Many insurance coverage policyholders who misplaced their properties in California's devastating fires name our firm and ask them: "Can my insurance coverage firm truly deduct from my declare the worth of the lot below the substitute dwelling I purchased?" This is a wonderful query as a result of it’s now an unlawful tactic on the a part of insurance coverage corporations that has sadly invaded this state just lately. Final week, the California Division of Insurance coverage formally accepted and revealed a bulletin explaining why. 1 Because the bulletin shouldn’t be legally binding, insurers should refuse to adjust to it, which requires litigation.
Insurance coverage corporations assist their property worth deductions by misinterpreting a legislation that’s already unfavorable to policyholders. Underneath California legislation, the insurance coverage firm cannot refuse to offer protection if an insured replaces their dwelling by shopping for a brand new dwelling elsewhere, as an alternative of rebuilding it on the place of loss. Nevertheless, the insurance coverage firm by no means has to pay greater than the quantity it might have value to rebuild the home on the place of loss, even when shopping for a substitute dwelling elsewhere would value a whole lot of 1000’s extra dollars to insureds.2
Sadly, this capping of the insurance coverage firm's legal responsibility nearly all the time leads to policyholders getting a loss sooner than anticipated. Certainly, when an insured particular person rebuilds, he pays solely the price of the construction. When an insured buys a brand new dwelling, he pays the land and the construction. And it's not all the time a selection for insureds. For instance, the complete metropolis of Paradise was destroyed through the latest camp hearth and the water sources are actually contaminated. Clearly, the on-site reconstruction of the loss shouldn’t be a sensible possibility for the overwhelming majority.
As if the legislation was not already extreme sufficient for policyholders, insurance coverage corporations have just lately discovered a manner so as to add insults to accidents: they have an effect on a part of the acquisition worth of the brand new dwelling to the land and refuse to pay this sum. Thus, not solely do the insured discover themselves with much less home than they initially had, they aren’t totally reimbursed for the quantity they spend on the acquisition of the smaller home. In different phrases, the insured receives much less dwelling and should exit of his pocket for the land.
In our opinion, this follow is completely unlawful. Even when the legislation is unhealthy, it doesn’t enable the insurance coverage firm to deduct the worth of the land from its cost. Reasonably, he says the insurance coverage firm should pay the insured the price of shopping for the brand new dwelling, as much as the quantity that may have value to rebuild the previous home. The acquisition of a house essentially entails the acquisition of a land. This ought to be the tip of the story, proper? Let insurance coverage corporations discover much more methods to pay much less.
Lastly, the California Division of Insurance coverage has taken a place on this. Largely because of the efforts of the United Non-Revenue Underwriters (of which Chip and I are members of the Board of Administrators), the Commissioner of Insurance coverage just lately issued a e-newsletter wherein he was suggested that he was abusive to deduct the worth of the land from the cost of compensation. In line with the e-newsletter:
Policyholders shouldn’t be penalized for exercising their proper to switch their destroyed dwelling by shopping for an present dwelling at a brand new location. In consequence, within the occasion of a complete lack of the insured's dwelling, I ask all residential property insurers to not deduct the worth of the land from the acquisition worth of a substitute dwelling.
The Insurance coverage Commissioner's e-newsletter is sadly not a binding legislation. It’s due to this fact as much as the insurance coverage corporations to determine whether or not to adjust to it or not. However we’re satisfied that his bulletin complies with the legislation, as written land deductions stay unlawful and will be prosecuted.
The Commissioner's e-newsletter presents some sensible factors to assist persuade insurance coverage corporations to undertake its strategy. The principle purpose is that this offers policyholders a better incentive to switch by shopping for a brand new dwelling, which will be accomplished extra rapidly, thus avoiding the insurance coverage firm having to pay for a chronic lack of use or compensation. further dwelling bills throughout a reconstruction. The Commissioner additionally highlighted the persistent drawback that many insureds don’t have enough protection, in order that they’ll by no means be capable of rebuild utterly.
This is among the many unlucky techniques that insurance coverage corporations use in California. The Insurance coverage Commissioner's e-newsletter is a step in the fitting route, however now we have already seen insurance coverage corporations refuse to honor the Commissioner's solutions. In case your insurance coverage firm desires to subtract the worth of the land out of your substitute dwelling buy or in the event you suppose you might be handled unfairly in one other manner, contact us for a free session. We’ve got attorneys in northern and southern California.
1http: //www.insurance coverage.ca.gov/0250-insurers/0300-surers/0200-bulletins/bulletin-notices-commiss-opinion/add/WFLandValueDaluction-Dotice.pdf
2 Insurance coverage Code, Article 2051.5