Barely a week after the '25 Ball dropped in Times Square, the worst wildfires in history ripped through Southern California. The fires raged for twenty-four days, leaving an unprecedented trail of death and destruction. All told, just under 13,000 households were displaced, with entire communities reduced to rubble.
As the smoke cleared over Los Angeles County, a second catastrophe emerged – less visible, more insidious. Thousands of homeowners who thought they had purchased comprehensive insurance coverage discovered that, in actuality, they were woefully underinsured.
The New York area is not immune from wildfires. Indeed, as recently as March of this year, over 600 acres burned in Suffolk County, Long Island. Just weeks later, the Jones Road Fire in Ocean County, New Jersey, scorched over 15,000 acres, evacuated thousands, and closed major corridors.
Despite these recent, "close to home" examples, many believe that wildfires remain largely a Western problem. And, although that might provide some cold comfort, the truth is that our climate no longer observes geographical etiquette – and Mother Nature can express her wrath in any number of ways.
So, while it may be accurate that East Coast homeowners face less of a wildfire risk than their West Coast counterparts, many New Yorkers do share one very unfortunate trait with their California cousins: They, too, have failed to properly insure their homes and contents against the threat of natural disasters.
Comprehensive insurance coverage remains the best hedge against catastrophic loss – no matter what form that loss takes. In view of this simple fact, the California wildfires can and should serve as a wake-up call for New York area policyholders.
Now is the time for homeowners to carefully review and truly understand their insurance policies.
With that goal in mind, the following offers a high-level overview of the property coverage provided by standard homeowner policies, and outlines certain tips for improving the same.
The Fine Print Matters
The wildfires that swept through California in early 2025 forced people out of their homes and into the unfamiliar world of insurance policy interpretation. Having previously (and, perhaps, understandably) assumed that all policies are created equal, many homeowners had never taken the time to read their insurance contracts.
They simply purchased whatever their insurance broker suggested, and promptly filed it away. Not until after experiencing catastrophic loss did they actually retrieve and review their policies – and only then did they realize that their coverage was far from comprehensive.
Understanding the Essentials
Basic Categories of Coverage
A standard homeowner insurance policy is built around four key coverages. They are: Dwelling (the home itself); Other Permanent Structures (detached garages, sheds, pools, patios, etc.); Personal Property (belongings stored within the home); and Additional Living Expenses (costs incurred when some or all of a home is rendered uninhabitable).
Most policies also offer additional categories of coverage which respond in the face of particularly significant losses. Such (self-explanatory) extras can include insurance for Debris Removal, Land Stabilization/Excavation, Building Code Upgrades, and Landscaping – just to name a few.
Actual Cash Value Versus Replacement Cost
With the foregoing in mind, a homeowner's first insurance-related task is to identify the types of coverage necessary to fully protect the home/contents in question. Once that decision is made, the point of focus should turn to the basis upon which the coverage is written. And that comes down to two options: Actual Cash Value (ACV) or Replacement Cost (RC).
Insuring on an ACV basis means that – in the event of a loss – the homeowner will recoup only the fair market value of the damaged or destroyed property (immediately prior to the loss), minus depreciation. Replacement Cost, on the other hand, insures the home and its contents based upon the true cost, in a post-loss world, of replicating exactly what you had.
As between the two, and not surprisingly, premiums for ACV coverage can be significantly less expensive. But, particularly following a catastrophic loss, RC coverage can be a lifesaver – the ultimate benefit of which far outweighs the additional upfront cost.
Agreed Value Coverages
If step one is selecting the correct "buckets" of coverage, and step two is choosing the right basis for coverage, then step three is understanding the more subtle provisions that can drastically reduce your post-loss recovery.
The insurance industry thrives on the ability to underwrite as many specific risks as possible. Consequently, when stand-alone insurance is available for a certain type of loss, coverage for that loss is either severely limited in, or entirely excluded from, general policies that might otherwise respond.
When it comes to homeowner policies, stand-alone coverage is always available for high-end personal property. Jewelry, fine arts, firearms, and wine are just a sampling of the types of property that can be individually insured.
And, because those items usually represent a home's most expensive contents, a typical homeowner policy will subject them to extremely low "sub" or "aggregate" limits of coverage.
From an economic standpoint, these sub or aggregate limits can be devastating. Imagine purchasing a homeowner policy that includes a $2M personal property limit – only to learn, after suffering a total loss, that your entire jewelry collection was insured for the sum total of $5,000.
This is not hyperbole. It is a real life example of a very common problem. And it underscores the importance of knowing the difference between the coverage you need and the coverage you have.
Coverage "Kickers"
One final item that merits inclusion in this high-level overview is the concept of coverage enhancements. Commonly referred to as "kickers," these are specific endorsements which exponentially increase base level policy limits in the face of a total loss.
Two of the most common kickers are: Extended Replacement Cost (ERC); and Inflation Guard. Each is briefly addressed below.
In the aftermath of a large-scale disaster, labor and material costs rise precipitously. ERC endorsements seek to mitigate that situation.
Property coverage is almost always capped at the policy's pre-set limits. Even policies that are written on a Replacement Cost basis will only reimburse the cost of replacement up to the stated dwelling limit, leaving homeowners on the hook for any overages.
Extended Replacement Cost Endorsements are specifically designed to address this problem. They do so by adding an additional layer of coverage which can range anywhere from 20% to 100% (or even more) over and above the stated Dwelling limit.
When correctly evaluated and secured, this extra coverage can prevent a homeowner from having to go "out of pocket" following a catastrophic loss.
Like ERC, Inflation Guard Endorsements are designed to adjust baseline coverages to market conditions. Often referred to as a CPI (Consumer Price Index) kicker, these endorsements ensure that policy limits keep pace with inflation.
What To Do
Homeowner insurance policies are complex legal contracts. And – particularly in view of the fact that one's home and its contents are among the most substantial of assets – best practices dictate enlisting insurance counsel to assist in reviewing, understanding and securing the most comprehensive coverage possible.
Yet, even before taking that step, there are a number of things that homeowners can and should do. Here are a few of the most common:
- Carefully assess your home's current value – because inaccurate valuations at the policy placement and/or renewal stage can negatively impact subsequent insurance claims.
- Evaluate your home's contents, with a specific eye toward those categories of high-end personal property that may require stand-alone coverage.
- Understand how much it would cost to secure temporary living quarters "of like kind and quality" in the event your home becomes uninhabitable – as that analysis will inform the amount of ALE Coverage you will require.
- Do not assume your current insurance offers the best terms – shop around to determine whether better options exist.
Final Thoughts
The recent California wildfires did more than destroy homes. They also exposed a fundamental flaw in basic asset protection. Most homeowners simply do not review and understand their insurance policies. As a result, they are completely unprepared to financially weather a catastrophic loss.
For policyholders in the New York area – where the risk of natural disasters is growing by the day – this lesson is not hypothetical. It is a clear warning that must be heeded.
Now is the time for all homeowners to review, understand, and enhance the coverage they maintain on their most valuable assets. Because, after a disaster strikes, there is no way to insure against it.
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This article originally appeared in the June 9, 2025 edition of the "New York Law Journal" © 2025 ALM Global Properties, LLC. All rights reserved.
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