Governor Signs Three Post-Fire Homeowners Bills

Governor Arnold Schwarz-enegger signed three homeowners bills into law that responded to problems arising out of last year’s Southern California wildfires.

Two of the bills, AB 2199 and SB 64, were considered part of Insurance Commissioner John Garamendi’s “Homeowners Bill of Rights” package. Another bill that passed was SB 1855.

“The legislative process was a very productive effort because the Department of Insurance (DOI) did a great job of bringing together insurance companies and consumer representatives,” said Sam Sorich, president of the Association of California Insurance Companies. “The DOI showed some really great leadership on all three of these bills. Both sides were pleased with the results.”

Sorich said that SB 1855, which requires insurers to update disclosures that they provide to consumers, would have the most immediate effect on agents and brokers.

“Agents are going to have to make sure that the disclosure forms that they give to customers are consistent with the provisions of 1855,” he said. “There’s going to have to be a new disclosure form given, the so called bill of rights that customers are now going to have to get. There are new documents that agents are going to have to make sure their customers are getting.”

SB 1855, authored by Sen. Deirdre Alpert (D-San Diego), will go into effect Jan.1, 2005 and will ensure that policyholders receive accurate explanations of their homeowners coverage. Sorich said that the extra costs for insurance companies will be worth it.

“There’s going to be some costs involved, and companies are going to have to come up with new forms, new formats, so there’s going to be some administrative costs,” Sorich said. “But on balance our member companies felt that those administrative costs were worthwhile because I think the information that will be going to customers is now better, it’s easier to understand and provides more information to customers than what was required by previous law.”

AB 2199 ensures that policyholders who have bought full replacement insurance coverage will have enough time to rebuild their homes. The reconstruction period will be extended to 12 months from the customer’s receipt of the first cash payment from the insurance company. The legislation also allows policyholders who suffer a total loss to rebuild their home at another location. The bill will have an immediate, direct effect on insurance companies.

“I think that the policy terms of many existing policies are going to have to be rewritten to make sure that instead of six months, the policy provides for a minimum 12-month period,” Sorich said. “I don’t think it’s going to change company practice. Even though the policy may have said six months, I think in most cases companies work with their customers and allow the rebuilding process to go forward.”

Sorich said that agents have the responsibility to tell their customers about the liberal time frames for reconstruction.

SB 64 is a “hopeful step” that will have the least effect upon agents and brokers of the three bills, but will still be beneficial to the industry, Sorich said. The bill allows insurance companies and homeowners to mediate through the DOI. The bill expands the DOI’s mediation program to include disputes arising from claims occurring since Sept. 20, 2003. The program allows for mediation when there are disputed claims on policies covering residential property losses. The loss must be a result of a state-declared emergency. Insurance companies are responsible for the cost of the mediation, up to $1,500 per claim.

Overall, Sorich said that the three homeowners bills will have a positive impact on insurance companies, agents and brokers and the industry.

“We were really pleased,” Sorich said. “On each of these bills, we worked the issues out and I think we reached a fair resolution to some of the issues that were raised.”