Stan Newman figures it will cost him close to $400,000 to rebuild his three-bedroom home, which burned to the ground in the fall when a wildfire swept through his neighborhood in the San Diego County community of Rancho Bernardo.
But he was stunned when he discovered that his insurer, Amica Mutual Insurance Co., planned to pay him $240,000 for the 1,500-square-foot structure, and no more. That is less than the $304,000 he said he was due, and he is negotiating.
Like many other fire victims across California in recent years, Newman found out that the value of his insurance had failed to keep pace with the rising cost of home construction. He learned too late that he was underinsured.
Just how widespread this problem has become was highlighted in a survey scheduled to be released today by a consumer group that showed Newman's anger and frustration is far from unique.
He is one of 274 victims of last fall's Southern California fires who took part in a study about their losses. Three-quarters of respondents complained that they didn't have enough insurance to pay their rebuilding costs.
Sponsored by United Policyholders, a San Francisco consumer organization, the analysis noted that only 46% of the fire victims contacted settled claims with their insurance companies, and only a third of those said they were offered enough money to cover increased construction costs.
But who is to blame? Is it a homeowner's responsibility to make sure the policy limits are high enough? Or is it the insurer's duty to inform policyholders when coverage limits might be inadequate?
Insurance companies and consumers disagree. Insurers argue that they can't force people, who want to keep their premiums as low as possible, to pay for more coverage.
"Insurance companies do provide information and options and analysis about rebuilding costs," said Sam Sorich, president of the Assn. of California Insurance Cos. "But ultimately the decision about how much insurance to buy is the homeowner's. That's the practical explanation and also the legal explanation."
Consumer advocates counter that agents offer cut-rate policies to earn quick commissions and fail to alert customers about the shortcomings of such policies.
State Insurance Commissioner Steve Poizner says his department believes that both the homeowner and insurer are responsible for making sure a home has sufficient coverage. The courts are starting to weigh in on the issue.
