Being Prepared for Wildfire Season
As wildfires rage in Arizona and New Mexico, it reminds me of the Fourmile Canyon fire nearly one year ago in the foothills near Boulder, Colorado. Since we live in similar wildfire conditions, I thought it would be timely to discuss some of the lessons learned from Fourmile Canyon.
In that fire, over 165 homes were destroyed. Many of us remember seeing those homes burn on the evening news. What many people don’t realize are the problems that have occurred with the task of rebuilding those homes. According to a recent Denver Post article, only 28 building permits have been issued to rebuild those destroyed homes in the past nine months.
One of the main reasons for the slow pace of rebuilding is disputes with the insurance carriers over the replacement cost of the homes. You see, many of these ruined homes were under-insured. Not just under-insured by small amounts, but in some cases, by as much as 50%. This has created a significant problem for some of the insurance companies. Technically, they are only obligated to pay out based on the policy limit. (In some cases, the policy language allows for payment up to 25% over the scheduled limit.)
For those homeowners whose dwellings were undervalued by 30, 40, or even 50%, they may not receive enough in a payout to rebuild their houses.
Additionally, policy holders should be aware many policies contain a “Co-Insurance Clause” that allows the companies to decrease the amount of the payout if the replacement value was understated. This clause is intended to discourage under-insuring your property to save on premium.
In the situation of the Fourmile Canyon fire, it appears that many homeowners, either intentionally or unintentionally, under-stated the replacement value of their dwellings. In addition, it appears some of the insurance agents who wrote the policies may not have been adequately keeping up with the replacement values of the homes in this area.
Many facts pertaining to this situation are still in dispute, but one thing is clear. In my opinion, there was a breakdown in communication between the homeowners, their agents, and the insurance carriers.
The most important lesson homeowner’s can learn from the Fourmile Canyon fire is to communicate with your insurance agent on a regular basis. Review your policy at least once every two years and discuss the replacement value with your agent. Make sure the coverage is updated on a regular basis to prevent under-insuring your property.
In addition to disputes over the replacement value of the dwellings in Fourmile Canyon, there are battles over the contents amounts. Some homeowners, who did not have an inventory or photographic record of their personal belongings, are having a difficult time getting full payment from the insurance companies. Many are still waiting for payment.
What most customers don’t realize is that insurance companies require “proof of loss” before paying out on a contents claim. They will ask for a complete list and description of the items destroyed in order to come up with the replacement value.
This situation highlights the absolute necessity of keeping an up-to-date record of your contents. In my opinion, the best method is to take photographs or video of each room in the home. Keep these photos or video stored on-line or somewhere off-premises so that they are easily accessible in case of a loss. Viewing the photographic record will allow you to create a more complete list of the items damaged. In turn, the claims adjusters will appreciate that you are making their jobs easier and are more likely to work with you on resolving disputes.
We can expect to hear more about the disputes between homeowners and insurance carriers in the Fourmile Canyon fire in the future. The Colorado Division of Insurance is certain to investigate to determine whether the agents or companies involved violated state regulations. If you are a homeowner, take a few minutes to review your policy, discuss it with your agent, and perhaps you can avoid similar problems should disaster strike your home.
