IF YOU ARE CONSIDERING RELOCATING, IT IS URGENT THAT YOU PLAN CARFULLY PRIOR TO PURCHASING THE REPLACEMENT PROPERTY IF YOU DON’T FULLY UNDERSTAND THE BELOW INFORMATION, CONTACT BOB ELLENBERG
NEW INSURANCE REGULATIONS AFFECT RECENT FIRE VICTIMS—AND IT’S NOT ALL GOOD!
Recent changes to the California Insurance Code will have a huge impact on claim settlements. Two major changes extending critical time limits from 24 months to 36 months will greatly benefit many victims of both the Camp Fire and the Woolsey Fire. However, another change will greatly reduce benefits for many of those who choose to relocate rather than rebuild.
The California Insurance Code Section 2051 previously provided additional benefits in the case of a loss related to a “state of emergency”. One of those benefits extended the time to collect the full replacement cost of the loss to 24 months from the date that the first payment toward the actual cash value was made, subject to the policy limit. The other major benefit was coverage for additional living expenses which was extended for up to 24 months, subject to other policy provisions (limits).
However, in the aftermath of the 2015 Valley Fire in Lake County, public adjuster Bob Ellenberg of Unity Adjustments began contacting elected officials urging them to consider extending those time frames to 36 months.
Shortly thereafter, Ellenberg heard back from Senator Mike McGuire’s office and from an Aide from Assemblymember Cecilia Aguiar-Curry’s office who wrote Ellenberg to let him know they were introducing legislation to do exactly what he had requested. In January of 2018 they introduced AB 1772 proposing those two changes.
Finally, on September 21, 2018 the new language for Insurance Code Section 2051 was signed into law. As originally requested by Ellenberg, it extends the above referenced time lines regarding claim settlements from 24 months to 36 months.
However, Ellenberg was shocked to find another change that was not in the original language of AB 1772 when it was introduced into the legislature earlier this year. Under the original wording of Sec 2051, if an insured decided to rebuild or replace at a location other than the insured premises, the law required the measure of indemnity to be based upon the replacement cost of the insured property and prohibited it from being based upon the cost to repair, rebuild, or replace at a location other than the insured premises. The added language now prohibits the measure of indemnity from exceeding, rather than requiring it to be based upon, the replacement cost, as specified.
So, what does all this “insurance legalese” mean as there are likely to be hundreds of victims who choose to relocate, particularly from the Camp Fire? To try and explain (it is complicated!), let’s take an average house based on statistical averages from real estate data reports for the Paradise area and assume there is enough insurance coverage to rebuild.
Average size house 1,440 sq ft with a value of $175 per square foot or $252,000
(which includes the value of the land @$46,000)
Cost to rebuild $288,000
First payment from Insurance for Fair Market Value ($252,000 - $46,000) $206,000
Replacement cost benefits yet to be collected upon rebuilding $ 82,000
But the prospects of rebuilding in a community so devastated as Paradise are almost insurmountable, so you look in another community for a comparable house. However, prices are already rising in the aftermath of the fire and with those escalating prices, you find a similar house for only $275,000, a pretty small increase!
Your insurance carrier will take your contract price of $275,000
Minus the value of the land @ $46,000 $ 46,000
Amount you are spending for replacement cost $229,000
Minus Fair Market Value payment previously paid $206,000
Replacement cost benefits you will now receive are only $ 23,000
NET LOSS UNDER THE NEW LAW $82,000 minus $23,000 $ 59,000
So how are you going to be able to purchase the replacement house that cost $275,000 if your insurance company is only paying you $229,000? You still have your lot but can you find a buyer at any price now, let alone the $46,000 it was worth prior to the fire?
Under the old Sec 2051 language, once you are buying the replacement house for $275,000, the insurance company owed you the additional $82,000. And realistically you would have needed it because prices are escalating and you can’t find a similar house for $252,000. And by going to a new location and spending $275,000 you have to get a new mortgage loan and title insurance along with other costs which could easily eat up the extra $ 13,000 you had from being paid the full replacement cost of the house that burned ($288,000 minus $275,000). But under the new law, you would not get any more than the $229,000, $59,000 less. In other words, unless you have extra cash available, under the new Sec 2051 law, many of those wanting to relocate probably cannot afford to do so or will have to downsize to a lesser property.
To read all of Ins Regulation 2051, go to http://leginfo.legislature.ca.gov/faces/codes.xhtml
Insurance Code, Division 2 Classes of Insurance, Part 1 Fire and Marine Insurance, Chapter 2 The Fire Insurance Contract, Article 2 Measure of Indemnity, 2051
Bob offers one-on-one consultation to any who have lost their home in the wildfires and can help you maximize your recovery whether you are rebuilding or relocating to another property. For an appointment call 707-987-HOPE.
(for a more detailed explanation of how 2051 has been changed and documentation that Public Adjuster Bob Ellenberg was in fact the person that started the “push” for the extensions from 24 months to 36 months, click here. (open the PDF)