Extended coverage Dispute Daniel Ross asked 1 year ago
Extended coverage Dispute

We are in the final phase of negotiations with our insured, Safeco. We lost two homes in the California Caldor fire, our primary residence, and a second home on the property that we used as an overflow property for the family. We were in the Phillips tract at Echo Summit, just below Sierra at Tahoe Ski area. All private property, no forest service properties.

Safeco has paid us the part A cost in full. We are now trying to obtain the extended dwelling coverage so we can purchase another home. We have estimates for rebuilding the properties at $638 a foot. The insurance company is stating the coverage cost is $328 a foot. We are at Echo summit, 20 minutes from South Lake Tahoe at 6800 feet elevation.

They are now saying that our proposed bid is not good enough documentation and are requiring a formal bid. The contractor who put the proposal together did a detailed proposal, but not a formal proposal. The insurance company is demanding a detailed bid.

The front property was built in 1935 and has no drawings. The back property was 6 years old at the time of the loss. We have drawing for that property.

How much detail are we required to provide to the insurance company? With the snowload at Tahoe it will be even more difficult to find contractors to work at Echo Summit. We do not want to rebuild, since all the trees and our entire neighborhood is gone. We want to combine the settlement from the insurance claims for the two homes to purchase one new home somewhere else. Are we required to obtain a competitive bid to satisfy their request?

Does UP have any consultations that can be done? Or refer to legal counsel for guidance? I have been through all of your seminars. All very helpful and thank you for all your support. But on this one point I seem to be stuck.

2 Answers
Answer for Extended coverage Dispute United Policyholders Staff answered 1 year ago

This sounds like a classic situation where the insurer is not accepting the construction cost realities in a California mountainous region where both material and labor costs are higher than urban and suburban areas. You have several options for breaking the logjam/getting unstuck.

You likely have been following our guidance to communicate in writing with your insurer, and have been laying out the facts as you see them, providing supporting documentation and asking for the specific settlement you are entitled to. You’ve given them an estimate but they don’t agree that it’s detailed enough.

Safeco has a continuing obligation to bring about a settlement of your claim, and it’s been nearly two years since your fire. There’s an argument they’re acting in bad faith, but their counter argument will be that your estimate is not realistic. Someone needs to convince them otherwise. We lay out some options below, and you can contact one or more of the public adjusters, lawyers and/or dwelling loss valuation professional sponsors in our Find Help directory to follow up.

Your options include:

  • Initiating an in-person meeting between the builder who gave you the estimate and your current Safeco adjuster where the builder can explain any aspects/costs that the adjuster takes issue with. You may have to pay the builder for his/her time to prep for and attend the meeting.
  • Asking Safeco to provide you with the name and contact information for a reputable builder who would rebuild the home you had for $328 a square foot. There’s a provision in CA law that requires them to do that. Invite that person to come to an in-person meeting with the builder who prepared your estimate and try and get them on the same page.
  • Hiring a public adjuster or lawyer to invoke the “Appraisal” provision in your policy that provides a dwelling replacement cost dispute resolution process that’s designed to be cheaper and faster than litigation. You can learn more about it here.
  • Hiring a public adjuster or attorney on a contingency fee basis to take over the negotiations and get another estimate that’s more detailed and/or backs up the $638 psf estimate. We suggest contingency not hourly because it’s the most affordable way to battle an insurer for what’s fair. https://uphelp.org/claim-guidance-publications/hiring-professional-help-for-an-insurance-claim/ You can hire a lawyer by the hour if you prefer.
  • Hire a construction estimator to do an independent calculation and have them put it into the same format the adjuster used for their $328 psf estimate. Chances are the adjuster used “Xactimate” The main problem with Xacimate is that it is “unit cost pricing” while real life builders don’t estimate that way – they use sub bids to generate their estimates. A sub bid estimate can be re-organized into unit pricing – it just takes time.

As you probably know, this CA law gives you the right to collect in full for what it would theoretically cost to rebuild both properties and use those funds to buy a replacement home without a deduction for the value of the land under that home:

CA Ins. Code 2041.5

(c)(1) In the event of a total loss of the insured structure, a policy issued or delivered in this state shall not contain a provision that limits or denies, on the basis that the insured has decided to rebuild at a new location or to purchase an already built home at a new location, payment of the building code upgrade cost or the replacement cost, including any extended replacement cost coverage, to the extent those costs are otherwise covered by the terms of the policy or any policy endorsement. However, the measure of indemnity shall not exceed the replacement cost, including the building code upgrade cost and any extended replacement cost coverage, if applicable, to repair, rebuild, or replace the insured structure at its original location.

(2) Notwithstanding any other law, for a residential property insurance policy, the measure of damages available to a policyholder to use to rebuild or replace the insured home at another location shall be the amount that would have been recoverable had the insured dwelling been rebuilt at its original location, and a deduction for the value of land at the new location shall not be permitted from that measure of damages. However, the measure of indemnity shall not exceed the cost, including the building code upgrade cost and any extended replacement cost coverage, if applicable, to rebuild the insured structure at its original location.

Good luck, hope this helps!

Robert Crown Robert Crown Expert answered 9 months ago

Most insurance companies will create a huge burden for consumer when they demand a “detailed” bid. What they really are saying is they will ignore any estimates until you put it in Xactimate and can make a convincing case that you’re so far over your limit of liability that they can agree to pay you extended coverage in full.

Does it state in your policy that you’re not entitled to the extended coverage until you rebuild or replace? I assume so. Did you present more than one estimate or formal proposal?

In the absence of hiring an Xactimate consultant to prepare and present a detailed replacement cost value estimate that is equal to or greater than your replacement cost calculation, you can do the following:

  • Present one or two trade summary estimates based upon whatever plans you are using to establish those same costs.
  • Ask your insurance company to confirm in writing that they will agree to pay the full policy limits on both policies. Once you prove you are owed that under the settlement provisions in your policy.
  • I don’t understand the difference between a formal proposal and an estimate for replacement? Aren’t they pretty much one and the same?
  • If your insurer is unwilling to work with you, and you are unable to move forward, you should consider invoking appraisal to resolve the differences between the insurance company’s calculations, and your own.

I’m happy to recommend one of several appraisers that can help you bring this claim to a final resolution. It will cost some money, but it may be well worth it, because they would provide their own detailed Xactimate estimate of replacement cost in the same format the insurance company is requesting, even though it should be unnecessary. I’m surprised they are making this so difficult for you because given a description of the home and its location, it’s probably greater than $638 a foot. Safeco’s still not going to agree to pay one penny more than they have to until you prove they definitively owe it.

I’ll be happy to recommend some very competent estimator/ consultant appraisers, to help you bridge the gap and get you to your policy limits once and for all.

In lieu of getting there you can ask the insurance company to split the difference with you and simply give you the money and cut you loose. I doubt they’ll do it but it won’t hurt to ask.

Robert Crown, SPPA.