California insurance laws are a mirage, failed survivors

By Richard Rieber, especially for CalMatters

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I’m an aerospace engineer by trade, but for the past year my second full-time job has been fighting my insurance company. I am one of the thousands of Eaton Fire survivors caught in a second disaster – not in the canyons, but in the fine print.

After the tragic Eaton and Palisades fires, survivors turned to their insurers to help rebuild. We’ve been paying premiums for decades just for this moment. Yet we encountered obstruction, delay and red tape.

Navigating this quagmire compounds the trauma of those grieving the loss of their homes, possessions, and community.

California’s Unfair Insurance Practices Act was created in 1959 to protect consumers from such tactics. Unfortunately, every fire survivor has a story about their insurer screwing it up—switching proofreaders, ignoring emails, and ignoring statutory deadlines.

Yet to date there has not been a single public enforcement action related to these fires. California’s laws are a regulatory mirage: they offer the illusion of protection, but disappear the moment a homeowner tries to invoke them.

The insurer’s most insidious offense is “toxic gas flaring.” Thousands of residents downwind of the fires are struggling to reduce smoke and soot damage, but insurers often deny these claims on the grounds that smoke does not constitute fire damage.

The soot that blankets our communities contains carcinogens, including lead, asbestos and heavy metals. Yet insurers rarely pay for the industrial hygiene tests needed to confirm the presence of such substances. Instead, insurers pressure homeowners to believe that simple vacuuming and mopping will suffice. This leaves behind toxic particles, putting residents at risk. Some victims have paid thousands out of pocket for their own tests, only to have their results ignored.

As it stands now, the Department of Insurance complaints process is a black hole. There is almost zero response rate to homeowners who file complaints.

Only if the department receives an overwhelming number of complaints against an insurer will it consider an investigation. Then, like the class action, the state “market conduct review” is a lengthy process that ends well after the remodel is complete, offering no timely relief to the individual homeowner.

For a survivor, time is a weapon. Most policies include “additional living expenses” coverage that would pay the rent while the home is being repaired, but in a post-disaster market where rents have skyrocketed, that fund is quickly depleted.

We are yet to see the full consequences, but the outcome is already clear: families will soon be faced with the choice of becoming homeless or accepting a dangerous settlement.

Every ignored phone call helps to drain additional livelihoods. As money runs out, people’s resolve weakens and unfair deals become more and more attractive. Slowing down has become a winning business strategy.

And asking individual homeowners to stand up to the Goliath of insurance corporations while the state regulator lazily collects statistics is untenable.

In 1988, a California Supreme Court ruling took away the right of consumers to sue for violations of the California Unfair Insurance Practices Act. By ruling that only the insurance commissioner, not the victim, had the authority to punish these violations, the court effectively removed any immediate consequences for insurer abuse.

California now needs radical change to change this economic equation. We must restore the accountability lost in 1988 by creating a streamlined administrative pathway to justice.

We should allow the insurance department to validate complaints and forward them to administrative law judges who can rule on individual violations in real time. Judges will have the power to determine a fair amount of the claim and impose a significant fine – paid directly to the insured, not the state.

This creates immediate financial consequences for non-compliance and ensures that unscrupulous insurer practices are no longer profitable.

Additionally, any delay caused by the company should trigger a “delay tax” in the form of additional life support payments over and above the policy limit. If the insurer delays, it, not the survivor, must foot the bill for prolonged displacement of people.

The insurance department’s grievance system should also be revamped so that it can provide real-time feedback and receive additional funding during disasters. To prevent insurers from hiding behind a lack of evidence, the Insurance Commissioner should establish an “ash zone” perimeter within which smoke damage is presumed and testing is mandatory.

Finally, the state should launch a Know Your Rights campaign after every disaster so that insurers cannot take advantage of survivors’ ignorance of the law.

Insurance companies are entitled to due process, but fire survivors are entitled to the good faith they have earned by paying decades of premiums. As long as the cost of noncompliance outweighs insurers’ savings from malpractice and delay, California homeowners will continue to be victimized twice — once by disaster and then by insurers.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.