|Thursday, November 4, 1993
Orange County Edition
Section: PART A
Many Fire Victims' Insurance Falls Short;
O.C. recovery: Unless homeowners have special coverage,
pay for upgrades to meet stiffer building codes.
By: LESLIE BERKMAN and MARK PLATTE
TIMES STAFF WRITERS
Reeling from the loss of their homes in last week's
Laguna Beach property owners have now learned that their
insurance doesn't completely cover the cost of
Laguna Beach is filled with hundreds of older homes built
hillsides long before building codes required extensive
surveys, bedrock-secure foundations and other expensive
to protect them from earthquakes and mudslides.
Many were built before building codes mandated
insulation, special electrical wiring, fire-retardant
roofing and other
Without the proper insurance to cover the cost of
building to today's
standards, some homeowners could be forced to pay tens of
dollars to upgrade their homes.
"The position of the insurance industry is that they
don't build up to
current codes," said City Manager Kenneth C. Frank,
whose insurance will
not completely cover what it will cost to rebuild his
which burned in the fire.
"They will only replace exactly what was
there," Frank said. "As a
homeowner, that was a surprise to me."
Dozens of property owners have been meeting with their
agents over the last few days to find out how much money
is available for
temporary living quarters, how long it will take to get
rebuilt and whether they have enough insurance to get a
new home back in
On Wednesday night, about 80 people jammed a meeting of
Insurance policyholders in Laguna Beach. Some, like Cort
questioned the basics of their policies.
Kloke, a mortgage broker who lost his home in Mystic
Hills, said he
guessed that rebuilding his home up to new standards
would cost 30% above
his home's value and that his insurance won't cover the
After the fire in Oakland two years ago prompted
inadequate insurance policies, Kloke said he called
Farmers and was told
the extra coverage wasn't available. Now he's stuck.
"I think the people who make the biggest fuss may
come out OK, but
they will exploit the uninformed, the naive and the
said. "I think this is simple misrepresentation in
what is supposed to be
a consumer protection era."
Even those who purchased top-of-the-line insurance that
replacement of a fire-devastated home--no matter the
that what it takes to pay for extras is usually excluded.
Typically, homeowner insurance policies don't cover the
rebuilding to current codes, insurance industry officials
say, unless the
homeowner buys an extra "endorsement."
"It is not routinely written on homeowners'
policies," said Richard
Clemson, a senior insurance claims officer with the
of Insurance. "I don't know why not."
Since July, however, insurance agents in California have
to disclose to new homeowners and to those renewing
availability of insurance that includes coverage of
upgrades mandated in
new building codes.
Legislation making the disclosure mandatory was approved
in the wake
of the Oakland hills fire of October, 1991, when many
homeowners complained that they never knew code upgrade
available, Clemson said. Now, he said, "if you are
dealing with a company
that offers it, they have to tell you."
In the Oakland hills fire, he said, most insurance
companies at the
urging of the state ultimately agreed to pay for code
upgrades. He said
the Department of Insurance similarly may intervene to
help the people of
But state Insurance Department spokesman Bill Schultz
department would be careful not to place an inordinate
on the insurers. "Equally important to protecting
the interests of the
consumers," he said, "is to safeguard the
financial solvency of the
Laguna Beach Mayor Lida Lenny said she is prepared to
insurance companies' "feet to the fire" on the
code issue by having the
city play a strong advocate role for residents seeking to
State Sen. Art Torres (D-Los Angeles), chairman of the
Insurance Committee, said he is in the process of making
code upgrades a
required component of all homeowner insurance policies in
Policies that now guarantee home replacement in a fire
to the public," he said. "These policies should
be written in plain,
understandable English and they are not."
Laguna Beach Councilman Robert F. Gentry, who lost two
houses in the
fire, said: "I think it's going to affect almost
every property owner who
has had a total loss. It could change our community. If
replace their homes, they will have to go
The lack of code upgrade insurance will be
"devastating" for him
personally, Gentry said.
Until the fire, he said, he never knew that kind of
"I thought I bought replacement insurance. It didn't
replacement--except for the foundation."
Ina De Long, president of United Policyholders Inc., a
advocacy group based in Oakland, said the Laguna beach
fire victims "need
to organize and fight back.
"A homeowner policy is (designed) to put you back to
where you were in
the event of a loss," she said. "But when a
carrier sells you a policy
without code upgrade coverage, they know you can't go
back to where you
were. It's impossible and they know it."
De Long said insurance companies "aren't
anxious" to sell insurance
covering upgrades to building codes because they
"can't control what city
and county building departments will require and so they
State Farm officials said a homeowner can buy extra
coverage for new
building codes if they pay about 10% over the policy
premium. The extra
money buys an extra 50% of coverage.
"So if you had a $100,000 policy, it would give you
an extra $50,000
for code compliance," a State Farm claims officer
While State Farm said this additional coverage is
relatively pricey, De Long said, "if you really need
it and have an older
home, it is very inexpensive, especially in California,
earthquake country, and meeting newer codes for
foundations can cost
$80,000 to $100,000 on a hillside."
If the Oakland experience is any indication, De Long
said, the extent
to which insurance companies will bend to help fire
victims without the
extra insurance will vary and depend on what political
brought to bear.
Rock Jenkins, spokesman for State Farm, said his company
may pay for
code changes that are relatively inexpensive such as
electrical wiring, plumbing and roofs. But he said it
would draw the line
at expensive foundation work.
Farmers Insurance, which insures owners of 92 homes
Laguna Beach, is standing pat.
"At this point we are not planning on paying for
code upgrades" unless
the policyholder has purchased extra coverage, said Jeff
president of public relations for Farmers Insurance
Beyer added, however, that Farmers plans to amend its
policy to include code upgrades.
Upgrading to code could have a major impact on the
Laguna Beach, said City Manager Frank and local real
They noted the age of the homes in Mystic Hills and in
where some houses were built as beach cottages with
"I would say any but the most recent houses are
going to be subject to
newer codes in some manner," said Mark Singer, a
prominent Laguna Beach
Exactly how much money underinsured fire victims may be
forced to pay
out of pocket has yet to be determined. Federal Emergency
Administration officials said they will offer
low-interest loans of up to
$120,000 to help homeowners rebuild.
But Barton Long, 60, a systems engineering consultant who
home of 20 years on Skyline Drive, said: "Many
people in the neighborhood
are in retirement or getting toward retirement and their
is their home. If they had to go into major debt, it
would create a
Descriptors: LAGUNA BEACH (CA); BRUSH FIRES -- ORANGE
COUNTY; DISASTERS -- ORANGE COUNTY; DISASTER VICTIMS;
INSURANCE CLAIMS; BUILDING CODES
Copyright (c) 1993 Times Mirror Company