Insurance Law

California Insurance Commissioner wants court decision depublished that placed responsibility on homeowner to obtain adequate insurance

By David Rossmiller

A reader sent me this fascinating, and pretty good, story from the L.A. Times.  The story looks at recent homeowner losses to wildfire -- where a major problem was homeowners having property insurance for less than the value of the home -- and debates who is to blame for underinsurance, agents and insurers, or homeowners. 

 Like many other fire victims across California in recent years, Newman found out that the value of his insurance had failed to keep pace with the rising cost of home construction. He learned too late that he was underinsured.

Just how widespread this problem has become was highlighted in a survey scheduled to be released today by a consumer group that showed [homeowner Stan] Newman's anger and frustration is far from unique.

He is one of 274 victims of last fall's Southern California fires who took part in a study about their losses. Three-quarters of respondents complained that they didn't have enough insurance to pay their rebuilding costs.

About six weeks ago, the California Court of Appeals decided a case, Everett v. State Farm, that placed the responsibility for adequate insurance -- in the absence of "guaranteed replacement cost" and assuming adequate and prominent notice to policyholders -- on homeowners.  I  wrote about the Everett case in this post from May 8. 

I found it intriguing that, according to the story, the California Insurance Commissioner wants to ask the court to "depublish" the opinion to take away its precedential value.  Although this is not unheard of in a settlement between an insurer and a policyholder, particularly where the insurer lost the case on appeal, I'm not sure under what authority the Insurance Commissioner can ask for depublication.  

California courts, for now, are backing insurance companies. In a recent case stemming from the 2003 Southern California wildfires, a panel of judges from the 4th District Court of Appeal ruled that State Farm General Insurance Co. did not misrepresent its coverage limits when it declined to pay full replacement value to a San Bernardino woman, who lost her home in an October 2003 blaze. [The Everett case].

[Insurance Commissioner Steve] Poizner said he disagreed with the appeals court and planned to ask the judges to "depublish" their April 29 decision so that it would not be considered legal precedent.

An insurance analyst made a good point in the story -- it doesn't make sense to conclude insurers are being deceptive because they would make more money charging more premiums for more home value.  Another point, not made in the story, that follows from this comment: insurers want to place the responsibility on the homeowner to value the house adequately and pay commensurate premiums, rather than bearing the risk of getting too little premium for guaranteed replacement cost. 

The analyst, Brian Sullivan, also made another point that deserves discussion -- he said that some agents may have an incentive to offer insurance at the cheapest rate possible to get the business from a rival agent -- although it seems to me that homeowners have more of the responsibility for such a transaction than agents, because they, not agents, are the ones who will cut corners on insurance to get a lower price.  For the companies that still offer guaranteed replacement cost, usually for not that much more of a premium than without replacement cost, it would be interesting to see how many people take the lower premium, even if it is a relatively small amount. 

Full post as published by Insurance Coverage Law Blog on June 12, 2008 (boomark / email).