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Time of Loss Calculation, Your Insurance and California Insurance Code – Real Estate Insurance Law Blog



CAPIA, the California Association of Public Insurance Adjusters, held its annual meeting last week, and I was fortunate to have the opportunity to attend. Along with meeting some of the best policyholders' advocates in the state, there were several informative and thought-provoking presentations related to the industry.

A topic that received a handful of comments related to the timing of the loss calculation and its effect on policy. benefits due. After a major disaster, such as a wildfire, the timeline for damage adjustment and reconstruction is likely to extend beyond a stand-alone loss due to factors such as demand increase. 1 The longer the time between the date of loss and the date of rebuilding , the greater the chance of increased variance in the conversion costs. The past year has given us an excellent example as we have seen the price of timber rise to over $ 1

,600 per thousand feet in May, only to fall back to previous levels at the end of the summer months.

This raises the question. , for insured persons who lost their homes in a forest fire in 2020 but who will start building up in May 2021 – are they liable for the reconstruction costs at the time of the loss or the time of the reconstruction? Just like the answer to so many other questions you will ask an insurance professional, it depends on the language of your insurance.

Interplay of Policy Language and the California Insurance Code

It's important to come Remember that the language of your policy may not be in the policy itself. The California Insurance Code contains many provisions that set minimum standards for state insurance. Cal. Ins. The Code § 2070, for example, requires that all fire insurance policies provide substantially equivalent coverage or coverage more favorable than the standard fire insurance form, which is available on Cal. Ins. Code § 2071. Other insurance code laws have a similar effect and are generally incorporated as follows:

All insurance policies issued in California are governed by the provisions of the Insurance Code. [Citation.] When insurance coverage is required by law, the legal provisions are incorporated into the insurance contract. The obligations under an insurance are measured and defined by the applicable statute, and the statute and the insurance together form the insurance contract. 2

Regarding the time of loss calculation, Cal. Ins. Code § 2051 (a) states the following:

According to an open insurance, the compensation measure in fire insurance is the insured's cost to compensate what was lost or damaged in its condition at the time of the damage, the cost is calculated at the time of fire. . (my italics).

But this statutory language often sets the low bar for what the insurance must include, and an insurer can provide terms that are more favorable to an insured. Despite this, an observation was made at the CAPIA meeting that the insurance companies were considering Cal's language. Ins. Code § 2051 (a) a mandate, where the insured is injured by the loss calculation at the time of the loss instead of at the time of the reconstruction. However, this practice contradicts how statutory conditions should be integrated, as stated above, and the same court said: "

This is further supported by the California courts' interpretation of policy language that meets the statutory minimum standards, for example, in Safar v. Allstate Insurance Company 4 the Court interpreted Cal. Ins. Code 2051 and stated,

Since this language If this is reflected in the policy, the interpretation and meaning of section 2051 is instructive. Cf. Cheeks v. Cal. Fair Plan Ass’n 61 Cal. App. 4th 423, 426 (1998) (where the provision for claims settlement was "equivalent" to the provisions of the standard fire insurance form, the parties were "bound" by interpretations of the standard form). Neither party has argued that Section 2051 is not applicable, or that another construction of this language was intended.

Again, the door is seemingly open where the language of a policy does not follow the charter and one party claims that a construction other than the minimum standard in Cal. Ins. Code 2051 should be applied.

Current related legislative proposals

The issue concerning the timing of loss calculation is not one that is overlooked by insurance companies. This was evident when the legislature passed the California Legislature last year on mandatory code upgrades. A (later reduced to 10%) and in particular included the following languages ​​in its summary, which was carefully followed in the bill:

The bill would require building code upgrade coverage to be based on the increased costs associated with building regulations and laws at the time of conversion and not at the time of the loss . (my italics)

On 19 May 2020, however, an amended / replaced version was submitted, with notable differences. Corresponding replaced languages, read as follows:

Coverage for upgrading building code is provided based on the increased costs associated with building ordinances or laws in effect at the time of loss or conversion up to policy limits for this coverage. The policy may designate any restrictions on coverage for compliance with applicable building regulations that take effect after the date of the loss but before the issuance of necessary building permits . (my italics)

Although not related to primarily stated coverages, these changes indicate that this is an issue that insurers are familiar with and understand the potential differences that cost delays in rebuilding can have for policyholders. The language of this bill was finally adopted in AB 2756, containing the language that allows insurers to specify restrictions on compliance with applicable coverage. Keep an eye out for more on this topic.
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1 See eg How the increase in demand for natural disasters affects the cost and timing of recovery. [01290129][01290129] ] California Fair Plan Assn. v. Garnes (2017) 11 Cal.App.5th 1276, 1305, modified on denial of reh & # 39; g (14 June 2017) (quoting Witkins ) [2906305]) [2906305] . Id.
4 Safar v. Allstate Ins. Co. no. 2: 18-cv-04031, 2021 WL 4721895, at * 8 (C.D. Cal. 19 May 2021).


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