Homeowners allege firms underinsured them for wildfires

San Diego County residents, saying they were misled into believing they had enough coverage, urge the state insurance commissioner to take action. Insurers say it’s not a severe problem.

Reporting from Sacramento — As a wildfire sparked evacuations in
Southern California on Wednesday morning, victims of a blaze that
destroyed 1,600 homes in San Diego County a year ago complained that
they were still battling insurance companies to get more money to
rebuild.
At issue: underinsurance of homes and who is to blame.
At a news conference in a fire-vacated lot in the San Diego
neighborhood of Rancho Bernardo, residents accused some insurers of
misleading them into thinking they had enough coverage to replace homes
burned to the ground by the Witch Creek fire in October 2007.
“We should not have to fight for everything,” said Stephen Stout,
who hasn’t started to rebuild his 28-year-old home. “It’s a
never-ending nightmare.”
Insurers said they understood the frustration but disputed the
idea that they misled policyholders about their coverage. Most of last
year’s fire claims have been resolved, they said.
Stout and about 35 other homeowners, members of United
Policyholders, an insurance consumer group, called on California
Insurance Commissioner Steve Poizner for prompt action.
The commissioner must take enforcement action against companies,
agents and brokers if investigations find they did not honor commitments
to pay for reconstruction costs, the group said. It also wants the
commissioner to hold hearings, conduct legal investigations and back
legislation in Sacramento to deal with what it contends is a widespread
problem of underinsurance of homes in fire-prone areas.
Poizner, who said he already had persuaded insurance companies to
pay $13-million worth of disputed claims from the 2007 fires, said he
had directed his staff to use a variety of tactics to resolve current
conflicts and avoid future disputes between homeowners and insurance
companies over coverage.
But that’s not enough, said Karen Hoy, who so far has rebuilt
only the foundation of her 2,100-square-foot Escondido home.
“There needs to be some concrete rules,” she said.
Hoy recalled being told by her insurance agent in 2004 that she
had enough protection to fully rebuild. But now that her house is gone,
destroyed in the 2007 blaze, Hoy says her insurer is offering her
$200,000 less than the full cost to rebuild.
United Policyholders blames conflicts involving underinsurance
for slowing the reconstruction process in San Diego. Only 100 of 1,600
homes have been rebuilt, the group said, citing a report from the San
Diego Regional Disaster Board.
For its part, the insurance industry contends that underinsurance
is not a severe problem.
In one year, insurers have settled 91% of about 35,000 claims
from last year’s fires, said Tully Lehman, a spokesman for the Insurance
Information Network of California, a trade group.
Out of 549 formal complaints received by the California
Department of Insurance, only 106 involved underinsurance allegations,
“so we’re not seeing a tremendous impact,” Lehman said.
California courts have ruled that homeowners have the primary
responsibility for ensuring that they have enough insurance on their
property, he stressed.
Insurance companies should not be blamed automatically if a
customer winds up being underinsured, said Sam Sorich, a lobbyist in
Sacramento for the Assn. of California Insurance Companies. Some
policyholders may fail to ask their insurers to raise their coverage
after remodeling kitchens, adding rooms or making other major
improvements to their homes, he said.
Poizner, however, doesn’t want to put all the burden on
consumers. He said he was ordering Insurance Department auditors over
the coming months to investigate how major insurers handled 2007 fire
claims, particularly those involving totally destroyed homes.
“We’ll be looking for patterns of behavior by insurance
companies, of stalling, not paying claims fully and putting up
barriers,” Poizner said.
The commissioner promised to hold public hearings to gather
information to draft proposed legislation next year that would “help
address the broader underinsurance problems that emerge every time there
is a natural disaster.”