California Bans Insurers From Terminating Policies During Wildfires

CALIFORNIA—Insurance Commissioner of California, Ricardo Lara issued a mandatory one-year moratorium, temporary prohibition of activity, on insurance companies non-renewing policyholders on Thursday, December 5. It is the first time the Insurance Commission has invoked the new law that took effect in January to respond to the negligence insurance companies inflicted on statewide homeowners during several wildfires.

The commissioner’s decision to enact the one year moratorium is the result of Senate Bill 824 passed in September 2018. The bill states that:

• Existing law requires an insurer to comply with certain procedures relating to the cancellation of insurance policies in the case of a total loss to the primary insured structure under a residential policy.
• Among other requirements, an insurer may not cancel coverage while the primary insured structure is being rebuilt.
• The insurer may not use the fact that the primary insured structure is in damaged condition as a result of the total loss as the sole basis for a decision to cancel the policy.
• The insurer must offer at least once to renew the policy if the total loss to the primary insured structure was caused by a disaster.
• This bill would prohibit an insurer from canceling or refusing to renew a policy of residential property insurance for one year after the declaration of a state of emergency based solely on the fact that the insured structure is located in an area in which a wildfire has occurred with respect to an insured property located within, or adjacent to, the fire perimeter.

In August, the Department of Insurance released data report findings that found insurance companies dropping an increasing number of residents in areas with high wildfire risk. The number of non-renewals rose by more than 10 percent last year in seven counties from San Diego to Sierra. According to the U.S. Forest Service, more than 3.6 million California households are located in the wild urban interface where wildfires are most likely to occur.

Commissioner Lara has required insurance companies to voluntarily cease all non-renewal insurance policies related to wildfire risks statewide until December 5, 2020 in the wake of Governor Gavin Newsom’s declaration of statewide emergency due to wildfires and extreme weather conditions. The Insurance Commission’s aim is that by enacting the moratorium it will allow the time for stakeholders to work on solutions to reduce wildfire risk and stabilize the insurance market after negligence from insurance companies.

“As communities across California continue to recover from wildfires and natural disasters, insurance companies are critical partners in helping our communities rise up,” said Sonoma County Supervisor, James Gore, who serves as second vice president of the California State Association of Counties. “The inability to obtain insurance after disaster strikes impacts home values and tax revenues for emergency services that help ensure the integrity of California communities. On behalf of Sonoma County and every county statewide navigating the rebuilding and recovery process, we call on our insurance partners to help us move toward a more resilient future.”

The mandatory one-year moratorium covers more than 800,000 residential policies in zip codes adjacent to recent wildfire disasters under the newly enacted Senate Bill 824, also known as the Wildfire Safety and Recovery Act. While existing law prevents non-renewals for those who suffer a total loss, the new law established protection for those living adjacent to a declared wildfire emergency who did not suffer a total loss.

Following Governor Newsom’s emergency declarations in October, the Department of Insurance partnered with CAL-FIRE and the Governor’s Office of Emergency Services to identify wildfire perimeters and adjacent zip codes within the mandatory moratorium area. Seven of the sixteen wildfires within state-declared emergency areas have already been identified. The remaining nine fires are pending to be identified by the Department of Insurance.

Canyon News reached out to Commissioner Lara’s office requesting commentary on what the State of California should expect as a result of the moratorium, but did not not hear back before print.