After Record Wildfire Seasons, Insurers Now Feeling the Heat
Homeowners writers in California are bound by the state’s far-reaching and retroactive rules regarding policy non-renewals and cancellations.
- Mark Robinson and Samuel Licker
- November 2021
FIERY DESTRUCTION: A row of trees remains after being burned by the Dixie Fire on Aug. 16, 2021, near Janesville, California. The Dixie Fire is the largest single fire in California state history. (Photo by Justin Sullivan/Getty Images)
Fires continue to rage throughout the West, with California hit especially hard again this year. The Dixie Fire in Northern California, which burned from July through October, was the biggest in the state’s history; as of this writing, many other fires also were active up and down the Golden State.
Without question, insurance protection is of critical importance to policyholders living in the path of wildfires like these, which have prompted billions of dollars' worth of insurance claims. Consequently, the California Department of Insurance has ensured that homeowners insurance policies issued to property owners in certain fire-prone areas remain in effect.
Leveraging authority under the Insurance Code, California Insurance Commissioner Ricardo Lara issued several mandatory moratoriums on cancellations and non-renewals of residential property insurance policies—more precisely, those insuring premises located in areas subject to states of emergency declared by California Gov. Gavin Newsom on Aug. 18 and Sept. 6, 10 and 28, 2020, among others, in connection with dozens of wildfires that erupted last year.
Given that a one-year expiration applies to Lara's orders, some insurers are itching to issue non-renewal notifications or to cancel policies that no longer comply with underwriting guidelines, or where a given carrier wants to withdraw from offering homeowners insurance in California altogether. Nonetheless, before they take action, insurance companies must understand that they may not notify policyholders regarding non-renewal or cancellation during the pendency of the one-year period, unless that election is wholly unrelated to wildfire activity. This is true even if a given policy would not be subject to non-renewal until after the one-year moratorium lapses.
As California continues to burn, Newsom has declared additional states of emergency. Thus, before carriers seek to non-renew or cancel policies, they must confirm that policies covered by expiring moratoriums are not captured by another one of Lara's orders triggered by a more recent state of emergency pronounced by the governor, of which there have been several.
Insurers must therefore be mindful not to send unauthorized non-renewal notices to homeowners with insured premises in ZIP codes affected by these or any other recent declarations. Likewise, carriers need to understand that moratoriums issued by Lara are rather far reaching and apply retroactively. In fact, if an insurer non-renews or cancels a policy today that covers property situated in an area that falls under a state of emergency announced by Newsom yesterday, that policy would be subject to reinstatement in the event Lara ultimately orders a moratorium.
Can carriers still issue notices of non-renewal or cancel policies when a moratorium remains in effect? The short answer is yes, but only if the non-renewal or cancellation is based on factors having nothing to do with wildfires, such as nonpayment of premium or insurance fraud. The Insurance Code and the moratoriums themselves specifically restrict non-renewals and policy cancellations “based solely on the fact that [an] insured structure is located in an area in which a wildfire has occurred.”
As such, when it comes to policies covering properties impacted by wildfires, insurers have to be well aware of applicable states of emergencies and related orders from the Department of Insurance.
Best’s Review contributors: Mark B. Robinson is founding partner of Michelman & Robinson, LLP, a national law firm headquartered in Los Angeles. He can be reached at firstname.lastname@example.org. Samuel Licker is an associate at M&R. He can be reached email@example.com.