Insurance shortfalls hamper Sonoma County fire victims’ ability to rebuild
Josh Nix thought he was doing everything right in August when he renewed ? the insurance policy for his Mark West area home just east of Luther Burbank Center for the Arts.
Nix answered the questions posed by his carrier, USAA, in an online form used to determine the proper amount of coverage for his three-bedroom, three-bathroom house on Willowgreen Place. The home, which he bought in 2013 for $554,000, was valued at around $800,000, but the digital calculator showed that he needed only $293,000 for structure coverage.
Nix decided to round it up, purchasing a $300,000 policy that would go into effect on Oct. 3.
“I answered the questions honestly,” said Nix, a 38-year-old husband with two young children. With eight years of active duty service in the U.S. Coast Guard, Nix chose USAA because it catered to service personnel. “I believed it was a product that would sufficiently cover me on a total loss.”
He would soon find out the painful truth: His insurance policy would not replace the home he lost. Rebuilding his home would cost around $325,000 more than his insurance policy covered - and that doesn’t even include the cost of paying off the $425,000 mortgage Nix still owed on his gutted home.
Nix is not alone. The firestorm, which destroyed more than 5,500 homes in the North Bay, revealed one of the stark realities of insurance: many homeowners don’t have enough coverage to replace their homes following a disaster.
Consumers are blaming insurance companies, saying they were misled to believe they had adequate coverage. Insurance companies contend that consumers are responsible for deciding how much insurance to buy, noting that price is a driving factor when many homeowners make their decisions.
Despite the ubiquitous TV commercials where insurance companies tout they are “on your side” and are “like a good neighbor,” many local residents feel their insurers are more of an adversary than an ally.
Almost 70 percent of local fire victims believe they do not have enough insurance to replace or rebuild their homes, according to a survey by United Policyholders, a San Francisco-based consumer group.
“Nobody is looking out for your best interest,” Nix tearfully recounted in an interview. He has decided to sell his lot to a builder for $265,000 in a deal scheduled to close on Monday. “They sold me a half a policy,” he said of USAA.
In a statement, USAA disagreed with Nix’s version of events.
“We disagree with the way Mr. Nix has described how his coverage was established,” the company said in a statement. “We provide our members an estimate of the minimum amount of coverage they should obtain to rebuild. Members may choose to insure for an amount greater or less than the estimate provided by USAA. We cannot give additional coverage to those who chose to purchase less.”
Nix and others have been left scrambling with insurance shortfalls that can range from as little as tens of thousands of dollars to more than $1 million, according to Amy Bach, executive director of United Policyholders. The problem is evident in every neighborhood ravaged by fire across the North Bay, although the biggest shortfalls are centered in Fountaingrove and other upscale neighborhoods.
“Most people will find themselves underinsured,” Bach said. “Those are some breathtaking numbers.”
The ramifications of the large gap between insured and uninsured losses will be significant. If homeowners don’t have enough money to rebuild, financial pressures could force many to leave the North Bay and delay efforts to rebuild.
The problem is proving more difficult to solve than other obstacles to rebuilding. While government officials took action to speed up debris removal and streamline permitting, they do not have the same power to force insurers to provide more relief.
As of March 12, insurers have paid out $4.6 billion in residential claims in Sonoma County, or two-thirds of the $6.9 billion in insured losses left by the destruction of 4,821 homes, according to the state Department of Insurance.
The way insurers review and approve fire claims is playing an integral role in the speed of rebuilding.
Contractors will not start a construction job until they are sure there is enough money to complete the project. Thus, many are waiting for policyholders to negotiate settlements with their carriers.
Many policyholders discover they are underinsured when contractors deliver ballpark estimates on the cost of rebuilding, which can range from as low as $280 per square foot for a group build in Coffey Park to as high as $600 per square foot in Fountaingrove, said Keith Woods, chief executive officer of the North Coast Builders Exchange.