Recent legislative reforms are working to bridge perceived gaps in coverage – particularly for the peril of fire – following the past few years of catastrophic wildfires in California. One such measure is California Assembly Bill 2756, which requires an insurer to obtain a signed acknowledgement from an applicant or insured if the insurer issues a residential property insurance policy on or after July 1, 2021, that does not provide coverage for the peril of fire.
The following new provisions in the California Insurance Code are now in effect with respect to fire policies and coverage for catastrophic fire losses.
1. Mandatory Disclosure When a Policy Does Not Cover the Peril of Fire
Assembly Bill 2756 added Section 10103.6 to the California Insurance Code, which requires the following statement appear in “bold, uppercase letters in no less than 12-point” font on the declarations page for a policy that does not provide coverage for the peril of fire, issued or renewed after July 1, 2021:
“THIS POLICY DOES NOT COVER THE PERIL OF FIRE. THERE ARE OTHER RESOURCES FOR FINDING FIRE COVERAGE, INCLUDING USING THE CALIFORNIA DEPARTMENT OF INSURANCE'S HOME INSURANCE FINDER OR PURCHASING COVERAGE FROM THE CALIFORNIA FAIR PLAN ASSOCIATION.”
2. Mandatory Disclosure When There Is an Reduction or Elimination of Limits
California Insurance Code § 678 now requires that an offer of renewal stating a reduction of limits or elimination of coverage to identify the specific limits being reduced or eliminated.
3. Required Building Code Upgrade Coverage
Building codes are constantly being updated and are published on the federal, state, and local level. For instance, new editions of the California Building Standards Code are published every three years. Common items that require upgrades following a loss include foundations and structural members, insulation, wiring, or energy efficient windows. While code upgrade coverage could be added onto homeowners policies, usually by endorsement, it has not previously been a required coverage. This created a gap in coverage for insureds who often may be unaware that they have not added the Building Code Upgrade.
California Insurance Code § 10103(c) has now been amended to require a minimum of 10% additional code upgrade coverage for an open policy of residential property insurance issued or renewed after July 21, 2021. Section 10103(c) states that the Building Code Upgrade “shall be additional coverage, and use of this coverage shall not reduce or deplete the dwelling coverage policy limits for the insured property.”
4. Additional Mandatory Disclosures on Declarations
California Insurance Code § 10103(a)-(b) now requires that a policy of residential property insurance that provides replacement cost must include information related to the coverage on the declarations page. Under Insurance Code § 10103(e), for residential property insurance that does not require and does not include building code upgrade coverage, that must be stated on the declarations page, “in no less than 10-point type” as follows: "THIS POLICY DOES NOT INCLUDE BUILDING CODE UPGRADE COVERAGE.”
As renewals and new policy applications come up, keep the above Insurance Code sections in mind to help fill in the gaps when updating declarations for California policies.