Running insurance marathon
Fire victims face long, arduous effort as they navigate process to replace lost valuables
After Mark Bowe lost his Calaveras County home in the September 2015 Butte Fire, he was surprised to learn that to get the full replacement value for things he had lost, he had to actually replace the items. Otherwise he would only get the depreciated value, which in almost all cases would be less.
More than two years later, he and his wife, Susan, are still replacing some of the more than 10,000 items that went up in flames. They have not reached the policy limit on their contents coverage, and don’t know if they will. “We are not going to replace 40 years’ worth of stuff,” said Bowe, who is 64. The couple have moved to a new house in St. George, Utah.
Many victims of the Wine Country wildfires are learning the same lesson — that even if your house is a total loss, the insurance company will not automatically write you a check for your policy limits.
“People say, ‘I paid for $200,000 in contents coverage, why aren’t you cutting me a check for $200,000,’ ” said Amy Bach, executive director of consumer group United Policyholders.
Although every company is different, a standard homeowners insurance policy will pay up to a certain dollar amount to replace your home or “dwelling.” Separate limits apply to your personal property (or
“contents”), outbuildings and additional living expenses if you have to move out of your home. These separate limits are typically a percentage of your dwelling limit.
There are two general types of coverage. Actual cash-value policies will pay the depreciated value of items lost. This is what it would cost to replace the item or one like it, minus some amount based on its age and condition. Think of it as what something would sell for on Craigslist.
Replacement-cost coverage will pay to replace what you lost without a deduction for depreciation. It’s basically what it would cost to buy a new one. Many people assume that means if they lose something as a result of a covered peril, such as theft or fire, the company will write them a check for the cost of a new one.
When it comes to contents coverage, that’s not usually the case. Most companies will pay you the depreciated value up front, and the difference between the depreciated value and replacement value when you replace the item and provide proof of purchase.
This is what the Bowes have been going through for two years.
After fire destroyed their 2,000-square-foot home on 13 acres in Mountain Ranch, they had to list every item that was in the home, along with its age, condition (on a scale of zero to seven) and estimated replacement cost. There were more than 10,000 items on the list, down to 50 wooden hangers. This was a “painstaking, traumatic, brutal” process, Bowe said.
The couple hired a public adjuster, the Greenspan Co., to help them inventory and value their dwelling and contents. It will get 10 percent of their entire settlement.
The Bowes submitted the list to their insurance company, State Farm. It determined the depreciated value of each item and sent a check for the lump sum. “That gets backfilled as you make purchases” and send in receipts, Bowe said.
Last weekend, he bought a bed frame at Ikea to replace one of three lost in the fire. State Farm had already paid him $67 for the bed frame, which had a replacement value of $90. When he sends in the receipt he will get $23 (even though he paid more than $90 for the new one, which was nicer than the original).
For items such as Susan’s wedding dress, “they made it clear out of the gate” they would not be compensated for its sentimental value, Bowe said. For that they won’t get anything over the depreciated value, because they don’t plan on replacing it.
For jewelry, antiques and other collectibles, “they give you fair market value,” or what it would cost to replace them, whether you replace them or not, he said.
State Farm, in an email, explained that “the value of the antique already has age and condition factored into the ‘market value’ so no depreciation is applied.”
This process came as a “huge surprise,” Bowe said. “I had never made a claim before. I was totally ignorant of the insurance system. When I sat in the agent’s office and she said here’s how much coverage you have for your house, contents, trees and landscaping — and there was nothing standing above our foundation other than the metal from our appliances — I thought we would get a check” for their policy limits.
What he doesn’t like about the replacement process is that “it doesn’t let you move on. It doesn’t let you close the book or chapter,” he said.
When it comes to replacing your structure, homeowners in California who suffer a total loss and choose not to rebuild at their current location can still get their full replacement value if they buy or build elsewhere, thanks to a state law.
“You work with your insurance company to reach an agreement on what it would cost if you did rebuild the exact same home that was destroyed,” said Janet Ruiz, a spokeswoman for the Insurance Information Institute, a trade group. You can then use that settlement to buy or build a home in a different location. “In most cases, you will need to spend what it would have cost to rebuild if you expect to collect the full replacement cost,” she said in an email.
In Bowe’s case, his public adjuster “reconstructed down to the nail the cost of rebuilding our home, submitted that to State Farm, who then pretty much agreed.” They have received a number of checks reaching their dwelling limit.
Not everyone will have the same experience as the Bowes. Every insurance company, every policy and every case is different. Bach of United Policyholders said one homeowner who didn’t want to inventory and replace every item negotiated a settlement that was more than the depreciated value but less than replacement value of her contents.
Insurance company USAA said it normally requires customers to repair or replace property to get the full replacement cost. However, if they suffer a total loss caused by wind or fire, they have the option “to immediately collect the policy limit of their dwelling coverage and 75 percent of the limits on their contents coverage,” the company said in an email.
For North Bay fire victims, Bowe has this advice: “Really learn how this process works. It’s going to be a marathon not a sprint.”
And for people who have not suffered a disaster: Understand your policy and ask your agent for a review to make sure you are adequately insured. And take a video of everything in your home, including drawers and closets. “If the unfortunate occurs and you have to quantify everything,” it will help, he said.