cost and/or file a complaint with the insurance department about your insurers conduct.
Basis of Coverage
Above all, review the language of your policy. Ultimately, the only coverage you have is the coverage that your policy says you have. Therefore, it is best to review the policy terms to determine what you are entitled to before you file a claim and begin the adjusting process. Communicate with your agent. Think about what coverage you would want if your house was lost in a fire and make sure the coverage they are selling you matches what you envision.
For example, some policies may cover a particular home value, but does not account for the increased costs associated with being one of many losses all at once in a single area. The limited number of contractors and limited available materials drive up the price. If your policy is based on a home value, rather than actual replacement cost, you could be stuck with a deficiency in coverage.
Dealing with the insurance claims process for the first time after you experience a loss is a lot to handle in the midst of a very stressful time in your life, but it can still be done effectively. Follow the steps above and be careful not to let your insurance company or its adjusters trick you into committing to anything less than the full value of the coverage afforded by your policy. There are attorneys and other service providers who specialize in these types of claims who can help you with the process.
William Bennett is an Insurance Coverage Attorney at Saxe Doernberger & Vita, P.C. in San Diego, California.