Recent wildfires in Southern California are putting new California insurance laws to the test. Insurers’ conduct and behavior vary wildly, even for people who hold similar policies with the same companies.
For policyholders who have suffered total losses of their homes, many are being offered differing amounts of their Dwelling benefits. For example, a homeowner with a USAA reported to me that they were being paid 100% of their dwelling limit. They boasted that USAA was really “taking care of them” and that their neighbors with State Farm or California FAIR Plan were not being advanced any dwelling payments. This homeowner didn’t realize that their USAA policy included a ‘Special Loss Settlement’ endorsement, which obligated USAA to pay 100% of their dwelling limit. In other words, they weren’t receiving special treatment—USAA was simply following the terms of their policy.
Meanwhile, responses from other carriers, including State Farm, have varied widely. Some insureds are reporting that State Farm is paying, without question, 50% of the Dwelling A limit. Others have reported payment of 75% of the Dwelling A limit, with only limited information available on the property.
Why would insurers pay out large portions of Dwelling A limits without thoroughly investigating the property? There are several reasons. First, if the insured is grossly underinsured on a total loss, it is a sound business decision to simply pay out on the claim. However, another reason may be more nefarious. Under newer California laws that were enacted in 2021, homeowners with losses during a “state of emergency” may be subject to certain time restrictions to rebuild:
[A] time limit of less than 36 months from the date that the first payment toward the actual cash value is made shall not be placed upon the insured in order to collect the full replacement cost of the loss, subject to the policy limit.
Cal. Ins. Code Section 2051.5(b)(1)(B)
By issuing an initial dwelling payment, insurers start the 36-month deadline for homeowners to claim full replacement costs. Homeowners do have some protection from this clock running out as subsequent sections do mandate insurers to:
[T]o a provide policyholder one or more additional extensions of six months for good cause pursuant to subparagraph (A) or (B) of paragraph (1) if the insured, acting in good faith and with reasonable diligence, encounters a delay or delays in approval for, or reconstruction of, the home or residence that are beyond the control of the insured. Circumstances beyond the control of the insured include, but are not limited to, unavoidable construction permit delays, the lack of necessary construction materials, or the unavailability of contractors to perform the necessary work.
Cal. Ins. Code Section 2051.5(b)(2)
As long as you continue to ask for extensions, your carrier should provide them. However, many policyholders forget to request extensions, especially years after the loss. A common scenario often occurs when an insured remembers to ask for an extension on the final day of their sixth-month period.
Failing to meet these deadlines can have serious financial consequences. Many policies include ‘Extended Dwelling Replacement Cost’ or ‘Increased Dwelling Limit’ provisions, which increase coverage beyond the limits listed on the Declaration page—often by a fixed percentage. In the end, each policyholder’s situation is unique, and their decision should align with their plans for the property.
