Homeowner’s Insurance Claims Dispute Attorney
Jeffrey I. Ehrlich, Certified Appellate Specialist
Civil Appeals Attorney
Insurance disputes involving homeowner’s coverage
We have handled hundreds of lawsuits involving insurance disputes between homeowners and their insurance carriers. Most of these cases tend to fall into three categories:
- Fire losses (often wildfire losses)
- Water losses (including mold issues)
- Earthquake losses. (The 1994 Northridge earthquake spawned thousands of lawsuits, which took over a decade to resolve.)
Common issues in homeowner’s coverage disputes
Perhaps the most common problem that homeowners encounter when their home has been destroyed by some kind of catastrophe is that it is underinsured — meaning that the policy limits are too low to allow them to rebuild their house.
Underinsurance happens because insurance companies have little incentive to set policy limits accurately. If they do, their policies seem more expensive because they have to charge a higher premium. By setting the policy limits low, the insurance company is able to be more competitive in the marketplace by charging a lower premium, and it also caps its exposure by essentially shifting to its own policyholder a substantial part of the risk that is being insured.
For example, if the true cost to rebuild a house is $1 million, and the insurer sets the policy limits at $500,000, half the cost of a potential loss is borne by the policyholder!
Few policyholders set out to underinsure their homes, but even fewer have the information available to know with any accuracy how much it would cost to rebuild in their area. Insurance companies, by contrast, are in the business of paying claims and rebuilding homes. As a result they have access to accurate construction-industry data that should allow them to accurately gauge what the true replacement cost of a house will be.
Losses caused by a combination of factors
Under California law, if a loss is caused by a combination of two causes, there will be coverage under the policy if the predominant cause of the loss is a loss that is covered by the policy, even if that loss acts in conjunction with another loss that is excluded.
For example, in a case we handled, a 185-foot construction crane fell on our client’s home, badly damaging its roof. Before the hole in the roof could be properly sealed, there was heavy rain, damaging the interior of the home, and resulting in mold contamination. The policy covered falling cranes, but purported to exclude mold. The carrier refused to pay for the mold-related expenses. Relying on the rule that there is coverage when covered and non-covered losses combine, if the covered loss is the predominant cause, the trial court found that the entire claim was covered.
Insurance companies try to draft their policies so that they do not provide coverage under this rule. The state of the law in California is presently not clear concerning the extent of their ability to do this.
A unanimous California Supreme Court held that a “severability of insurance” clause made a homeowner’s liability policy ambiguous where the insurer sought to rely on an exclusion that withdrew coverage for all insureds under the policy based on the intentional acts of one insured. Plaintiff Scott Minkler holds a $5 million judgment against David Schwartz, who molested him, and against David’s mother, Betty, for negligently failing to stop the wrongful conduct. Betty’s insurer rejected coverage, arguing that the intentional-acts exclusion in the policy, which withdrew coverage for any claim arising from the intentional acts of “an” insured, applied to the claims against Betty because David’s conduct was intentional. The Supreme Court adopted the approach advanced by the Ehrlich Law Firm, finding that the policy’s severability provision, which states that “this insurance applies separately to each insured” would lead a reasonable insured to conclude that he or she would be treated as the only insured under the policy. Because most liability policies have severability clauses, the Minkler case may substantially broaden coverage in California for failure-to-supervise claims. Minkler v. Safeco (2010) __ Cal.4th __.)