Many policyholders do not have enough insurance to replace their buildings or homes after a total loss. Often these policyholders were assured by their agents or insurance companies at the point of sale that their limits were sufficient. And many times these assurances were based on estimates that fell below the minimum standards set by law.
California’s estimate regulation, 10 CCR § 2695.183, requires that insurance companies and agents take numerous, specific structural, and geographical factors into consideration when creating a replacement cost estimate for a structure. Carriers are turning to advanced technologies to meet the regulation’s requirements while still selling policies quickly, without doing costly inspections and without burdening customers with complicated questions.
Today, insurers are using software designed to automatically gather the information required by California law just by inputting the property address. These technologies search across thousands of databases for the necessary information. Despite their promises, these systems are frequently incapable of finding all required data, leaving it to the salesperson or agent to request the additional information from the insured. That is where they fall short. Salespeople are not asking for the additional required information, and insurance companies are not training them to do so.
Some insurance carriers have even been communicating these insufficient replacement cost estimates directly in policies themselves. Others are using them as a way to convince policyholders to reduce their limits, saving them money so they can buy other insurance products from the company. And yet others are using them to lure insureds away from their competitors.
If you are underinsured and you relied on a replacement cost estimate that violated California law, you may have a basis to sue your insurer or agent. Here are some of the factors required by the regulation.
(1) Cost of labor, building materials and supplies;
(2) Overhead and profit;
(3) Cost of demolition and debris removal;
(4) Cost of permits and architect’s plans; and
(5) Consideration of components and features of the insured structure, including at least the following:
(A) Type of foundation;
(B) Type of frame;
(C) Roofing materials and type of roof;
(D) Siding materials and type of siding;
(E) Whether the structure is located or geographic location of the insured structure.