According to recent studies, the world has witnessed a tenfold increase in the number of natural disasters since the 1960s. Catastrophic fires, flood, and storms all appear to be on the rise. And on top of this, Americans are living more densely, in more remote locations, than ever the before. The result? Lots of insurance claims.
And when natural disasters take away a homestead, for example, the claims process can often be a contentious one. A recent case out of the California Court of Appeal might help tip the balance in this process slightly toward insurance carriers. At least for now.
The line between an illusory policy and a policy that does what it says, has always been a difficult one. When there is a request or inquiry by the insured for a particular type or extent of coverage, insurers do have some obligation to notify the potential insured of deficient limits. However, according to the California court of appeals in Volk v. State Farm, insurers and their agents do not have a legal obligation to ensure that a homeowner's policy covers the full amount of a loss to property. In other words, a non-specific request for the best policy and a general assurance of full coverage does not qualify as an assurance of one hundred percent replacement cost coverage.
The events at issue date back to September 2014, when the Boles Fire swept through the town of Weed, California causing damage and destruction to many homes. The plaintiffs in this case were among those who lost their homes as a result of that wildfire. They filed suit against State Farm alleging various claims, including breach of contract and negligence. They argued that their homes were insufficiently insured due to State Farm's negligent failure to calculate reasonable policy limits for the full replacement costs of their homes. State Farm argued that there was no breach of a contractual duty of care, or the implied covenant of good faith because all benefits due under the plaintiffs' policies were paid and the claims handled reasonably and in accordance with industry standards.
The court plainly reinforced that neither insurers nor their agents have a duty to inform an insured that additional insurance coverage may be needed on their property. The court also outlines specific exceptions to this general rule, none of which applied in the current case. Notably, this decision protects insurers who take reasonable measures to inform and advise their clients as to their property insurance coverage.
The insurance company and its agents do not have an affirmative duty to inform an insured of the likely need for them to increase policy limits to cover the replacement costs of their home. The court outlined three exceptions to this general rule: (1) the insurance agent misrepresents the nature, extent, or scope of coverage being offered or provided; (2) there is a request or inquiry by the insured for a particular type or extent of coverage; or (3) the agent assumes an additional duty by either express agreement or by holding themselves out as having expertise in a given field of insurance being sought by the insured.
According to the court, the evidence before the trial court did not provide any evidence that plaintiffs specifically requested that his insurance agent include full replacement cost coverage for his home before the fire took place. Plaintiff also did not bring any evidence to show that he ever asked the agent whether his insurance coverage was adequate to replace his home in the event of a total loss. In fact, Plaintiff never determined a current estimate of the cost to rebuild the home despite this being recommended by State Farm in its bi-annual disclosure form, which is designed to prevent underinsurance of an insured's property.
The court concluded that the fact that the insured requested that he be given “the best policy” and the agent's assurances that he had “full coverage” was not enough to show that the agent breached any special duty of care owed the plaintiff, or that the words used resulted in a breach of contract or negligent act by the insurance agent. The agent did not have a duty of care under these circumstances to ensure that the policy limits were adequate enough to cover the full costs of rebuilding the home after it was destroyed by the fire.
The court held that the plaintiffs' UCL claim was not viable as a matter of law. The California Supreme Court held that Specifically, “private Uniform Information Practices Act (UIPA) actions alone many not form the basis of a UCL claim. The plaintiffs failed to show that State Farm violated any other laws in addition to the UIPA, or otherwise participated in any unfair or fraudulent practices.
Finally, the court concluded that the plaintiff did not prove the existence of an implied contract for the for full replacement coverage, or that State Farm breached the implied covenant of good faith and fair dealing. In fact, in the original complaint the argument of implied contract is not presented and only provisions of the express contract are presented as evidence. Therefore, the breach of contract claim failed as well.
In some ways, the Vulk v. State Farm decision will give insureds more clarity in terms of “magic words” they might us to trigger an insurer's obligation to provide adequate coverage. Either way, this decision should provide more certainty to both sides of insurance claim process. And certainty is a valuable thing when the uncertain strikes.
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