Navigating Insurance Claim Denials After Natural Disaster in California

What to do about insurance denial when your home is burning

By Judy Malmon, J.D. | Reviewed by Canaan Suitt, J.D. | Last updated on December 26, 2023 Featuring practical insights from contributing attorney Ricardo Echeverria

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It seems like every year, a major quake or fire hits the state of California, causing devastation, tragedy, and an influx of insurance claims. Even worse, a staggering number of people are left uninsured and under-compensated afterward. With that in mind, it’s a good idea to be aware of insurance coverage tips in case the next major disaster hits near home.

“After catastrophes, you see these things crop up,” says Ricardo Echeverria, an insurance litigator with Shernoff Bidart Echeverria in Claremont.

Make Your Claim Immediately

Every insurance carrier has hard deadlines that require the insured to report their claims from fire damage, water damage, mudslides, etc. Do not wait to see if a small problem gets worse because the deadline may expire, potentially leaving you with nothing.

“It’s best to be on top of it, make your claim, and give all the information that you have,” Echeverria says. “Most insurance policies have a contractual limitation period, meaning you have X amount of time to sue on a claim, and most are shorter than the statute of limitations on a claim. For a lot of property insurance policies in California, it’s a one- or two-year period.”

Echeverria cites the example of the 1994 Northridge earthquake. “After that, some people had experts come out to look at their homes and, despite some cracking in the stucco, they said the houses looked fine. It wasn’t until seven or eight months later, when someone went into a crawlspace beneath the home that they saw a major issue. There can be a delayed discovery in an earthquake case because you may be justified by not knowing there was a problem. Contrast that with a fire case: When your house is burning down, you know you have to file a claim right away.”

The homeowner, or insured, is responsible for proving a loss and damage during the policy period. When that is satisfied, the burden then shifts to the insurer to prove an exclusion under its policy, should it choose to deny it.

Just like you go to the doctor for a checkup, you should also go to your insurance agent and check on your coverage. Just don’t accept the line, ‘With the extension, your number should be appropriate.’ I’ve seen too many people be underinsured. It happens all the time.

Ricardo Echeverria

How Homeowner’s Insurance Is Calculated

Your homeowners’ insurance is established based on the history, topography, weather changes, averages, and types of events that have happened in your area, such as heavy rains, flash flood damage, debris flows, or mudflows. From these, probabilities are calculated, and predictions are made—what insurance companies call your level of risk, which in turn sets your rates and eligibility for coverage.

Earthquake hazards require a separate policy from fire protection, which is statutorily mandated to be covered by property owner’s insurance. “However, the problem in California is that it’s expensive, and the deductibles are huge,” Echeverria says. This means a lot of people don’t seek earth movement insurance at all, which also encompasses landslides.

How Extended Cost Coverage Covers Less

Another problematic area, Echeverria notes, is extended cost coverage.

“Before the Northridge earthquake, everyone had guaranteed replacement cost coverage, which did just that: guaranteed the replacement of your home [even if the costs of materials went up and there was more demand for contractors following an earthquake]. But then, in 1995 and ’96, the insurance industry shifted to extended cost coverage. It makes it sound like you’re getting more, but you’re getting less. You have a policy limit plus an extension—it could be 25 percent, 50 percent, and I’ve even seen 100 percent. But, it creates a finite cap to that limit. So you find in later catastrophes, like the 2003 and 2007 fires, that in about 90 percent of the cases we handled, people were underinsured. The cost to fix was more than that.”

You have the option to sue the agent for negligence, but often, it’s viewed as the homeowner’s responsibility to get enough insurance.

“I tell everyone to take a close look at your policy, and if you take it to a contractor, they’ll tell you the number isn’t enough to replace your house. Just like you go to the doctor for a checkup, you should also go to your insurance agent and check on your coverage. Just don’t accept the line, ‘With the extension, your number should be appropriate.’ I’ve seen too many people be underinsured. It happens all the time,” Echeverria says.

The Adjustment Period

Before Echeverria becomes involved, there is usually some back-and-forth between the insured and the insurance carrier. “Adjustment of a claim is a process—particularly in property damage claims. Rarely do they agree on the cost to fix.”

For example, a common disagreement is on the scope of work if there’s partial damage to a floor or roof. If you fix the damaged part, but it doesn’t match the older part, you’re entitled to have it look consistent, though this often creates pushback from the insurance company.

“Get as much as you can, and come to me when you’re at your wits end, can’t get any more, but are entitled to more,” Echeverria says.

Gather Evidence to Support Your Insurance Claim

When you make a claim with your insurance provider, be sure that you have as much information as possible. Here are general steps to follow:

  • Read through your insurance policy carefully, including the declarations page, which lists your coverage categories. Check your deductible and verify that your claim is more than this amount;
  • Take pictures of your damage, including all personal property;
  • Keep receipts for all repair expenses and replacement housing;
  • Report your claim as soon as you can—insurance claims will be handled in the order received;
  • Ask if the adjuster on your claim is employed by the insurance company and what decision-making authority they have over your claim;
  • Don’t assume that your insurance company’s first offer is the best you can get—it’s in their business interest to minimize their payout.

Be likewise mindful of potential fraud that accompanies disaster situations. Common schemes include fraudulent inspectors, contractors, representatives of disaster aid, or requests for donations. Always ask for proof of credentials, and do not provide personal information unless you have verified the legitimacy of the source. There is no fee to apply for disaster assistance.

You have the option to file a lawsuit as bad faith and/or breach of contract. “With breach of contract, you have to prove you’re right under the terms of the contract,” Echeverria explains. “Bad faith is proving they unreasonably withheld benefits without proper cause. It’s a higher standard, but if you prove it, you’re entitled to recover attorney’s fees and emotional distress. If you prove it wasn’t just unreasonable, but constituted malice, oppression or fraud, then you can get punitive damages.”

Each case is very factually dependent, Echeverria emphasizes, and insurance companies will be prepared to debate every last detail. Often, trials become a battle of expert opinions.

“This is an actual case, for example: A house is sitting on a hill; wildfires come through and destroy all the vegetation, which held the ground in place; rain comes through, and the house slides down the hill.” While an insurance company would argue earth movement, Echeverria sought experts to testify that: “If the fires didn’t occur, this house had survived similar storms in the past because it was stabilized by the vegetation. Under California law, you look to the deficient proximate cause and would argue the fire was the real reason for the loss.”

Many cases are settled before the trial phase, but sometimes, the process can last for several years. “It’s a difficult predicament,” Echeverria says. “Usually they’re paid some amount of money [for their claim] and the dispute becomes the amount, but they then have a choice: Do they take that and build something not as good as before, or hold off until they see if they get more from the lawsuit before building anything? It’s difficult.” Accepting money from the carrier does not preclude you from seeking additional funds from a suit.

Find an Experienced Insurance Coverage Lawyer

Many insurance law attorneys are paid on a contingency fee basis, meaning they receive a fraction of what is recovered. Having a knowledgeable lawyer represent you and provide legal advice can make a significant difference to your case’s outcome.

For more general information on this area of law, see our insurance coverage overview and addition information on bad faith insurance litigation.

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