The devastating wildfires that have ravaged California in recent years show that an increasingly disturbing pattern has emerged, demonstrating that most homeowners discover they are grossly underinsured when they attempt to rebuild. A recent in-depth investigative report by the San Francisco Chronicle, “A Broken System is Keeping California Homes Underinsured. Millions Have No Idea They’re at Risk,” shed light on the depth of this crisis. The article revealed that most Californians are underinsured by hundreds of thousands of dollars, often without any understanding that their policies were insufficient until it was too late.
As someone who has spent a career advocating for policyholders, I believe the legal fallout from these events is only beginning. Based on what we now know, I expect we will see a growing number of lawsuits filed against insurance agents and brokers in California alleging negligence, misrepresentation, and breach of duty for failing to ensure that their clients had adequate insurance coverage in place. California insurance agents and their leaders need to do a much better job.
The Chronicle’s reporting highlighted a major systemic flaw by heavy reliance on algorithm-driven software tools such as Verisk’s 360Value to estimate the cost of replacing a home or business. These estimating tools, while marketed as helpful and efficient, are far from foolproof. In fact, they are often outdated and fail to account for the soaring costs of construction, labor shortages, the unique characteristics of homes in wildfire-prone areas, and the California insurance restoration construction market.
Many insurance agents, unfortunately, appear to accept these estimates without question, without training to use them properly, and then pass them along to the homeowner as the gospel replacement cost accuracy. By doing so, they contribute to a widespread pattern of underinsurance. Even worse, when those limits prove woefully inadequate after disaster strikes, homeowners are left bearing the crushing financial burden.
The legal standards of care for insurance agents in California are well-defined but often misunderstood. I revisited these legal principles in a blog post titled “The Nuts & Bolts of Insurance Agent Negligence in California.” Under California law, insurance agents do not have a general duty to recommend sufficient coverage. However, there are important exceptions to that rule. I believe that these exceptions will form the backbone of many upcoming insurance agent negligence lawsuits from the recent Los Angeles wildfires.
A California insurance agent may be held liable if they fail to procure the specific coverage requested by the insured, if they misrepresent or omit critical details about the policy, or if they hold themselves out as experts and fail to advise appropriately based on that representation. Furthermore, when an agent has a longstanding relationship with a client or has reason to know the client is relying on them for guidance, courts have found that a “special relationship” may exist, thus triggering a heightened duty of care. Finally, if the agent assumes a duty and promises to do something, like provide an accurate estimate of the replacement costs, a reasonable duty to do so will exist.
In practice, many California homeowners trust their insurance agents implicitly. They rely on them not only to provide competitive quotes but also to ensure they have the protection they need should the worst occur. When an agent tells a client that their home is adequately insured, most people don’t question it. They sign the policy, pay the premium, and assume they’re covered. But when a catastrophic event like a wildfire wipes their home from the map, they quickly discover that the coverage is often tens, if not hundreds of thousands of dollars, maybe millions, as we are learning, short of what’s needed to rebuild. That’s not just a technical error. This is a devastating failure with life-altering consequences.
California insurance agent leaders should not put their heads in the sand. They need to recognize the issue. Then, take measures to stop this from happening in the future.
From a legal perspective, these cases raise significant and fact-specific questions. Did the agent properly advise the client about replacement cost estimations? Did they take into account the full scope of reconstruction costs, including permitting, code upgrades, and regional labor costs? Were clients informed of the limitations of the software used to determine policy limits? Did the agent make any representations, verbally or in writing, that the client was “fully covered”? These questions, among others, will be at the center of litigation in the months and years ahead.
My firm is already hearing from many Californians suffering from the recent Los Angeles wildfires, facing exactly these circumstances. I expect we will be involved in numerous cases where policyholders are seeking accountability from the professionals they trusted to protect their homes. While insurance companies are often the primary targets in bad faith litigation, insurance agents and brokers cannot be overlooked when they play a direct role in the underinsurance problem. Accountability in these cases is not just about compensation, it’s about restoring trust in the insurance process and ensuring that consumers are not misled or left vulnerable when they need help the most.
The wildfires may be acts of nature, but the underinsurance crisis is largely man-made. It is the result of flawed systems, economic incentives, and, at times, negligent conduct. As the legal landscape shifts in response to this growing problem, it is vital that insurance agents and brokers recognize their responsibilities and that policyholders understand their rights. We intend to stand with those underinsured policyholders, holding the right parties accountable and working to ensure that the same mistakes are not repeated when the next disaster strikes.
Thought For The Day
“In Los Angeles, everyone is a star.”
Denzel Washington
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