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Hi Robin, 

Thanks for the question. I’m sorry to hear about your fire damaged home. 

In short, your claim will not typically be terminated if you sell your home following a loss and before repair, but where and how the insurance proceeds are paid out will depend on both the contracts in place (e.g., the insurance policy, contract of sale, or assignment of benefits) and the circumstances of your particular situation. 

If you are in the middle of a sale or contemplating a sale, please strongly consider getting professional assistance to make sure all contracts reflect your and the buyer’s wishes. A professional will be able to assist in fleshing out the following overview thoughts. 

First, if you are already under contract or planning to sell, it is a good idea to put your insurance carrier on notice and provide them with the ability to complete their claim investigations or inspections of the property for damage and allow ample time for this investigation to occur. You do not want to inhibit the carrier’s ability to properly investigate the claim. 

Next, it should be asked whether you are selling the home and assigning the insurance benefits to the buyer (they receive the insurance proceeds) or whether you are selling the home in its damaged state (and you receive the proceeds, discussed further below); your sale price will presumably reflect this decision. While many insurance policies state that policy benefits are not assignable, the majority of states do allow for assignment of policy benefits if it is done after a loss has occurred. If benefits are assigned and the sale price reflects this, the buyer would then “step into your shoes” as the policyholder for the remainder of the claim. If you choose to assign policy benefits to the buyer, it is recommended to work with your real estate team and/or insurance professional and the insurance carrier to draft an assignment of benefits that comports with any state requirements to avoid delays along the way.

If you choose to retain policy benefits and sell the home as is, there are some additional considerations. After the fire, assuming you comply with all other policy conditions, you are more than likely entitled to the actual cash value of the home (that is, the replacement cost minus depreciation due to age and condition) regardless of your decision to rebuild. If you have a mortgage on the home, your lender will also likely have an interest in these funds and be named on any checks issued in accordance with that interest. Whether you will be able to recover the holdback insurance proceeds (the difference between the replacement cost and the actual cash value, referenced directly above and further explained in the article linked below) will depend on a few factors:

1. Do you have Replacement Cost coverage for your dwelling?

Review your policy to confirm whether you have this common endorsement that bridges the gap between actual cash value and replacement cost. 

1. Did the fire result in a “total loss”?

If the damage to the home was extensive enough to deem it a total loss, California allows policyholders to easily transport their insurance benefits, beyond actual cash value and including extended replacement cost and code coverage, into the purchase of a new property. Check out UP’s article Buy or Rebuild? FAQs on replacing a dwelling after a total loss for a deeper dive into this process and other helpful insurance definitions.

1. Will the Carrier negotiate any further claim payouts with you?

While it has been less common in my personal recent experiences, carriers are sometimes willing to negotiate outside of the typical insurance payout process. This could include, for instance, a global claim settlement with a release that sums more than the actual cash value to close the claim.

I’ll reiterate that pursuing any of the above-listed courses of action in conjunction with the sale of a fire damaged property can be technical and require subject matter familiarity. I’ll again recommend reaching out to someone who has dealt with a similar situation to which you are pursuing before taking next steps. 

Best of Luck.