CDI Issues Legal Opinion for Homeowners

Insurance Commissioner Steve Poizner announced that the California Department of Insurance (CDI) has issued a legal opinion supporting homeowners' rights to purchase an already built home at a new location using replacement cost insurance coverage and to replace a home in a new location using an extended or guaranteed replacement cost policy.

The legal opinion, formally issued at the request of San Diego Councilmember Brian Maienschein, clarifies current California law and serves as notice to insurers that CDI expects homeowners' rights to be honored.

"Homeowners should know they have legally protected options when putting their lives back together during a very difficult and taxing time," stated Poizner. "After a disaster, homeowners have an absolute right to re-establish their lives elsewhere if they so desire - either by rebuilding their homes or buying other homes."

CDI's legal opinion clarifies the application of California Insurance Code Section 2051.5(c), which was enacted in 2004 by Assembly Bill 2199 (Kehoe), part of the CDI-sponsored Homeowner Bill of Rights born from lessons learned in the 2003 Southern California wildfires.

CDI's response letter, an official document that communicates CDI's position but does not constitute an agency guideline, order, or rule, clarifies that:

1. Homeowners can use their replacement cost insurance coverage to purchase an already built home at a new location; and
2. Homeowners are entitled to the "extended" or "guaranteed" portion of their replacement cost policies to rebuild in a new location; and
3. Homeowners purchasing a home at a new location for less than the cost to rebuild at the original location may only recover replacement costs reasonably paid to replace the damaged property.

This legal opinion is another step in CDI's efforts to protect the interests of wildfire survivors. Thus far, CDI has assisted in recovering more than $4.3 million on behalf of Southern Californians trying to rebuild after the 2007 firestorms. CDI staff was part of the initial disaster response, protecting property in the fire zones and staffing disaster assistance centers. CDI staff has hosted or participated in approximately two dozen insurance recovery forums, townhalls and workshops, in addition to counseling more than 150 survivors in one-on-one sessions scheduled with the assistance of consumer advocacy groups.

As of mid-April, CDI has received 154 fire-related complaints from San Diego County; it has received 237 such complaints from Southern California fire survivors. As of late March in Southern California, 39,000 residential and commercial claims have been submitted to the insurance industry. 1,866 claims have been for totally destroyed properties. Insurers have paid-out $1.7 billion so far, and 4,105 claims are pending.