On Thursday, Insurance Commissioner John Garamendi praised both houses of the Legislature for their passage of his Homeowners Bill of Rights (HOBOR), designed to provide needed protections for homeowners in California.
Assembly Bill 2199 (Kehoe) passed from the floor of the Assembly unopposed Thursday afternoon. The other three HOBOR bills – AB 2962 (Pavley), Senate Bill 1474 (Escutia) and SB 1855 (Alpert) – were passed earlier this week.
“The insurance industry must fulfill its promises to its policyholders,” said Garamendi. “This bill package will help ensure that they do, and it will help prevent future occurrences of the types of serious problems we are seeing in the wake of the Southern California wildfires.
“I applaud the Legislature for its vision and fortitude, and I especially thank the courageous survivors of the 2003 Southern California firestorms for testifying in support of these bills,” the Commissioner added. “We are learning from their hardships so that we can prevent future disaster survivors from being victimized by the insurance process.”
Garamendi recently held several town hall meetings in the San Diego and San Bernardino areas to hear the concerns of survivors in the wake of the 2003 firestorms. The meetings were attended by more than 1,000 residents, many reportedly with numerous complaints about the way their claims are being handled by insurance companies. HOBOR seeks to address some of the most serious insurance problems that have surfaced in the wake of those disasters, ranging from underinsurance – when the insurance policy does not fully cover the cost to rebuild – to the “blacklisting” of families who use the insurance policy to rebuild their home or settle a claim.
The HOBOR bill package is summarized below:
• Senate Bill 1474 (Escutia): Requires an insurance company to issue and renew a homeowners policy unless the consumer made two or more claims within the preceding three-year period. Additionally, no surcharge on a homeowner’s premium can be levied unless there are two or more claims in three years. This bill should protect consumers by prohibiting insurance companies’ “use it and lose it” practices while also providing insurers with the opportunity to re-evaluate policies for consumers filing multiple claims.
• Senate Bill 1855 (Alpert): Requires insurance companies to disclose to homeowners the additional cost of broader insurance coverage than the homeowner’s current coverage. The costs shown would represent the additional premium that the consumer would be charged for the additional coverage, if the consumer were to opt for that category of coverage. Also amends the Petris disclosure language from “Extended Replacement Cost Coverage” to “Limited Replacement Cost Coverage with Additional Percentage Allowable” and “Replacement Cost Coverage” to “Limited Replacement Cost Coverage.”
Furthermore, this bill 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.
Making this information available will reportedly reduce the chances of, and amount of, underinsurance in the case of a catastrophic loss.
• Assembly Bill 2199 (Kehoe): Establishes a minimum 12-month period in non-catastrophic situations (with additional 6-month extensions if the policyholder can show good cause for needing more time), and a 24-month period for declared “state of emergency” situations for homeowners to repair, rebuild, or replace their home after a loss, commencing with payment of actual cash value. Also, it allows homeowners the flexibility to rebuild or replace in a different location than where the original loss occurred in the event of a total loss. While current time frames may prove difficult under normal circumstances, this is particularly problematic for consumers when there is a scarcity of materials and labor due to widespread catastrophic damage, such as the recent Southern California wildfires, or when the weather is uncooperative. Because of this marketplace reality, this bill contains an urgency clause.
• Assembly Bill 2962 (Pavley): Establishes a uniform measurement of “actual cash value” and prohibits the depreciation of labor costs from homeowner claims unless it is fully disclosed in the disclosure and policy. This clarity should help avoid protracted conflicts between homeowners and insurers on either issue.
AB 2962 also prohibits insurers from depreciating items that, by their nature do not wear out during the normal life of a structure, such as two-by-four studs or cement posts.
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