On May 11, 2022, a wildfire destroyed at least 20 homes in the Laguna Niguel neighborhood of Orange County. Fire season is beginning earlier each year. Meanwhile, the costs to rebuild continue to skyrocket. These costs are rarely reflected in a homeowner’s insurance coverage, which means that every year, hundreds of people in California who lose their homes to wildfires find themselves unable to rebuild because they are dramatically underinsured.
Under California law, it can be difficult to force your insurer to pay the actual cost to rebuild once you find out you are underinsured. However, California law also states that once a homeowner specifically asks if they have enough coverage to rebuild in the event of a wildfire, if their agent or insurer provides a response, they are bound to that response.
So, what does that mean for homeowners currently nervous about another fire season?
Contact your insurer or agent now. Ask, in writing, if you have enough coverage in the event of a wildfire. Explain that you have seen the news articles about underinsurance, and you want to confirm that you are adequately insured if you need to rebuild. This may not result in your being adequately insured in the event of a fire. But it will enable you to require your insurer to adjust your coverage to pay the actual costs to rebuild once you confirm with contractors that you are in fact still underinsured.
Specific issues to address now with your agent or insurer:
- Most homeowner insurance coverage is set as a percentage of the Coverage A Dwelling coverage. That means that if your Coverage A is low, all of your coverage will be affected. Check to see if your agent or insurer has accurately listed the features of your home, and accurately chosen a style and “grade” of your home. There is almost a 50% difference in coverage between a house given an “above average” grade and a house with a “premium” grade, but agents and insurers rarely explain that, or go over the factors that affect the grade. Agents generally assign a grade based on their opinion, without going through the checklist that actually governs the decision.
- Ask about code upgrades, especially if you have an older home. Code upgrades are usually set at 10% of the Coverage A Dwelling insurance limit. But for older houses, code upgrades can be 50% of the cost of a rebuild. Homeowners can ask to increase that coverage, but agents rarely address it otherwise.
- Ask about landscaping and how it interrelates with county permit requirements. Insurers set landscaping limits at a few thousand dollars, usually. They do not adjust that for people with several acres of land. And counties in California generally have clear and specific requirements about steps that must be taken when rebuilding to manage erosion, including adding drainage and land cover. This can cost hundreds of thousands of dollars for people with large landholdings, yet insurance policies are rarely adjusted to cover it.
- Separate structure coverage is also set based on a percentage of the total Dwelling coverage. If you only have a driveway and a garage, that may be fine. If you have outbuildings, fencing, or a pool, all of that is covered under Separate Structures and it rarely is sufficient to cover everything without an increase.
Another year of fires means another year of families facing the destruction of all they have. Please do not assume that this cannot happen to you. Fire areas are growing and spreading and areas that were never previously in danger suddenly are at risk.
If you have done everything above and your insurer still refuses to pay what it costs to rebuild, know that you have options, and give Kantor & Kantor a call to discuss what those options could be. You are not alone in this. We can help.
