Important California Laws that Pertain to Property Insurance Policies After a Declared Disaster
Last year, on November 8 and 9, 2018, California’s Acting Governor Gavin Newsom proclaimed a state of emergency in California counties where numerous wildfires began that month and continue to impact the state.
On November 14, 2018, California Insurance Commissioner Dave Jones declared an emergency situation in connection with those wildfires. He authorized out-of-state non-California licensed claims adjusters to adjust claims in the fire areas as reasonably necessary and in conformity with the requirements of California Insurance Code section 14022.5 and all other insurance laws.
The authorization read:
Notice is hereby given that 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.
Permitting out-of-state non-California licensed claims adjusters to adjust claims has resulted in a more effective response by insurers to expedite initial payments to those impacted by the wildfires.
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. Further, insurance companies and agent-brokers should also take steps to ensure that underwriting transactions (i.e. cancellations, non-renewals), and representations made on underwriting issues, comply with laws in place to protect insureds after a total loss or declared disaster. All property and casualty licensees must be knowledgeable about these laws and provide guidance to insureds that is consistent with these laws.
The laws referenced include but are not limited to the following:
Time Limit to Collect Full Replacement Cost – Sec. 2051.5 (b) (1)
No time limit of less than 12 months from the date that the first payment toward the actual cash value is made shall be placed upon an insured in order to collect the full replacement cost of the loss, subject to the policy limit. Additional extensions of six months shall be provided to policyholders for good cause. In the event of a loss relating to a “state of emergency,” as defined in Section 8558 of the Government Code, no time limit of less than 36 months from the date that the first payment toward the actual cash value is made shall be placed upon the insured in order to collect the full replacement cost of the loss, subject to the policy limit. Nothing in this section shall prohibit the insurer from allowing the insured additional time to collect the full replacement cost. Note: AB 1772 which extended the time to rebuild and collect full replacement cost from 24 to 36 months after a declared disaster has an urgency clause and is currently in effect for the new fires.
Time Limit to Collect Additional Living Expenses – Sec. 2051.5 (b) (2)
In the event of a covered loss relating to a state of emergency, as defined in Section 8558 of the Government Code, coverage for additional living expenses shall be for a period of 36 months, but shall be subject to other policy provisions, provided that any extension of time required by this paragraph beyond the period provided in the policy shall not act to increase the additional living expense policy limit in force at the time of the loss.
Rebuilding in Current Location or Rebuilding or Replacing in a New Location – Sec. 2051.5 (c)
Homeowners may use their replacement cost insurance coverage to (1) rebuild at the current location, (2) rebuild on a new location, or (3) purchase an already built home at a new location.
In the event of a total loss of the insured structure, a policy issued or delivered in this state shall not contain a provision that limits or denies, on the basis that the insured has decided to rebuild at a new location or to purchase an already built home at a new location, payment of the building code upgrade cost or the replacement cost, including any extended replacement cost coverage, to the extent those costs are otherwise covered by the terms of the policy or any policy endorsement. However, the measure of indemnity shall not exceed the replacement cost, including the building code upgrade cost and any extended replacement cost coverage, if applicable, to repair, rebuild, or replace the insured structure at its original location.
Homeowners are entitled to the “extended” or “guaranteed” portion of their replacement cost policies and any building code upgrade costs (if applicable) even if they rebuild or replace in a new location.
Note: AB 1800 clarified an insured’s right to collect the full replacement cost of their home in the event of a total loss, whether they decide to rebuild, replace at another location, or purchase an already built home at a new location. This bill has an urgency clause and is currently in effect for the new fires.
If you have any questions, or would like to explore fire insurance solutions with me, please call (530) 661-0666 or email me at email@example.com.
Content provided by the California Department of Insurance