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California Wildfire Disasters: The Interpretation and Implementation of Our New Insurance Laws

california insurance insurance laws the communicator wildfires May 24, 2020

By: Amy Davis

On a Thursday morning, I received the call that no daughter ever wants to receive. It was from my mom and her car was surrounded by fire. At the same time that I was taking my mom’s call, my dad and stepmom were sending me videos of several fires on the opposite side of town from where my mom was located. This was Paradise, California, November 8th, 2018.

November 11, 2018, I flew to Chico to be with family and friends and to help them with their insurance claims. Almost immediately, the question arose, “Can we just cut our losses and move?” The answer was an easy “yes.” Fortunately for survivors of the Camp Fire and future wildfire victims, California has passed several laws aimed at protecting persons whose interests are covered under insurance policies following a declared disaster.

Insureds whose homes are a total loss can now use a greater amount of their policies’ coverages to purchase an existing home or rebuild elsewhere. Prior to 2018, our California insurance code (CIC) only allowed insureds who moved the option of using their structure coverage (Coverage A). Passed on September 21, 2018 and immediately amending CIC 2051.5, Assembly Bill 1800 makes it clear that after a total loss homeowners can use their replacement cost, extended replacement cost, and building or ordinance coverages to buy an existing home or rebuild at a different location.[1]

AB 1800 is vague in that it does not answer the question as to whether or not insureds can rebuild or purchase in a state other than California. I spoke with several claims adjusters and nearly all confirmed that their insureds were being allowed to rebuild or purchase in any state. However, one claims adjuster informed me that his company’s policy asserts that insureds must rebuild or purchase in the state of California. I could not find this verbiage in his company’s policy contract; however, it does not seem reasonable that our insurance code can dictate what occurs in other states.

There were other issues that I encountered with AB 1800. All of the insureds that I spoke with who had purchased existing homes had not been notified by their claims adjusters that their extended replacement cost and building or ordinance funds were available. Instead, many of these claims adjusters attempted to finalize and close the insureds’ claims. A good portion of these homes had some building code issues when purchased; and, the insureds had no idea that they could use their building or ordinance funds for these repairs. To make matters worse, one company’s claims adjuster stated that the insureds’ building or ordinance was not “transferrable” to the existing home that they had purchased in Paradise. And, another company’s claims adjuster informed me that building or ordinance coverages don’t come into play in the rebuilding of an insured’s total loss home as “they’re really meant for upgrades to a home that is still standing, like a roof that isn’t up to code.” Also, future (ethereal) building code items are “figured into the replacement cost calculation” when the policy is written so they fall under the structure (Coverage A) payment. Attempting to back-peddle on his claims adjuster’s statements, this adjuster’s supervisor emailed me stating, “The first thing is you are correct that the customer does have endorsement […] on file which would grant them 10% additional coverage for building, law, and ordinance.” Then implying that he was doing the insureds a favor rather than complying with state law, the supervisor continued, “for the wildfires in this area for that specific catastrophe [the company] has made a business decision to pay the full amount of extended replacement cost and building, law and ordinance coverage.” From my viewpoint in the middle of these claims, it appears that the interpretation and implementation of AB 1800 are being left up to the various insurance carriers.

California Senate Bill 894 was also passed in September, 2018. SB 894 helps homeowners reduce their financial burden if they are underinsured and cannot afford to rebuild. This bill gives insureds the option of moving the amount of their additional structures coverage (Coverage B) settlement to their structure coverage (Coverage A) within their homeowners’ policies to help offset some of the underinsured amount in their homes. Insureds only qualify for this provision if they meet the following requirements: 1) It is following a declared disaster; 2) They suffer a total loss; 3) They are underinsured in their structure coverage.

Additionally, Senate Bill 894 allows insureds three years (36 months) to use their additional living expense (ALE) following a declared disaster. “An insurer shall grant an extension of up to 12 additional months, for a total of 36 months, if an insured acting in good faith and with reasonable diligence encounters a delay or delays in the reconstruction process that are the result of circumstances beyond the control of the insured. Circumstances beyond the control of the insured include, but are not limited to, unavoidable construction permit delays, lack of necessary construction materials, and lack of available contractors to perform the necessary work. Additional extensions of six months shall be provided to policyholders for good cause.”[2]

Senate Bill 894 also requires that insurance companies provide insureds suffering a total loss two renewal offers, instead of one.

Similar to SB 894, Senate Bill 824 provides for a prohibition on the cancellation and non-renewal of residential property insurance policies in and adjacent to the fire perimeter. “An insurer shall not cancel or refuse to renew a policy of residential property insurance for a property located in any ZIP Code within or adjacent to the fire perimeter, for one year after the declaration of a state of emergency, as defined in Section 8558 of the Government Code, based solely on the fact that the insured structure is located in an area in which a wildfire has occurred. This prohibition applies to all policies of residential property insurance in effect at the time of the declared emergency.”[3]

Unfortunately for insureds in and around the Camp Fire perimeter, SB 824 did not amend our insurance code until January 1, 2019. Several insureds in Butte County’s fire-affected areas are receiving non-renewal notices from their insurance carriers. For one of Oroville‘s Kelly Ridge couples, the insurance company’s stance is that, “the insured location is not within a wildfire impacted zone and therefore is eligible for non-renewal.” They filed a complaint with the California Department of Insurance (CDI); however, the complaint was denied.

The second case is in Forest Ranch. The fire came within 3.1 miles of this insured’s home and the home’s zip code is located within the fire perimeter. However, per the CDI, since the home was not a “total loss” then the insured has no rights to a renewal under SB 824. Referencing only the first few sentences of SB 824 and the subsequent amendments to CIC 675.1(a)(2) and (a)(3) rather than the amendments to CIC 675.1(b)(1) and (b)(2), the same CDI associate insurance compliance officer who denied the Kelly Ridge complaint stated that, “The Senate Bill 824 amends CIC 675.1 which relate to the cancellation of an

insurance policy in the case of a total loss to the primary insured structure.” This is not entirely true and, in my opinion, the wording by the CDI would lead most people to believe that SB 824 was put into effect prior to the Camp Fire. As of the writing of this article, the insured has only received one call from the CDI compliance officer who finally stated that the amendments to CIC 675.1 were not made effective until after the Camp Fire (January, 2019)[4], so they are not applicable to his complaint. To date, this insured’s complaint remains open and the CDI associate insurance compliance officer has not returned my calls.

Filed by first responders who left their evacuated families to work the Camp Fire, both of the above complaints were first sent to the insurance carriers by the CDI. In one response, the company employee stated, “Please be assured, this action was taken in compliance with Senate Bill 824.” Once again, begging the question, “Was SB 824 in effect at the time of the Camp Fire or not?”

Three additional bills were passed in September, 2018. Assembly Bill 1772 extends the amount of time homeowners have to rebuild or replace their insured properties from two years (24 months) to three years (36 months) after a declared disaster and receive the full replacement costs to which they are entitled.[5] Assembly Bill 2594 extends insureds’ rights to sue their insurance carriers following a declared disaster from 12 to 24 months.[6] And, Assembly Bill 1875 addresses extended replacement cost coverage, which allows property owners to purchase limits above the estimated cost to replace their homes. AB 1875 would require an insurer that does not provide at least 50% extended replacement cost to help the insured find an insurer that might.[7] (In the competitive world of insurance, only time will tell how AB 1875 shakes out.)

Nearly all insurance companies have pulled out of the market in the fire-affected areas. The only standard carrier that is still writing multi-peril new business in Paradise is a large insurer of manufactured or mobile homes. However, this company is only writing new business in Paradise, not in Magalia and other communities within the fire perimeter. Families purchasing existing, conventionally-built framed houses or building traditional homes on newly purchased lots will only have the options of coverage through non-admitted surplus line insurers[8] that are not insured by our California Insurance Guarantee Association (CIGA)[9] or the California Fair Plan (CFP)[10], which is paired with a difference in conditions (DIC) policy[11] through a participating company. At a minimum, both of these options double the annual premium that insureds were previously paying for similar policies. Additionally, no DIC policies are currently being offered for manufactured/mobile homes. Therefore, if insured through the CFP, mobile home owners are left with huge gaps in their coverage. One of my first recommendations to fire victims was that they continue to pay their insurance premiums. This assures residents rebuilding on their existing lots insurance coverage for at least two years if their homes and/or landlord properties were total losses.

California Insurance Commissioner Ricardo Lara (who authored SB 824 as Senator Lara) met with victims of the Camp Fire and told insureds, “We want to be very clear, the Department of Insurance stands with our community here in Paradise[…] He added that the department wanted to be ‘as aggressive as possible,’ when it came to providing the services needed.” The commissioner also “encouraged people to contact the Department of Insurance if faced with a non-renewal notice.”[12] The commissioner’s statements are an interesting read months after his short-lived January, 2019 appearance in Paradise and the subsequent “free” (taxpayer-sponsored) workshops held in February. I left several messages for Commissioner Lara regarding the ongoing non-renewals, claims adjusters’ interpretation and implementation of AB 1800 (CIC 2051.5), and the gaps in new mobile home policies. As of the writing of this article, I have not heard back from the commissioner. To be fair, it would appear that our top insurance regulator has been preoccupied with a potentially prosecutable matter involving his rent[13], while he “is already under scrutiny for his campaign fundraising and perceived coziness with the insurance industry.”[14] Although Commissioner Lara is “sorry” for taking “at least $50,000 in contributions from insurance executives”[15], this apology falls flat for insureds in and around the Camp Fire perimeter who are filing complaints with the CDI against insurance carriers.

A good majority of my friends’ and family members’ claims were handled swiftly and fairly by their insurance carriers. However, in a small town where word gets around, many insureds are baffled at how a few insurance carriers paid out claims with no questions; whereas, several other companies have insureds itemizing and replacing personal property prior to the payout of full replacement cost (per policy contract). Also, one insured might be receiving $5,000 per month in ALE when another, in exactly the same situation with the same policy contract, is only receiving a fraction of that amount.

For insureds, the inconsistency on the part of the CDI and the subsequent inconsistency of insurance carriers appears to be unfathomable. Insureds are relying on their claims adjusters to properly interpret and implement our insurance laws; however, in many cases, this is not occurring. Per the CDI “all claims adjusters, whether California-licensed or not, who are assigned to wildfire claims must be properly trained on the California Unfair Practices Act, Fair Claims Settlement Practices Regulations, and all laws relating to property and casualty insurance claims handling. Some insurance laws are specifically triggered by a declared disaster and impact how claims are paid and the various timeframes for payment of claims that supersede policy provisions to the contrary.”[16] This August 1, 2018 memo merely leaves us with further questions for the CDI: “Is this training being enforced and how is it being enforced?”

The day of the fire, all of my family members and friends were able to make it to safety. The only unknown for several hours was my mom. Prior to the cell towers going down and us losing contact, my mom was able to tell me that she and a group of about 100 people were moved out of their cars and into a parking lot, where they were surrounded by one of the many fire departments’ strike teams. Several hours later, my mom was able to follow the fire department and other evacuees to Oroville where she called to tell us that she was shaken, but okay.

I’ve returned to Paradise several times since the fire. Undamaged businesses are reopening and some homeowners are beginning to rebuild. One year later, the process is slow. Most of the town’s water is still contaminated with benzene, a chemical that is toxic in liquid and vapor forms. Drinking and bathing water must be purified or brought into homes that withstood the fire. The debris cleanup is also overwhelming. Not only were homes lost, but the majority of the town’s infrastructure was destroyed. It seems that it will be many years before Paradise is once again “all its name implies”.

Click below to see all article photos or view The Communicator here.

Amy Davis, MA is an insurance broker[17] for Solomon & Solomon Insurance Brokers, Inc. and specializes in personal lines policies. Her family moved to Paradise in 1968.

California Wildfire Disasters: The Interpretation and Implementation of Our New Insurance Laws

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