California property insurance policyholders making wildfire loss claims must consider the terms of their policy and rising construction costs, according to Jason Rosenthal, an attorney at Much Shelist, who specializes in representing insurance policyholders in disputes with insurers.
Policyholders insured for replacement cost, as opposed to actual cash value, may not receive the full replacement cost until after they have replaced the lost personal property or rebuilt their house, according to Rosenthal. "For a lot of people, that can be a material difference," he said.
While California law prohibits price gouging for building materials (as well as rental housing, gasoline, food and medical supplies), construction costs are still likely to rise, Rosenthal added.
"The cost to rebuild can equal what you could buy a new house for. If you buy a million dollar home, that includes the land, so there's some value attributed to the land itself," he said. "But if you need to rebuild that home, the home itself could cost, if you're building it from the ground up, a million dollars to rebuild."
This means many homeowners may be underinsured, Rosenthal explained. "You need to think about the cost to rebuild from the ground up," he said. "If you had to do that, you really want to be protected and covered by insurance."
Other provisions of homeowners insurance that can affect what they will receive from a wildfire claim include supplements, sublimits, exclusions and inflation protections, according to Rosenthal. Policy supplements may contain sub-limits – that are less than the policy's overall limits – on compensation for property in the home such as artwork and jewelry. Certain types of risks such as floods and earthquakes may be subject to sub-limits, although it's less common for fire, Rosenthal added.
He pointed to one bright spot in policy terms for California wildfire survivors – inflation protections applicable for repair or construction costs. If a policy has that protection, Rosenthal said, "the limit will increase based on cost of living. If a loss occurs today, but it takes a year to rebuild the property, and costs are rising during that time, there may be an increase in the limits by 3, 4 or 5% depending on how the policy works. That's not something that people typically think about, but that may be a benefit under their policy."
Rosenthal advises policyholders to "not accept 'no' from an insurance company."
"It's really across the board, with business claims, all types of insurance issues," said Rosenthal, who has over 25 years experience representing policyholders. "I can't tell you how many times we got a letter from the insurance company denying coverage or limiting coverage, but that wasn't the end result."
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