When Policies Don’t Pay to Rebuild It All

When Jay and Teri Plowy’s home in the Del Rosa neighborhood of San Bernardino was destroyed in last year’s wildfires, the couple assumed their insurance policy would allow them to rebuild the home where they lived for 27 years and raised two children.

But like hundreds of other fire victims, the Plowys learned that replacement insurance policies don’t always pay 100% of the cost to rebuild a home as it was.

The estimates the Plowys got to rebuild their home were at least $650,000, but their insurance company has told them they’re covered for a maximum of $250,000, they said. A few blocks away, Marcey Stanton said her insurance company offered to pay her and her husband $300,000 to rebuild their home of 40 years, $145,000 less than the estimates they’ve received.

Both families are suing their insurance companies.

“We thought that we had a total replacement policy,” Stanton said.

A total of 676 insurance policy complaints were filed with the state insurance commissioner after the firestorms of October 2003. Nearly half of those complaints involved fire victims who said their insurance companies were not providing enough money to rebuild, according to a recent Department of Insurance report.

Before touring the remains of several Del Rosa homes, Insurance Commissioner John Garamendi said Monday that the problem was so widespread that he planned to audit insurance companies named in most of the complaints.

“This disturbing report, at the very least, demonstrates a systematic problem of underinsurance that is happening throughout the industry,” he said. “At worst, it indicates that insurers in many cases have not held up their end of the bargain with fire survivors who are looking to rebuild their lives.”

Garamendi said he also planned to pursue legislation or new regulations to require companies to write policies clearly, so homeowners would know how much coverage they had.

He said his agency would investigate underinsurance complaints filed against State Farm Insurance, Allstate, Farmers Insurance Group, First American Specialty Insurance Company and Travelers Life & Annuity.

His advice to the companies is “to settle up right away.”

Garamendi said the insurance report found that of the 2,734 homeowners who filed claims for total losses, 676 ultimately filed complaints -- a rate 22 times higher than normal. Insurance company representatives disputed Garamendi’s numbers, and said most claims were settled.

“Overall, we did well,” said Candysse Miller, executive director of the Insurance Information Network of California, an insurance trade group that represents Allstate, Farmers and State Farm Insurance, among others.

Miller said that nearly 19,000 claims were filed following the firestorms. If only 676 complaints were filed, she said, the satisfaction rate must be high.

Representatives of Allstate and Farmers echoed Miller’s assessment.

“We realize that not everyone may be satisfied, but we take each complaint seriously and continue to work with our customers in trying to resolve their issues,” said Mary Flynn, a spokeswoman for Farmers.

Miller said the problem of underinsurance was real. But she said it was the responsibility of each homeowner to check the policy to make sure it provided enough coverage to rebuild the home.

“Ultimately, there is one person in the equation who can say how much you need, and that is the homeowner,” she said.

Jay Plowy, whose four-bedroom home on East Willow Drive was destroyed, disagrees. He said he renewed his policy with Pacific Specialty Insurance six months before the fires, and expected his insurance agent to tell him how much coverage he needed.

“If you call your agent to have your house covered, you want a policy that will replace it,” he said. “They are the experts; they should know how much it will cost.”