The following is a typical situation I have faced:
An individual purchases a defunct gas station, paying $300,000 for the plot. He spends another $100,000 getting the site ready for a structure and then erects an inexpensive structure for $200,000. His total investment is $600,000.
He obtains a mortgage for $400,000, and the lender insists on a perils policy for $400,000. Since there is no way the insurance company will pay more than $200,000, the lender is forcing the insured to pay double the premium.
As of Jan. 1, this scenario can no longer take place in California. An amendment to the Civil Code Section 2955.5 reads: