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.