We’re not talking about the kind you toast s’mores over, or the kind you sit around telling ghost stories. The Camp Fire of November 2018 will long be remembered in California for its loss of life (either 86 or 88 fatalities depending on the source), property (over 13,000 homes and 5,000 structures) and the nagging sense of dread that many persons share that the next one might be even more destructive.
As I write this (August 28, 2019), there are three wildfires burning in California, none of which are completely contained: the Border 10 Fire, the Long Valley Fire, and the Horse Fire. The Shasta Fire appears to have been completely contained. The past spring and summer have seen plenty of rain, so that has certainly helped.
From an insurance perspective, what coverage do you have? What should you look for in your policy? A recent article by Nicole Friedman in the Wall Street Journal (“Californians In Fire-Prone Areas Find it Harder to Buy Insurance”, August 20, 2019) addressed the difficulties many consumers are having. Some are purchasing what is referred to as “surplus lines” coverage. This coverage is often expensive, and will often cover what standard insurance will not (flood, for example). Others are looking to the California Fair Plan.
If this is the route you choose to take, read your policy carefully. Unlike standard homeowners coverage, the Fair Plan provides limited coverage, and you must elect the coverages you want. So, for example, when you choose fire or lightning, any damage caused by these or any other cause of loss must be “evidenced by permanent physical changes to the covered property.”
And then there is this in the loss settlement condition. In the case of a partial loss (such as smoke damage), the insurer will take a deduction for physical depreciation to components of the structure that are normally subject to repair and replacement during the useful life of the structure. So who decides what’s normally subject to repair and replacement? For example, an insured might carefully select designer wallpaper, intending it to last some 20 years. But according to the insurer, it should be depreciated after 10 years because that is “normal.”
There is a caveat: “The amount of coverage (money available for smoke damage) is determined by timeliness of claim reporting. Time is measured from the date of the fire’s full containment as determined by Cal Fire [https://www.fire.ca.gov] or the local fire agency overseeing fire suppression efforts to the date of the first report of smoke damage to us: smoke damage losses that are reported within 45 days of the fire’s full containment are covered up to the applicable policy limit; smoke damage losses that are reported after 45 days are limited to $1,500.” Yes, certainly when your home is within miles of being burned down and you are under evacuation orders you will definitely have time to jump on your computer (if you have a charged battery) to report a smoke loss.
Keep this in mind if considering a Fair Plan policy; sometimes the most expensive is the most cost effective.
For those insureds with a standard homeowners or commercial policy, coverage for fire is fairly straightforward. Fire is always a covered cause of loss (excluding arson of course). The peril of smoke in the commercial property form applies to smoke other than from agricultural smudging or industrial operations, since these are considered to be ongoing and therefore unable to be insured against. Smoke in a standard homeowners policy excludes industrial or agricultural smoke, but applies to sudden and accidental smoke damage including that from the insured’s own furnace, such as puffback.
It is in the loss reporting duties of the insured on either commercial or personal policies that we find a notable difference from the Fair Plan form. The insured is instructed to give prompt notice to either the agent or the insurer. No time limit is typically imposed.
Whatever route you choose, please be sure to read your policy carefully. And remember, in the haste to settle a massive amount of claims, adjusters and insurers can make unintentional mistakes. So, if you have sustained a loss, review your coverage, try as best as possible to keep an accurate record of expenses for preventive repairs and the like, and notify your insurer. And, keep this in mind—you may always request that your insurer revisit (and reconsider) a claim, but the policy will impose a time limit on bringing suit against the insurer. It is important to keep that time limitation in mind if you intend to pursue a claim.
To end on a sobering note: an article by Nicole Friedman entitled “No One Can Agree on How to Price California Home Insurance for Wildfires” in the Wall Street Journal (September 16, 2019) discusses the dilemmas faced by both insurers and consumers. Many insurers want to use algorithmic catastrophe modeling in setting rates, but in California state regulations require insurers to use historic-loss data. However, catastrophic models can be used for certain regions. To date, no decisions have been made as to how to price insurance for wildfire disasters.