Companies that underinsure homes give homeowners "a false sense of security," said United Policyholders Executive Director Amy Bach. "Underinsurance remains a severe problem."
In most cases, homeowners are not to blame for not carrying enough insurance, she said, because they don't have the knowledge of building practices, materials costs and local government codes to accurately figure out what it would cost to rebuild a destroyed dwelling.
Newman's insurer, Amica Mutual, did not respond to calls asking about Newman's complaint or United Policyholders survey findings. But officials at several major insurance companies and trade groups as well as industry experts questioned the survey's statistical validity. No California homeowner is being deliberately underinsured, they said.
Homeowners have an obligation to keep insurers informed about additions, remodeling and other upgrades that increase property values, industry spokesmen said. Customers also need to evaluate their coverage limits periodically when policies are up for renewal.
California courts, for now, are backing insurance companies. In a recent case stemming from the 2003 Southern California wildfires, a panel of judges from the 4th District Court of Appeal ruled that State Farm General Insurance Co. did not misrepresent its coverage limits when it declined to pay full replacement value to a San Bernardino woman, who lost her home in an October 2003 blaze.
Poizner said he disagreed with the appeals court and planned to ask the judges to "depublish" their April 29 decision so that it would not be considered legal precedent.
Though conceding that "underinsurance is a very common problem," Poizner noted that most insurers appear to have done the right thing by their customers in handling claims from the fires in San Bernardino and San Diego counties. Out of a total of 39,000 claims, 36,000 were verified by state regulators as being completely paid off, the commissioner said. Companies paid close to $2 billion in claims, he said.
Nevertheless, Poizner said he was concerned about outstanding complaints. Department of Insurance staff members are investigating every case, looking for patterns that might indicate company wrongdoing, he said. "We've launched market conduct exams of many major homeowners insurers in Southern California, and we're looking for violations of claims processing rules. If we find them, the companies will be penalized."
