California Residential Property Insurance Laws - Key Updates for 2025
The California Department of Insurance (CDI) has issued the 2025 Annual Notice regarding significant changes to laws governing residential property insurance policies, particularly in the context of a declared state of emergency. These laws directly affect how insurers handle claims related to disasters, such as wildfires, and set forth important guidelines for claims adjusters and policyholders alike. Below is an overview of the major updates.
1. Claim Settlements for Fire Losses
Actual Cash Value (ACV): Insurers must calculate ACV losses by subtracting depreciation from the cost to repair, rebuild, or replace damaged structures. The depreciation applies only to components that typically wear out during the structure's life.
Replacement Cost: Policies must provide full replacement cost for structures without depreciation deductions, though the payment is limited by the policy's coverage.
Time to Collect Replacement Cost: Insured individuals have up to 12 months (36 months in emergencies) from the date of the first payment to claim the full replacement cost.
2. Living Expenses and Housing Provisions During Emergencies
Additional Living Expenses (ALE): Coverage for ALE must last at least 24 months from the date of loss in cases of state emergencies, with potential extensions for up to 36 months if there are delays in rebuilding.
Reasonable Habitation: If a home becomes uninhabitable due to a covered peril, ALE coverage cannot be limited, though insurers can offer an alternative remedy if needed.
Advance Payments: Insurers must offer at least four months of living expenses as an advance payment to policyholders who face total loss claims.
3. Claims and Adjusters
Changing Claims Adjusters: If an insurer assigns a third or subsequent adjuster within six months of a claim, they must provide the insured with a written status report.
Appraisal Rights: In the event of a government-declared disaster, either party (insured or insurer) can request an appraisal, but it cannot be compelled.
4. Wildfire Risk and Rating Adjustments
Wildfire Risk Models: Insurers using wildfire risk models to adjust premiums must provide policyholders with their wildfire risk scores, and policyholders have the right to appeal their classifications.
Disclosure Requirements: Policies must prominently display information regarding fire coverage, especially in high-risk wildfire zones. If a policy excludes fire coverage, it must include a signed acknowledgment from the insured.
5. Important Updates on Policy Renewals and Cancellations
Non-Renewal Restrictions After a Disaster: Insurers are prohibited from non-renewing a policy due to a fire disaster for at least two years unless there are significant changes to the property that make it uninsurable.
Grace Period for Premium Payments: After a state of emergency, insurers must offer a 60-day grace period for premium payments in affected areas.
6. California FAIR Plan and Home Insurance Finder
Fire Coverage Requirements: If a policy does not cover fire, insurers must inform the insured and provide resources to find fire coverage via the California FAIR Plan.
Non-Renewal Notifications: Insurers must provide clear notices regarding non-renewal and include details about accessing the California Home Insurance Finder.
For further details on these laws, you can explore the full text of the relevant sections of the California Insurance Code using these resources:
These updates provide essential information for insurance professionals, policyholders, and those affected by disasters. Ensuring compliance with these laws can help streamline the claims process and offer better protection for homeowners during emergencies.
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