Challenges to homeowners making fire insurance claims

by Zain Jaffer

I must admit that despite my involvement as an investor in the real estate industry, I do not have much first hand knowledge of the experience of those making fire damage claims on their policies. We should all count our blessings that such a misfortune has never (and hopefully never) hit any of us. So this first hand account by a person who lost her home in the 2015 Valley fire who has had to undergo the entire process is useful to understand.

“I spent the next few years negotiating with insurance companies. It’s a difficult process, and a lot of it is not well documented by insurance companies on purpose,” said Sharon Gillenwater, in her personal video [https://www.youtube.com/watch?v=RMLjzNSthxU].

Given the huge estimate of several billion that insurance companies are expected to pay for the Los Angeles 2025 wildfires for several thousand damaged properties, it is possible that payments to be made might even be less than what is normally expected.

Gillenwater described her first hand experience. She said there are four buckets, some of which are negotiable, and some that are not.

When it was safe to inspect her burned home, Gillenwater met an insurance adjuster from her insurance company. She said that her experience was wonderful, and that the agent was “emphatetic” and promised to take care of them and cut a check immediately. Unfortunately she said that they were “lulled into this false sense of security,” which changed when they were assigned to a different agent, who was the bad cop to the earlier good cop. Gillenwater claims this is done by design, and everything is vague so it can be negotiated.

The first bucket is the dwelling coverage that is money to rebuild your house. There are two types - replacement value and cash value. Gillenwater suggests you try to get the replacement value, which is the actual money you need to rebuild your house in current dollars. The second, which is cash value, which is a negotiated cash value they offer you, which may not cover the present cost to rebuild your house. Cement, lumber, contractor costs and others change over time. Note that for replacement value, it is for the house design that you lost, with a small percentage allowance. Significant changes to the design are not covered.

The second bucket is the personal properties you had in your house. These include furniture, appliances, equipment, clothing, artwork, and other personal possession. Some of those may need a separate coverage. You can do a better claim if you have a photo of the inside and outside of your home before it burned down, and also receipts may help. But most likely you will not be able to claim for everything you lost, and expect this to be negotiated down.

The next bucket is for additional living expenses (ALE). This money covers your hotel, apartment rent, and other costs while you wait for your dwelling to be restored. However this is negotiated. In Gillenwater’s case, she received 75 nights of rent because the burned home was a second home. But if it was a full time residence, she may have gotten two years worth of living costs.

The last bucket is called ordinance and upgrades. This is because you will most likely be required to build to current building codes. These may include the addition of sprinkler systems, fire resistant building materials, and other place specific upgrades that were not there when you first built your house.

Basically all claimants try to maximize what they can get from their insurance, while the insurer tries to minimize or cancel some or all of these claims if they can in a process called a clawback.

Do not expect it to be a friendly and easy negotiation where they will just hand over money you demand. Get a professional who can advise you on your end so that you are able to get what you can and not waste your time insisting on things that you probably will not be entitled to.

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