Calif. Commissioner Warns Homeowners to Re-examine Fire Coverage as Season Begins Early

May 7, 2004

Citing numerous and serious complaints concerning insurance coverage in the aftermath of last year’s Southern California wildfires, Commissioner John Garamendi on Friday urged the Legislature to act quickly on his Homeowners Bill of Rights (HOBOR) and protect consumers before future catastrophes occur.

The major components of the Commissioner’s legislative package passed through committee hearings this week and will next be heard on the Senate and Assembly floors. They address key issues that will reportedly protect homeowners and hold insurers accountable. But the Commissioner warned homeowners that they shouldn’t wait for the bills to pass, because time is of the essence.

“Act now to protect yourself,” Garamendi said. “Learn the lessons being taught by the brave survivors of last year’s firestorms. They have discovered that in many cases their policies won’t cover the cost of rebuilding. One told me that he can’t get coverage for a new home because he filed a claim on his burned property. Don’t let this happen to you if disaster strikes your home next.”

Earlier this week the Commissioner invited a group of survivors to Sacramento to tell legislators about the real need for his HOBOR legislation. They testified before committee hearings and spoke to lawmakers in face-to-face meetings, describing about the serious problems they’ve encountered after filing claims with insurers. Their stories reportedly made an impact.

“Those survivors were the real difference in helping this legislation move through committee hearings,” the Commissioner said. “They are working to make sure that what happened to them won’t happen to others in the future. They are the real heroes.”

Following a keynote address to members of the Torrance Chamber of Commerce Friday afternoon, the Commissioner recommended these steps that homeowners can take to help prevent their insurance issues from becoming a problem:

• Make sure policies and important documents such as mortgage papers are stored in a safe place, such as a safety deposit box.
• Take pictures of all rooms and valuables and store them in a safe place.
• Most importantly, re-read and understand your insurance policy, especially all disclosures. It is essential to understand whether it will cover your needs in the event of a catastrophe.

“Underinsurance is a serious issue for the people who lost their homes in last year’s firestorms,” said Garamendi. “I have held four town hall meetings in the burn areas, and nearly 1,000 people attended. Many of them now know that the policies they bought fall far short of making their lives whole again.”

The HOBOR bills address the underinsurance issue, as well as problems involving the availability of insurance to those who file claims, a mediation program to resolve disputes, the disclosure of the cost of various levels of coverage, and an extension of the amount of time homeowners have to rebuild after their property is destroyed.

The Commissioner’s HOBOR legislation:

• Senate Bill 1855 (Alpert) – Requires insurance companies to disclose to homeowners the additional cost of coverage that is more extensive than the homeowner’s current coverage. It also requires insurers to include additional information about the insured property on the declaration page, such as the square footage of the insured structure, as well as a disclosure statement regarding the valuation of the structure (the dollar amount per square foot to rebuild). The disclosure will also inform the consumer to seek additional information if he or she does not believe the limit of liability is sufficient to rebuild the structure.

• Assembly Bill 2199 (Kehoe) – This bill establishes a minimum period for homeowners to repair, rebuild, or replace their home after a loss. It allows a 12-month period in non-catastrophic situations (with additional 6-month extensions if the policyholder can show good cause), and a 24-month period for declared “state of emergency” situations. The time commences with the payment of actual cash value. In the event of a total loss, allows homeowners the flexibility to rebuild or replace in a different location than where the original loss occurred.

• Senate Bill 1474 (Escutia) – (As proposed to be amended) Requires an insurance company to issue and renew a homeowner’s policy regardless of weather related claims or claims as a result of a natural disaster which occurred at no fault of the consumer. Also prohibits nonrenewal and denial of coverage when less than three claims are filed within three years. This bill will protect consumers by prohibiting “use it and lose it” practices by insurance companies, while at the same time providing insurers with the opportunity to re-evaluate policies for consumers filing multiple claims.

• Assembly Bill 2962 (Pavley) – (As proposed to be amended) Establishes a uniform measurement of “actual cash value” and prohibits the depreciation of labor costs from homeowner claims unless this is fully disclosed in the California Residential Property Insurance Disclosure and in the individual’s homeowner policy.

• Fire Victim Claims Mediation (Bill # to be determined): This proposed legislation would give the California Department of Insurance authority to sponsor a mediation program to expedite the resolution of conflicts between victims of the Southern California wildfires and their insurance carriers. It would cover issues relating to coverage, scope of loss, and claims settlement and payment practices. Mediators would be selected from a list of qualified applicants established by the Department but paid for by the insurer involved in the dispute. The program is voluntary, either party may accept or reject any agreement proposed during the mediation, and consumers would have up to three days to rescind any agreement reached during mediation.

The California Department of Insurance Web site has information at

Editor’s note: See similar warnings of fire prevention from the ACIC in the West news.

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