Hundreds of Sonoma County residents who lost their homes in the October wildfires say they are finding themselves underinsured and many are pressing their cases with their homeowners’ insurance carriers.
Many displaced homeowners are discovering that they will likely have to pay tens to hundreds of thousands of dollars out of pocket as they process their claims, according to fire victims and attorneys. One attorney estimated that some policyholders could be out more than $1 million in costs.
About 97 percent of the more than 200 fire victims whose policies were examined by the Friedemann Goldberg law firm were found to be underinsured, either for coverage of their structure or personal property, said John Friedemann, managing partner of the Santa Rosa firm.
In Sonoma County alone, policyholders have filed 14,686 residential property claims, resulting in almost $7 billion in damages, according to the state Insurance Department. There were 4,785 residences completely destroyed. Insurance companies have paid out almost $2.4 billion so far.
At issue is whether the carriers have underpriced their policy limits on the overall cost of rebuilding replacement homes to the detriment of their customers, or whether policyholders have opted on their own for their lower coverage — and lower premiums — and should have to live with the choices they made.
The debate is not new. In fact, California lawmakers have wrangled over the issue of rebuilding to no avail since the 1991 Oakland Hills fire, though the enormity of the recent wildfires that struck in Sonoma County has put the issue back again in the spotlight, especially given the expected rise in the cost of building materials and labor.
Policyholders are trying to apply pressure on their insurance companies to compensate them fully for their claims, whether going to court or mounting a public relations campaign to force insurers to offer more money on their quest to rebuild their homes. In the aftermath of the nation’s costliest wildfires, insurance claims throughout the region have already totaled more than $9 billion.
“We are finding the numbers are so grossly insufficient,” said Michael Bidart, a Claremont lawyer who has consulted with more than 200 local residents who lost their homes in the fires.
Bidart is preparing to sue USAA, alleging that the carrier underestimated the coverage limits needed to build a new home and then used a software program, Xactware, to cut its exposure during the claims process — “a double whammy for USAA policyholders” he wrote in a Dec. 5 letter to the company.
One nonprofit group, United Policyholders, surveyed Californians who lost their homes in 2007 wildfires. Its survey showed that only 26 percent had enough coverage to rebuild their homes. “The vast majority of people are underinsured,” said Amy Bach, executive director of the San Francisco-based consumer advocacy group.
In fact, the situation was so bad that a 2008 survey by the state Department of Insurance found that those with extended replacement coverage — policies that can pay out as much as 150 percent of the overall limit in some cases — still ended up paying out-of-pocket costs in 57 percent of the cases.
In 2010, the state Insurance Department tried to implement a regulation to improve the environment. The rule did not require an insurer to set or recommend a policy limit for rebuilding. But if the carrier did issue such an estimate, the regulations spelled out how they were to be calculated and communicated to the policyholder.