Insurance companies use illegal policy provisions to burn homeowners over fire claims: Report

Consumer Watchdog calls for immediate action by Commissioner as CDI’s internal audit of FAIR Plan confirms illegality

THE ANGELS , July 11, 2022 /PRNewswire/ — A Consumer Watchdog examination of public records reveals that insurance companies inserted provisions into the fine print of their home, apartment and renters insurance policies that allow them to limit or deny coverage after a fire in violation of California the law. Read the report, “Up in Smoke: How Insurance Companies and the Insurance Commissioner Burn Fire Victims,” ​​here: pdf

Among the provisions are:

  • Limitations on “smoke damage” recovery – Smoke is often the most common and costly result of fires. Insurance companies have adopted policy provisions that treat “smoke damage” as separate from “fire damage” and limit compensation for smoke damage to much less than the total fire policy coverage.

  • Causes of Arbitrary Loss Reporting – State law only requires policyholders to report a loss in a timely manner. Instead of setting a time frame to report based on the date of loss, some insurance companies arbitrarily base the reason for reporting on another event, such as the “date the fire started,” potentially resulting in a claim being denied by company as delay.

  • Sub-limits of recovery – California the law requires fire insurance policies to cover “all losses by fire”. But some companies limit compensation if a homeowner misses a reporting deadline or based on the type of fire loss (like, for example, the smoke damage sub-limits mentioned above).

  • Commencement of Coverage Exclusions – These provisions state that a policyholder does not have coverage for fire losses that occur within a certain time after purchasing the policy (usually 72 hours).

  • Preemptive Appraisal Provisions – Such provisions prevent a policyholder from suing an insurance company in court over a claim dispute either (1) without first going through a loss appraisal process; or (2) after passing the assessment.

All these provisions are illegal according to California the law. Consumer Watchdog has also found that many insurers are illegally failing to notify policyholders of their legal rights after a government-declared disaster.

Among the companies whose policies contain these illegal provisions are Farmers, Travelers, Nationwide, and California FAIR Plan. The FAIR Plan is a government-mandated but insurance-industry-controlled organization that sells policies to Californians who can’t find coverage on the marketplace — a population that has grown rapidly since private companies have refused to sell insurance in communities everywhere. California.

Indeed, an as-yet-unannounced internal audit of Plan FAIR, conducted by California Department of Insurance investigators, confirms that Plan FAIR’s policies contain provisions limiting compensation for “smoke damage” — and that they violate California the law.

Consumer Advocates See Unlawful Claims Practices

California Regulators, who are required to review home insurance policies for compliance with state law, should never have allowed these policies to be sold, Consumer Watchdog said. Policy provisions that allow companies to deny or limit coverage directly affect rates and premiums. Thus, under insurance reform Proposition 103, insurance companies must submit these policies to the Commissioner, justify the rates they propose to charge for those policies, and obtain the Commissioner’s approval.

“The financial damage and personal trauma experienced by homeowners when their insurance company refuses to pay legitimate claims is incalculable,” said Harvey Rosenfield, author of Proposition 103 and founder of Consumer Watchdog. “Insurance companies have reduced payments or denied coverage altogether when people filed a claim after the devastating wildfires that swept the state in recent years. The frustration and heartbreak of fighting with an insurance company over coverage for insurance you’ve already paid for can be as bad as the disaster itself. Insurance Commissioner Lara must take immediate action to correct this grave injustice and enforce the law.”

Insurance Commissioner Lara has scheduled a public hearing on the FAIR Plan at Wednesday, July 13, 2022IN 9 o’clock in the morning IN Oakland.

Commissioner Lara’s request for immediate action

Consumer Watchdog called on Commissioner Lara to: (1) stop approving policies that are illegal; (2) use the full authority of his office to make insurance companies reopen and pay claims that have been reduced or denied for illegal reasons (as Commissioner of Insurance John Garamendi did after the Oakland Hills fires of 1991); (3) impose maximum financial penalties on insurance companies that violate the law; and (4) investigate and seek prosecution of companies and corporate officers who defrauded policyholders, including conspiring to reduce coverage in violation of state antitrust laws. The organization also called for an independent audit of the agency’s failure to recognize and stop illegal behavior.

Since taking office in January 2019, Insurance Commissioner Lara has made it a point to visit communities devastated by wildfires and has repeatedly vowed to protect Californians against fire insurance abuses. Regulations have been proposed, but not yet enacted, that would require insurance companies to give homeowners a discount on their premiums to reduce the risk to their homes and property, and Consumer Watchdog has asked the Commissioner to close a dangerous gap in their language.

Read the Consumer Watchdog Report here:

Read the CDI FAIR Plan audit here:

Read Consumer Watchdog’s comments on Commissioner Lara’s latest draft proposed homeowner regulations here: %20REG-2020-00015. pdf

Consumer Watchdog is a non-profit, non-partisan organization that monitors the insurance industry and the Insurance Commissioner’s compliance with California law since voter approval of insurance reform Proposition 103 in 1988. The organization defends and enforces Proposition 103 in the courts and with the California Department of Insurance. The organization’s challenges to excessive auto, home and business insurance rates have saved Californians 3.48 billion dollars since 2004


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SOURCE Consumer Watchdog

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