QUESTION: Over the last few years, several of my clients have lost their homes because of wildfires. Many of my clients have been complaining about the limitations on their replacement coverage and, to add insult to their situation, they could not renew their insurance policies. I heard there are some new insurance laws. What should I tell my clients?
ANSWER: The bottom-line answer is that, although there is a new law which immediately impacts how insurance companies in California can handle claims and underwrite insurance policies following the recent wildfires, short-term and long-term effects are not yet known and clients need to discuss their particular situation with their own Insurance Broker and/or qualified California real estate attorney.
Senate Bill 240 was signed by the Governor on October 3, 2019. That bill amended existing provisions in the California Insurance Code and created a new provision, §14046 which requires the California Department of Insurance (“CDI”) to annually prepare and deliver to everyone who is licensed under the Insurance Adjuster Act a Notice describing significant California laws pertaining to insuring real property. The new law also requires the CDI to create a separate handbook that includes information relevant to evaluating damage caused by an emergency — including wildfires and other natural disasters — which result in a state of emergency.
Acting in compliance with SB 240 and recognizing the urgency created by the recent wildfires that lead to that legislation, on November 5, 2019, the CDI issued a Notice that is effective immediately. Separately attached is a copy of the CDI Notice Re: Significant California Laws Effective as of the Date of this Notice that Pertain to Residential Property Insurance Policies, including those related to a Declared State of Emergency.
Some of the highlights of the attached Notice include the following significant changes:
- The time limit to collect additional living expenses for a covered loss relating to a state of emergency shall be for at least 24 months from the inception of the loss, and an extension of up to 12 additional months must be granted if, despite the good faith efforts of the insured, there have been delays in the reconstruction process that were beyond the control of the insured.
- An insured may use their replacement cost insurance coverage to: (a) rebuild at the current location; (b) rebuild at a new location or (c) purchase an already built home at a new location.
- Insurers shall, for at least two annual renewal periods, renew the policy of insurance as long as the loss was caused by a disaster and not caused by the acts or omissions of the insured and there have been no other changes to the insured property that make it uninsurable.
- Insurers 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 state of emergency was declared.
NOTE: The separately attached Notice and prior Notices applicable to the date of the pertinent fire or other declared emergency should be consulted by clients and their qualified California real estate attorney to determine which laws were applicable at the time of the declared emergency. That information is available on the CDI website at:
www.insurance.ca.gov/01-consumers/140-catastrophes/WildfireResources.cfm
The separately attached CDI Notice includes an important disclaimer at the bottom of page 5 that states:
“The above laws are significant laws effective as of the date of this notice. Some of the above laws may not pertain to prior disaster claims.”
The CDI information that is provided with this Weekly Practice Tip is general in nature and should not be construed as a substitute for clients retaining the services of their own qualified California real estate attorney.
BEST PRACTICE TIPS:
- Agents should not give any opinions to Buyers as to the availability or cost of insurance; those questions should be referred to the client’s Insurance Broker and Buyers should be urged to investigate that issue during their inspection/investigation contingency.
- Agents should not give any opinions to past or present clients as to what an Insurance Company or its Adjusters should or should not be doing in handling insurance claims following a declared state of emergency.
- Agents should encourage their past or present clients to discuss insurance coverage issues with their Insurance Broker and to specifically request that the Insurance Broker or Adjuster provide them with the current CDI Notice or any other CDI Notice that the Insurance Broker or Adjuster believes is pertinent to the clients’ claim.
- If clients believe that they have not been treated fairly by an Insurance Company, Insurance Broker and/or Insurance Adjuster, then the Agent should advise the client, preferably in writing, to discuss their claims with a qualified California real estate attorney who will determine whether or not the client should file a complaint with the CDI.
DO NOT FORWARD TO SELLERS OR BUYERS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.
© Copyright Broker Risk Management 2019 11/15/19