Senate Bill 872, Sponsored by Department of Insurance, Changes Insurance Regulations During States of Emergency

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By Hannah Ohman

SB 872 (Dodd), as amended August 12, 2020, amends sections 2051.5 and 2060 of, and adds sections 2061 and 2062 to, the Insurance Code, regarding insurance coverage during states of emergency, such as wildfires. Previous law required insurance coverage for additional living expenses incurred due to a covered loss relating to a state of emergency for a period of no less than 24 months and, in the event of a total loss of the insured structure, prohibited a policy from limiting or denying payment of the building code upgrade cost or the replacement cost on the basis that the policyholder decided to rebuild at a new location or to purchase an already built home at a new location. SB 872 extends these time periods and expands protections for policyholders.

According to a bill analysis, groups such as the Consumer Federation of California, Rural County Representatives of California, and United Policyholders supported SB 872. Those in support argued SB 872 would help provide relief for property owners suffering losses after an emergency. Those in opposition, including insurance companies and associations, claimed the bill would increase the cost of homeowner insurance.

Specifically, SB 872: (1) prohibits policies that provide coverage for additional living expenses from limiting the policyholder’s right to recovery if the insured home is uninhabitable by a covered emergency, but authorizes an insurer to provide a “reasonable alternative remedy”; (2) requires additional living expenses coverage to be provided for at least 2 weeks, with additional 2-week extensions, “in the event of a state of emergency and an order of civil authority restricting access to the home”; (3) requires damages be available to a policyholder to use to rebuild or replace the insured home at another location in the amount that would have been recoverable had the insured home been rebuilt at its original location, at the same value; (4) requires the insurer to provide an advance payment for living expenses and to accept an inventory of contents in “any reasonable form”; and (5) requires the insurer to offer a “60-day grace period for payments of premiums for policies on property located within an area defined in a declared state of emergency for a period of 60 days after the emergency.”

In a September 3, 2020 press release, Commissioner Lara restated his support and sponsorship of SB 872 as part of the Department’s efforts to help policyholders affected by California wildfires. On September 29, 2020, Governor Newsom signed SB 872 into law (Chapter 261, Statutes of 2020).

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