California High Court Upholds Regulation Requiring Accurate Insurer Home Replacement Estimates

The California Supreme Court on Monday upheld a state regulation that aims to give homeowners a more accurate insurance quote for replacing homes destroyed or damaged in wildfires.
The state’s insurance commissioner had the power to issue the 2011 regulation, a unanimous court said, rejecting a legal challenge by The Association of California Insurance Companies that argued that the commissioner exceeded his authority granted by the state Legislature.

The association is challenging the regulation on two other legal fronts that the California Supreme Court did not address, so the regulation still faces possible invalidation.

Association President Mark Sektnan said in a statement the commissioner had overreached, and the court’s opinion “does not accurately reflect the Legislature’s intent.”

He was joined in the statement by Kara Cross, general counsel of the Personal Insurance Federation of California.

The regulation requires insurers to include costs such as demolition and debris removal when providing homeowners with estimates of how much it would cost to replace their homes.

It came after complaints that homes destroyed in wildfires were underinsured – sometimes by hundreds of thousands of dollars each – because insurers had not presented complete replacement costs.

Insurers were accused of purposely underestimating those costs to provide artificially low premiums.

The California Supreme Court said state law gives the insurance commissioner “broad authority” to create rules and regulations to carry out the prohibition on untrue, deceptive or misleading insurance statements. The ruling overturned lower court decisions.