Insurance Tips for Wildfire Season

Washington is predicted to have a particularly severe wildfire season in 2019. Wildfires are increasing as development pushes further into wilderness areas and wildfire risk pushes into parts of Washington previously assumed to be too wet to be at risk.

Here are some tips to make sure your insurance coverage is ready for wildfire season:

  • Read your policy and confirm it covers wildfire damage.  Most homeowner’s insurance policies traditionally covered fire damage.  But some policies exclude wildfire or disaster related losses.  
  • Confirm your coverage limits are sufficient.  If you bought your home many years ago, rising property values and construction costs may render your existing coverage inadequate.
  • Make sure your policy covers your entire loss in the event of a wildfire.  For instance, confirm your policy will pay your living expenses in the event you need to relocate while your home is rebuilt (known as “Additional Living Expense” coverage).
  • Make an inventory of important and valuable contents to make sure the insurer covers the cost to replace these items in the event they are lost in a wildfire.

 

Finally, be ready to go to bat and make sure you get the coverage you are paying for.    .  After a big disaster like a wildfire, there are so many claims insurers can’t investigate them all properly, so they just stop trying.  Disaster-related insurance claims are notorious for shoddy investigating, unresponsive staff, and overworked, poorly-trained adjusters pressured to cut corners to close out claims fast.

Five Common Homeowner’s Insurance Policy Provisions and Why They Matter

Most folks have homeowner’s insurance (or its cousin renter’s insurance).  Homeowner’s insurance protects you from damage to your home (e.g., your house burns down) or from claims arising from someone’s injury on your property. (e.g., someone slips and falls in your backyard).

Homeowner’s insurance policies typically contain about 20 pages of fine print.  Depending on the specific language, your coverage and your duties after a loss can vary dramatically.  Here some common important provisions to look for and why they matter.

1.  Provisions defining the covered property. The address on the declarations page may not necessarily identify the property covered by the insurance policy.  For example, if you aren’t living in the property, the policy may not provide coverage even if the property is listed on the declarations page.  Some policies contain owner-occupancy provisions stating, for instance, “this policy covers the owner-occupied property listed on the declarations page.”

2. Provisions explaining what parts of the property are covered.  In addition to the main house, homeowner’s policies often provide additional coverage for ancillary structures on the property like sheds or garages.  Some policies provide coverage for all other structures on the property regardless of whether they were attached to the main house.  Other policies limit coverage to only structures that are physically connected to the house.

3. Business Use Coverage.  Insurers often deny coverage where the property has been used for business purposes.  The policy fine print is important to understanding whether and to what extent the property’s use for business purposes allows the insurer to deny claims.  Some policies exclude any use of the property for business purposes such as renting the property out to tenants or running an office at the property.  Others only exclude business use from specific coverage; for instances, renting the property to tenants might exclude claims if the tenant sues you because they slip and fall, but might not exclude coverage if the property burns down.

4. “Actual Cash Value” versus “Replacement Cost Value”.  If your house burns down, there are two ways to evaluate the dollar amount of your loss.  One way is to ask what the house was worth right before it burned down; this is the “Actual Cash Value.”  Another way to look at the loss is to ask what it would cost to rebuild the house; this is the “Replacement Cost Value.”  Typically, Replacement Cost Value is much higher than Actual Cash Value.  Your homeowner’s insurance policy will have detailed provisions for when the insurer pays Actual Cash Value versus Replacement Cost Value; often, the insurer will pay Actual Cash Value up front, then pay the remainder of the Replacement Cost Value once you complete repairs or replacement.  But insurers often miscalculate the Actual Cash Value, leaving you without sufficient funds to repair or replace the property and thereby stopping you from collecting the additional Replacement Cost Value.  It’s important to read these policy provisions carefully and make sure the insurer follows them.

5.  Additional Living Expenses.  Many homeowner’s policies cover your Additional Living Expenses, i.e., the extra costs you incur because you can’t use part of your home while it is damaged.  Additional Living Expenses might include living in a hotel while your home is repaired.  The specific policy language is critical because insurers often dispute whether an insured is entitled to Additional Living Expenses after a covered loss.  For example, if a fire is put out before it burns down your home but the home is full of smoke and water damage, is the property “liveable?”  What if the only damage is to the living room but you can’t use the entire first floor of your house during the repairs?  Understanding the specific policy language is important to knowing your rights in these situations.

Ultimately, the only way to know for sure what your rights under an insurance policy are is by consulting an attorney.  Hopefully, this guide can point you in the right direction.

Insurer’s Misreading of Policy Terms Results In Win For Policyholder

A cardinal principle of insurance law is that the fine print in an insurance policy must be interpreted consistent with the reasonable expectations of an ordinary person purchasing insurance. The Washington Court of Appeals recently emphasized that rule in its April 8, 2019 decision in Feenix Parkside LLC v. Berkley Nort Pacific.  In the Feenix the Court of Appeals threw out a trial court’s judgment in favor of the insurance company on a dispute over property insurance coverage, ruling in favor of the policyholder.

Feenix Parkside, LLC (“Feenix”) filed an insurance claim after the roof of its commercial building collapsed, seeking coverage under the policy’s provision covering “decay” of the roof.  The insurance company, Berkley North Pacific (“Berkley”) denied coverage.  The insurer’s engineer determined the roof collapsed because the bearing walls had inadequate strength and that higher than normal temperatures further weakened the structure.  Based on that report, the insurer denied Feenix’s claim because it found the roof collapse was caused by “defective” construction and “excessive temperatures” rather than “decay.”

Feenix hired its own engineer to conduct an independent investigation of the cause of the roof collapse.  Feenix’s engineer concluded the roof collapsed after water became trapped between roofing layers, causing hidden decay which resulted in the roof collapse.  Fennix requested Berkley re-open the claim based on these new findings, but the insurer continued to deny coverage based on its own engineer’s report.

The trial court found in favor of the insurer, believing that the policy’s coverage for “decay” required some kind of organic rot, not merely degradation to an old building over time.  But the Court of Appeals reversed in favor of Feenix.  The Court of Appeals emphasized the general principle of insurance law that ambiguous terms in insurance policies are interpreted in favor of the policyholder.  Feenix claimed the policies coverage for losses resulting from “decay” was ambiguous because the policy did not define “decay,” and asked the court to interpret “decay” as covering the roof collapse.  Feenix relied on cases similarly holding the collapse of old buildings due to exposure to water and the elements constituted “decay” under insurance policies.

Emphasizing that insurance policy terms are construed to provide coverage that a reasonable person purchasing the policy would expect, the Court of Appeals agreed with Feenix.  The court noted the insurance policy specifically excluded “rot” and “fungus”, suggesting that the coverage for “decay” was broader than organic rot and could cover gradual degradation of old buildings.

Court Ruling Emphasizes Common Sense Reading of Insurance Policy in Win for Policyholder

The Washington Court of Appeals recently decided Poole v. State Farm Fire and Casualty Company, a case about fine print in a homeowner’s policy.  After the Pooles’ home burned down, State Farm denied coverage under a technical reading of the words “similar construction.”  Washington’s Court of Appeals disagreed with State Farm and emphasized the traditional principal that insurance policies are interpreted based on their ordinary and common meaning as a reasonable policyholder would understand them.

The Pooles had a State Farm homeowner’s policy covering their home.  Their home also contained a shop the Pooles used as a business.  The shop was in the same building as the home. After the structure containing the home and shop burned down, the Pooles made a claim under their State Farm policy.  State Farm agreed the policy covered the loss and agreed to pay to rebuild the structure.

The dispute arose when the Pooles decided to rebuild the shop as a separate building from the home, rather than rebuilding both in the same building as they had been originally.  State Farm refused to pay to rebuild the shop in a separate building, claiming the policy only provided coverage if the Pooles rebuilt the shop in the same building as the home.

State Farm relied on language limiting coverage to the Pooles’ “dwelling” and allowing reconstruction only for “similar construction.”  Since the shop was only covered as an attachment to the Pooles’ home, State Farm argued rebuilding the shop in a detached structure wasn’t “similar construction.”

The court disagreed, applying the ordinary and common meaning of the term “similar construction.”  The court noted that the limitation on coverage to the Pooles’ “dwelling” limited only coverage, and did not limit the Pooles’ reconstruction options.  Regarding whether the detached shop was “similar construction,” the court found reasonable the Pooles’ argument that the detached shop featured the same style, quality and building materials, and was used for the same purpose, as the original shop.  The court also noted State Farm’s representative admitted “reasonable people could disagree” about whether the policy covered reconstruction of the shop in a detached structure.

Because the Pooles’ interpretation was reasonable, the court applied the traditional insurance law principle that policy language capable of more than one meaning must be given the meaning that favors the insured.  Accordingly, the court found in favor of the Pooles.

The Poole case is an important reminder that technical terms in insurance policies matter, and that insureds are entitled to have ambiguous insurance policy language interpreted in favor of coverage.

Insured California Wildfire Losses May Exceed $6 Billion

California’s increasingly-destructive wildfires are estimated to trigger billions of dollars in insurance claims.  As of November 2018, estimates show 15 wildfires in California destroying nearly 7,000 homes and business; 31 people have been killed and nearly 300,000 evacuated.  Beyond the loss of life and property damage implications for typical homeowner’s insurance coverage, the fires and attendant evacuations also potentially implicate business interruption or other commercial insurance provisions. Furthermore, the approximately 300,000 evacuated people will have significant additional living-expense claims under their homeowner’s coverage due to being forced to pay for temporary shelter and relocation costs.

Total losses are estimated at approximately $6.8 billion so far.   The price tag to rebuild will be particularly high because construction demand is already up from the 2017 wildfires and the strong housing market, leading to increased demand for construction labor and materials.  This high price tag translates to greater losses for homeowners and their insurance carriers.

California’s current wildfires are now the most destructive and deadliest on record.  From an insurance perspective, the destruction is particularly acute in high-property-value areas like Malibu.

The California wildfires serve as a reminder to policyholders to make sure they’re adequately covered for disaster losses, and to always act proactively to protect their rights after a loss.