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After the Oakland Firestorm, former State Senator Nick Petris from Oakland introduced legislation that would have required every insurance company offering homeowners insurance in California to offer Guaranteed Replacement Cost Coverage with Full Building Code Coverage. With the above type of coverage, every California homeowner who purchases a home insurance policy covering their residence in California would be assured that if their home sustained a serious enough fire loss or a total loss, their insurance company would "guarantee" to pay all the costs involved to rebuild it fully and to meet all the current building codes. This meant, for example, if a home was insured for $300,000 and it ended up costing $900,000 to completely rebuild it today at the current building codes, your company would have to pay the additional $600,000 above the policy limit of $300,000! The insurance industry adamantly opposed this legislation. Insurance Consumer groups and the City of Oakland were in favor of it. My trade association's position was it didn't have to be mandatory to offer this type of policy. However, we wanted insurance companies that were using this marketing ploy to decease from using this terminology, i.e., calling their policy "Guaranteed Replacement" unless it met the definition proposed be Senator Nick Petris. One of the concerns of the insurance industry Petris's Bill was it would make the cost of home insurance very expensive. I had a chance to be involved in the meetings focused on this legislation representing my trade association. I countered that I sold polices already, and although they didn't include guaranteed replacement cost coverage, they did cover full building code coverage and enough of an extended replacement cost amount, that if policy limits were set properly, homeowners could still be adequately covered. Furtheremore, I argued these polices were not substantially more expensive and in many cases very competitively priced. The net result of all these hearings was a compromise that became law. The compromise was to be a "Disclosure Statement", known as the California Residential Property Disclosure. This disclosure form, it was believed, would alert consumers to the potential lack of adequate coverage in their home insurance policy and would be a wake-up call for them to look for alternatives. Below in its entirety is the full Insurance Code Section 10101-10107 that requires the California Residential Property Disclosure to be included at the time of sale and every two years thereafter. It is important reading to understand what has changed in your home insurance policy for most California homeowners today. Pleae read it before you go to the next section, Guaranteed, Extended and Replacement Cost Dwelling Coverage. INSURANCE CODE SECTION 10101-10107 10101. On and after July 1, 1993, no policy of residential property insurance may be first issued or, with respect to policies already in effect on January 1, 1994, initially renewed in this state by any insurer unless the named insured is provided a copy of the California Residential Property Insurance disclosure statement as contained in Section 10102. 10102. (a) The disclosure required by Section 10101 shall be in no less than 10-point type face and shall be provided prior to, or concurrent with, the application for or initial renewal of a policy of residential property insurance. In the event that an application is made by telephone, an insurer that mails a copy of the disclosure within three business days shall be in compliance with this section. For policies issued on or after July 1, 1993, at the time of the original application, the agent or insurer shall obtain the applicant' s signature acknowledging receipt of the disclosure form within 60 days of the date of the application. When the insurer or agent establishes delivery of the disclosure form by obtaining the signature of the applicant or insured, or when an insurer or agent provides the applicant with the disclosure form and the applicant does not return a signed acknowledgment of receipt within 60 days of the date it was provided, there shall be a conclusive presumption that the insurer or agent has complied with the disclosure requirement of this chapter. The insurer or agent shall have the burden of demonstrating in accordance with California Rules of Evidence that the disclosure was provided to the applicant or insured. A signature shall not be required at the time of renewal. If the disclosure is mailed to the named insured or applicant, it shall be mailed to the mailing address shown on the policy of residential property insurance or to the address requested by the applicant. First-class mail shall be deemed adequate for proof of mailing. The insurer shall have the burden of demonstrating in accordance with California Rules of Evidence that the disclosure was mailed to the applicant or insured. The disclosure shall contain the following language: CALIFORNIA RESIDENTIAL PROPERTY INSURANCE DISCLOSURE This disclosure is required by California law (Section 10102 of the Insurance Code). It describes the principal forms of insurance coverage in California for residential dwellings. It also identifies the form of dwelling coverage you have purchased or selected. This disclosure form contains only a general description of coverages and is not part of your residential property insurance policy. Only the specific provisions of your policy will determine whether a particular loss is covered and, if so, the amount payable. Regardless of which type of coverage you purchase, your policy may exclude or limit certain risks. READ YOUR POLICY CAREFULLY. If you do not understand any part of it or have questions about what it covers, contact your insurance agent or company. You may also call the California Department of Insurance consumer information line at (____). (b) The agent or insurer shall indicate on the disclosure form which category of coverage the applicant or insured has selected or purchased. (c) The disclosure statement may contain additional provisions not in conflict with or in derogation of the foregoing. (d) Following the issuance or initial renewal of the policy of residential property insurance, the insurer shall provide the disclosure statement to the insured on an every-other-year basis at the time of renewal. The disclosure required by this section may be transmitted with the material required by Section 10086.1. (e) No policy of residential property insurance may be initially issued on and after January 1, 1993, as guaranteed replacement cost coverage if it contains any maximum limitation of coverage based on any set dollar limits, percentage amounts, construction cost limits, indexing, or any other preset maximum limitation for covered damage to the insured dwelling. The limitations referred to in this section are solely applicable to dwelling structure coverages. Endorsements covering additional risks to the insurer's dwelling structure coverage may have internal limits as long as those endorsements are not called guaranteed replacement cost coverage. (f) On and after July 1, 1993, no policy of residential property insurance may be renewed as guaranteed replacement cost coverage if it contains any maximum limitation of coverage based on any set dollar limits, percentage amounts, construction cost limits, indexing, or any other preset maximum limitation for covered damage to the insured dwelling. The limitations referred to in this section are solely applicable to dwelling structure coverages. Endorsements covering additional risks to the insurer's dwelling structure coverage may have internal limits as long as those endorsements are not called guaranteed replacement cost coverage. (g) Coverage provided for building code upgrades by a policy of residential property insurance shall be applicable to building codes, ordinances, standards, or laws only to the extent that those codes, ordinances, standards, or laws do not impose stricter standards on the property on the basis of the level of insurance coverage applicable to the property. (h) The disclosure required by Section 10101 shall also be provided to the mortgagor in the event that a policy is forced placed by an insurer at the request of a mortgagee. In such cases, neither the insurer nor the mortgagee shall be required to obtain a signature from the mortgagor. No disclosure shall be required to be provided with respect to blanket policies issued to a mortgagee, and designed to provide interim coverage for losses occurring prior to the mortgagee obtaining knowledge of the lapse of the policy and prior to placement of a policy on behalf of the mortgagor. (i) On and after July 1, 1994, insurers shall add to the disclosure, in no less than 10-point type the following statement: This disclosure form does not explain the types of contents coverage (furniture, clothing, etc.) provided by your policy. Some policies do not replace contents with new items, but instead, only pay for the current market value of an item. If you have any questions, contact your insurer or agent. 10103. (a) No policy of residential property insurance may be issued or renewed in this state unless it indicates on the declarations page of the policy or, if space does not permit, on a separate disclosure form attached to the declarations page: (1) Limits of liability for the structure. (2) Limits of liability for personal property. (3) Deductibles. (4) Whether the policy provides coverage for the increased costs of repairing or replacing damage to the insured dwelling caused by a covered loss because of building ordinances or laws regulating the repair. In the event that no coverage is provided for repairs that result from new building ordinances or laws, the insurer shall include in no less than 10-point typeface the following statement: "THIS POLICY DOES NOT INCLUDE BUILDING CODE UPGRADE COVERAGE." (b) In the event that the policy does include code upgrade coverage, it shall either: (1) State this on the declaration page, and denote any applicable limits. (2) State this on a separate disclosure form attached to the declarations page, if the separate disclosure form meets the following standards: (A) It is printed in not less than 10-point typeface. (B) It denotes any applicable limits on the amount of coverage. (C) It denotes restrictions, if any, on coverage for compliance with applicable building codes which take effect after the date of loss but prior to the issuance of required building permits. 10104. (a) As used in this chapter, "policy of residential property insurance" shall have the same meaning as defined in Section 10087, except that it shall not include a tenant's policy, a policy covering individually owned mobilehomes and their contents, a renter's policy, or a policy insuring individually owned condominium units, when those policies do not provide dwelling structure coverage. If a policy insuring an individually owned condominium does provide dwelling structure coverage, an insurer is required to provide the disclosure required in this chapter. (b) As used in this chapter, "insurer" shall have the same meaning as defined in Section 10091. 10105. Nothing in this chapter is intended to expand, contract, modify, or otherwise affect the coverage provided under any policy of residential property insurance issued and in effect prior to July 1, 1993. The provisions of this chapter shall apply to those policies upon the first renewal of those policies following January 1, 1994. 10106. The Insurance Commissioner may modify the disclosure statement as contained in Section 10102 only upon request of an insurer. The modification shall only be for the purpose of adding new or clarifying existing language describing any form of dwelling coverage offered by an insurer. The commissioner's authority to modify the disclosure statement shall be limited solely to determining the clarity and accuracy of the information provided in the disclosure to ensure that the disclosure accurately reflects a new or existing product. It is the intent of the Legislature that the disclosure form be kept as brief as clarity and accuracy permit. Any modification to the disclosure statement shall be approved in writing by the commissioner. 10107. Except as provided in subdivisions (e) and (i) of Section 10102, this chapter shall apply to all policies newly issued on or after July 1, 1993, and to all policies renewed after January 1, 1994. -------------------------------------------------------------------------------- David Shaffer Insurance Services © 2000 |
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David Shaffer Mortgage and Insurance Services
