Wildfire victims sue insurer for ‘woefully’ underinsuring them

20 December 2018

Published by https://www.insurancebusinessmag.com/

USA – A group of Santa Rosa, Calif.-area homeowners are suing CSAA Insurance Exchange – the Northern California arm of the American Automobile Association – for underinsuring their homes, which were destroyed in the recent California wildfires.

The lawsuit contends that CSAA committed negligence and fraud in its homeowners’ policies by underestimating the true cost of rebuilding after a natural disaster, according to a report by The Argus-Courier.

“These AAA insureds – as well as many other AAA insureds throughout the state – are woefully underinsured in the event of a fire loss and will be unable to rebuild their home,” Greg Bentley, an attorney for the plaintiffs, told The Argus-Courier.

One of the plaintiffs, Larry Spanier, told the publication that CSAA estimated it would take $1.3 million to rebuild his home, which burned to the ground in the October blaze. However, Spanier said that he obtained estimates that put the rebuilding cost at around $2.3 million. Spanier said he even bought 50% more home-replacement coverage than is recommended by industry advocates – but that still caps his overall insurance payout at $1.1 million, more than $1 million short of his actual rebuilding costs, The Argus-Courier reported.

CSAA is the third insurer to be sued by Sonoma County, Calif., homeowners in connection with the wildfires, according to The Argus-Courier. Policyholders with USAA and Farmers Group have also sued after finding themselves severely underinsured.

The lawsuit against CSAA alleges bad faith on the part of the insurer. It claims that CSAA made a change in 2016 that made homeowners responsible for more of the cost in the event of a major claim, but didn’t properly inform them of the change to their policies.

Prior to June 2016, CSAA homeowner policies stated that the maximum limit of structure coverage “may be adjusted by renewal of this policy to an amount we estimate to be 100% of the replacement cost of the dwelling.”

After the policy change, however, the insurer made policyholders responsible for updating the amount of annual coverage they’d need to rebuild based on current construction costs, according to The Argus-Courier.

“Without giving these members proper notice, they bury it within the policy,” Bentley said.

In a statement to the publication, CSAA spokeswoman Sue Saito defended the insurer’s handling of wildfire claims.

“The majority of homeowners’ claims filed after the fire have been successfully closed,” she said. “Many of our customers have homes under construction, and some have already moved back into their houses. The 2017 wildfires had a devastating toll on our North Bay communities, and we will continue to take all of our policyholders’ concerns seriously as we help them move forward.”

The statement did not directly address the lawsuit.

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