One of the biggest complaints I hear from homeowners after suffering a property insurance loss emerges out of the insurer’s “cancellation” or failure to renew the policy after the loss occurs. After suffering a loss, the thought of trying to get new insurance while the loss has not been completely resolved is a devastating and stressful blow to an insured. Purchasing new insurance while a loss has not been fully remediated and repaired is expensive and difficult.
Under California law, an insurer may not fail to renew a policy just because a claim is pending on the insurance policy. In fact, on the face of the Insurance Code, an insurer “shall not cancel coverage while the primary insured structure is being rebuilt.” However, under California Insurance Code 675.1(a)., “In the case of a total loss to the primary insured structure under a residential policy…If reconstruction of the primary insured structure has not been completed by the time of policy renewal, the insurer, prior to or at the time of renewal, and after consultation by the insurer or its representative with the insured as to what limits and coverages might or might not be needed, shall adjust the limits and coverages, write an additional policy, or attach an endorsement to the policy that reflects the change, if any, in the insured’s exposure to loss. The insurer shall adjust the premium charged to reflect any change in coverage.”
Unfortunately, this is not normally the case. Insurers don’t go out of their way to adjust premiums and discuss these issues with the insureds. For most insureds going through cancellation of their policy after a loss, they find that California Insurance Code Section 676 provides a few instances in which a policy can be cancelled. Some of the reasons for cancellations are very understandable, such as nonpayment of premiums, the discovery of fraud in obtaining the policy, or fraud regarding the claim. However, under Insurance Code 676(e), the Code justifies cancellation in the event “[p]hysical changes in the insured property which result in the property becoming uninsurable” as a reason for cancellation. It’s under these grounds that insurers are finding grounds to not renew policies. Yet, there is nothing an insured can do but bear the hardship financially and look for another insurer with a loss on their recent record. For those homeowners whose loss are not remediated or reconstructed such as a fire loss with an exposed hole to the outside elements through walls and roof, finding an insurance policy is next to impossible.
Insurance property claims are usually not a fast paced road to completion and homeowners must understand that delay in cooperation in their claims may affect the road to recovery.
Homeowners in California should know that insurers are all too prepared to non-renew or cancel a policy after a property loss if the property is not properly and promptly repaired.
Staying on top of your insurance claim is key to avoid being a victim of cancellation or non-renewal of a policy, which can be expensive for the consumer. Although it is this attorney’s opinion that an insurer should not be allowed to cancel or non-renew at any time during a loss or open claim (barring non-payment or fraud), the California Insurance Code provides a loophole to insurers to pull policies if a loss isn’t full repaired, despite the state of payout of the claim.