The Butte fire has destroyed more than 500 homes in Calaveras and Amador counties. According to a recent lawsuit, the fire may have been started by a Pacific Gas & Electric Co. power line coming into contact with a tree. This gives rise to the prospect that PG&E could haveliability for damages caused by the Butte fire. However, the fire damages are also likely covered, at least in part, under homeowners’ insurance policies. When a wildfire like the Butte fire, or any event that causes loss, occurs because of the fault of a third party, and the loss is also covered by insurance, questions often arise regarding the interplay between obtaining policy benefits from your insurer, and damages from the responsible third party.
It is entirely proper to present an insurance claim for damages from the Butte fire, obtain available insurance policy benefits, and also sue the responsible third-party, which in this case may be PG&E. There are many items of damage people can suffer from a wildfire that are not covered by insurance. For instance, shrubs, trees, and vegetation are often subject to a low sub-limit in insurance policies. However, under California law, a third-party tortfeasor who injures someone’s “timber, trees, or underwood” is responsible for three times the full value of the trees and vegetation. (California Civil Code §3346.) In addition, many homes are often underinsured, and a homeowner cannot collect beyond the limits of the insurance policy. However, there is no limit on the liability of a third-party like PG&E for the damages its conduct causes. Further, people can recover for emotional distress against a responsible third-party, but do not get policy benefits for emotional distress. In addition, PG&E, because it operates a utility line, may be liable for inverse condemnation, which provides for attorney’s fees that would not be available an insurance policy.
A third-party like PG&E is not entitled to deduct the amount you were paid by your insurance company from its liability for the damages they caused. This is known as the collateral source rule, and provides that where a person who suffers a loss receives “some compensation for his injuries from a source wholly independent of the tortfeasor” then the amount received is “not be deducted from the damages” the third-party wrongdoer owes. (Hrnjak v. Graymar, Inc. (1971) 4 Cal.3d 725, 729.) However, practically speaking, your insurance company has a right of “subrogation” for the amount they paid for the loss against the culpable third-party, which in this case allegedly is PG&E. (21st Century Ins. Co. v. Superior Court (2009) 47 Cal.4th 511, 518.) Thus, in all likelihood, an insured can only obtain from the responsible third-party damages above and beyond what the person received from their insurance company.
In a wildfire, homeowners often suffer significant losses which are often not fully recoverable under insurance, but are obtainable in a suit against the entity responsible for causing the fire. Persons who have suffered damage as a result of the Butte fire have every right to make an insurance claim, and seek recovery from any culpable third parties responsible for starting the fire.
California is known for its wildfires. Almost annually, it gets wildfires that causes significant damage to homes and neighborhoods. Recent examples include the massive 2009 Station fire, the 2010 Crown fire, the 2011 Lake Isabella fire, the 2012 Ponderosa fire, the 2013 Clover fire, and 2014 King fire, among many others. Summertime in California is often referred to as wildfire season, and it can begin as early as the Spring.
Since early September 2015, the Butte fire outside Sacramento has raged out of control and destroyed over 500 homes, in addition to resulting in two deaths. Once property owners get over the shock, they face rebuilding, which usually involves pursuing insurance claims. The California Department of Insurance is urging insurance companies to expedite insurance claims from the Butte fire. The number of insurance claims that will result from the Butte fire make insurance disputes likely, as insurers look for ways to limit their liability. Disagreements with insurance companies in connection with wildfire claims can arise in a myriad of contexts.
For property owners who have had their dwelling or structure burned, there are often issues and disputes regarding the scope and cost of repairs. For damages that are covered, a property owner is entitled to actual cash value of the damage immediately, but is only entitled to replacement cost once repair or replacement has been completed. These scope, cost, and replacement/repair issues often complicate a claim, and can lead to serious disputes.
If the home is destroyed, an insured may want to purchase another house rather than rebuilding. Under the proper circumstances, California law provides for the insurer’s payment of “the costs of a replacement home of substantially similar construction that is the functional equivalent of the home lost.” (Fire Insurance Exchange v. Superior Court (2004) 116 Cal.App.4th 446, 470.) Where insureds elect to purchase a new home, disagreements can arise as to whether the damaged home needs to be replaced as opposed to repaired, and what constitutes a comparable home.
Many homeowners who have suffered total or near total losses from a wildfire can also face problems of underinsurance. This is where the policy limits are not adequate to rebuild their home. Often, the policy limit was set based on evaluations done by the insurance company or its agents, leading to disagreements over why there isn’t enough insurance.
For property owners with large amounts of land, the burning of crops, trees, and landscaping can present a significant loss. Such losses are often covered, although frequently with lower policy limits. Insurers can sometimes fail to adequately investigate or value these losses, which can be significant particularly where trees or shrubs are old and unique.
Smoke damage from wildfire often presents a significant problem for nearby homeowners, even if their home does not actually burn. Smoke can cause serious damages to a structure, including odor and staining, and can present health risks to people with pulmonary issues, as well as the young and elderly. Smoke is historically covered as fire damage. Case law long ago recognized that “losses by smoke . . . where the fire has not touched the object injured are familiar to all.” (Jiannetti v. National Fire Ins. Co. (1931) 277 Mass. 434, 438.) Insurers companies, however, often resist paying wildfire smoke claims, and there has been recent litigation over the issue.
Insureds who have suffered fire damage from the Butte fire should be aware of potential pitfalls in presenting their claim. Insurers faced with a high volume of claims from a disaster like the Butte fire may be tempted to look for shortcuts at the expense of policyholders. Insureds must be prepared to assert their rights should their claim be minimized or mishandled.
If you suffer a water loss to a building that is not attended to quickly, mold can develop. Mold is a fungus which causes property damage and poses potential health hazards, and must be removed. Mold damage to a home can be very serious. Mold following a water loss is prevalent in Southern California.
Many property insurance policies, however, have exclusions or limitations related to mold damages. Typical exclusions state they do not cover “fungus,” and a common sublimit for mold coverage is $5,000. As a result, when the underlying event (like a water loss) is covered, but mold is excluded or limited, an insured might find him or herself in a position where they are receiving only partial coverage for a claim. Insureds with water claims involving a mold component should be aware of California law relating to mold exclusions or limitations, and how to present the issue in the claims process.
California cases involving mold exclusions and limitations have generally enforced them. Thus, in upholding a mold exclusion, the California Court of Appeal, Second Appellate District, which sits in Los Angeles, has held that an insurance company is “permitted to limit coverage for some . . . manifestations of water damage.” (De Bruyn v. Superior Court (2008) 158 Cal.App.4th 1213, 1223.) While there remains an argument that under the right circumstances, and depending on the policy language, full coverage may exist for a mold-related loss, where the policy has a mold exclusion or limitation, it is likely to be enforceable in California as a matter of contract.
That does not, however, foreclose recovery of damages associated with mold in a tort claim against the insurer for breach of the implied covenant of good faith and fair dealing (also known as insurance bad faith). The California Supreme Court has held that an “insurance company generally is liable for ‘any damages which are the proximate result” of its bad faith conduct. (PPG Industries, Inc. v. Transamerica Ins. Co.(1999) 20 Cal.4th 310, 315 (emphasis added, internal citations omitted).)
Where mold damages are caused by unreasonable, bad faith claims handling following a water loss, they can be pursued as tort damages in connection with a bad faith claim against the insurer. In order to pursue such a claim, the insured will have to show that the insurer acted unreasonably in handling an insurance claim, causing the mold damages at issue.
Mold claims following a water loss are often well suited to a bad faith claim. This is because delays following a water loss, often attributable to the insurance company, occur regularly. In such circumstances, there is frequently a basis for an argument the delay was unreasonable, and caused the mold problem. In such circumstances, while mold damages may not be covered under the insurance policy, they may be recoverable as consequential damages from the insurance company’s bad faith delay in the handling of the covered water claim.
Another potential source of recovery for mold damages caused by a water loss is any water remediation company that was sent out to address the water loss prior to the development of mold. These companies are often sent by the insurance company, and have a pre-existing relationship with them. Complications can arise as to who is responsible for their conduct, and the resulting mold, often necessitating including the water remediation company in any legal action against the insurance company.
Policyholders who have suffered a water loss, and mold damages, and are faced with a mold exclusion or sublimit, need to be aware of California law, and the options available, if the mold was caused by the insurance company or its experts’ delays.
Property policies in California have provisions requiring that disputes over the “amount of loss” be appraised, if demanded by the insurer or the insured. Appraisal is non-Court proceeding where a panel decides issues relating to the amount of loss at issue in a property damage claim. Appraisal provisions are provided for under California’s statute for basic fire policies. (California Insurance Code §2071(a).) Oftentimes, there are disputes over the scope of the appraisal, what items of claimed damage should or should not be addressed, and what factual issues the can be decided by the appraisers.
On June 18, 2015, the California Court of Appeal published an opinion, Lee v. California Capital Insurance Company (2015) — Cal.Rptr.3d —, 2015 WL 3797827, addressing appraisal in connection with a fire loss in an apartment building in Oakland. The fire started on the ground floor, but the insured claimed the upper units suffered smoke damage that required remediation.
The issue in dispute is whether the appraisal panel had to appraise the scope of loss the insured provided. The insurance company asserted that the only thing that could be appraised is the value items of property damage that “the parties agree . . . is within the scope of damage and is covered under the policy.” (Id. at *7.) TheLeeopinion rejected that position, holding that appraisal is not only to a scope that “the parties agree” upon. (Id. at *8.)
This was a sensible holding. However, the Lee Court went on to hold that although “disputed items” can be appraised, a Court cannot order appraisal of “items that inspection reveals are not damaged or plainly never existed.” (Id.) This of course begs the question as to who determines whether property was or was not damaged, or did or did not exist, if not the appraisal panel. The Lee‘s opinion’s holding is further complicated by the fact that property may have been damaged, but remediated or repaired at the time of the appraisal, rendering an “inspection” to determine damage of limited utility. This is particularly so in the context of the smoke damage, one of the issue in the Lee case, which is often cleaned up following a loss to make the home habitable. Whether a given property suffered smoke damage often cannot be adequately addressed by an inspection at the time of appraisal, after remediation. To prove such damages after remediation, evidence is usually submitted regarding the damage at the time of loss, before cleaning or remediation, and the remediation efforts made by the insured. Moreover, with respect to whether property existed or not, prior case law had held that an appraisal panel is not authorized to decide whether an insured “lost what he claimed to have lost or something different.” (Safeco Ins. Co. v. Sharma (1984) 160 Cal.App.3d 1060, 1065-66.)
The Lee holding attempts to address these uncertainties by drawing a distinction between “identity and quality or condition” of the property being appraised. (Lee,supra, at *9.) This distinction does not appear to be clear, however. Indeed, the Leeopinion suggests that where “the identity of property damaged . . . is at issue,” an appraisal panel may elect to “place more than one value on the loss . . .based on assumptions concerning the property’s pre-loss condition.” (Id. .)
Lee concludes that, while an appraisal panel cannot make “causation or other coverage determinations,” it can decline to value the loss for items of property it concludes “were not damaged or never existed.” (Id. at 10.) The Lee decision represents good illustration of the complicated and uncertain nature of appraisal, and why it often leads to further disputes, issues, and litigation. Insureds who are faced with an appraisal over an insurance loss should understand that appraisal is often the beginning, not the end, of the dispute relating to a claim.
Most property and business policies contain a provision requiring the insured to submit to an examination under oath (known as an “EUO”) by the insurance company in connection with an insurance claim. It is similar to a deposition, with the policyholder providing sworn testimony under penalty of perjury. However, it is pursuant to a contractual policy requirement not the litigation process and the formal rules of civil discovery law.
The standard form policy codified in California requires an insured to “submit to examinations under oath by any person named by” the insurance company. (California Insurance Code §2071(a).) The California Court of Appeal has held this means the insured must sit for an examination under penalty of perjury and “answer all proper questions as part of the the insurer’s investigation of the insured’s claim.” (Abdelhamid v. Fire Insurance Exchange (2010) 182 Cal.App.4th 990, 1003-04.)
When an insurance company requests an examination under oath during the handling of a claim, it is often because they suspect something is amiss with the claim. The insurance company’s suspicions often revolve around fraudulent or other questionable conduct by the insured. Extreme (but not necessarily rare) cases involve accusations of insurance fraud, which can take many forms and expose the insured not just to the denial of the insurance claim, but potentially much worse. Business interruption and loss of profit claims also often trigger a request by the insurer for an examination under oath, and detailed and intrusive financial inquiries.
The examination under oath will almost always be conducted by an experienced insurance defense attorney. Burdensome production of extensive documents are often requested by the insurance company attorney, many of which may be private and objectionable. Although it is part of the claim process, and the insurer’s good faith duties apply, in practice the examination under oath is frequently treated as an adversarial process by the insurer. It can quickly devolve into a search for misstatements and a basis to deny the claim.
An insured cannot refuse to participate in an examination under oath. Unlike other policy conditions for presenting a claim, like timely notice and submission of a proof of loss, there is no requirement that an insurance company show prejudice to deny a claim based on the failure to submit to an examination under oath. (Abdelhamid,supra, 182 Cal.App.4th at 1004-05.) Where an insured does not answer material questions during an examination under oath, an insurance company can “properly deny coverage.” (Id. at 1005.) This near automatic denial rule means that the insured has little choice about doing the examination under oath where requested by an insurer.
Because an insured must submit to an examination under oath in order to purse the claim, but when it is sought it is often to establish a basis for denial or worse, the stakes are high. The favorable law for the insurance companies can also lead it to overreach and abuse of the examination under oath process. When faced with a request for an examination under oath, the insured should proceed carefully, and may want to consult legal counsel.