BILL NUMBER: AB 2962 CHAPTERED
BILL TEXT
CHAPTER 605
FILED WITH SECRETARY OF STATE SEPTEMBER 20, 2004
APPROVED BY GOVERNOR SEPTEMBER 20, 2004
PASSED THE ASSEMBLY AUGUST 26, 2004
PASSED THE SENATE AUGUST 25, 2004
AMENDED IN SENATE AUGUST 23, 2004
AMENDED IN SENATE AUGUST 19, 2004
AMENDED IN SENATE JUNE 22, 2004
AMENDED IN ASSEMBLY MAY 12, 2004
AMENDED IN ASSEMBLY MAY 6, 2004
INTRODUCED BY Assembly Member Pavley
(Coauthors: Assembly Members Koretz, Lieber, and Maze)
FEBRUARY 20, 2004
An act to amend Section 2051 of, and to add Section 675.1 to, the
Insurance Code, relating to fire insurance.
LEGISLATIVE COUNSEL'S DIGEST
AB 2962, Pavley. Fire insurance: valuation of loss.
Existing law generally regulates homeowners' insurance rates.
Existing law prohibits an insurer from canceling a homeowners'
insurance policy after it has been in effect for a specified period
unless the cancellation is based on the occurrence of certain events.
This bill would provide that, in the case of a total loss to the
insured structure under a homeowners' policy, if reconstruction of
the primary insured structure has not been completed by the time of
policy renewal, the insurer, prior to or at the time of renewal, and
after consultation with the insured, shall adjust the limits and
coverages, write an additional policy, or attach an endorsement to
the policy that reflects the change, if any, in the insured's
exposure to loss. It would require the insurer to adjust the premium
charged to reflect any change in coverage. The bill would prohibit
an insurer in these circumstances from canceling coverage while the
destroyed structure is being rebuilt, except for specified reasons,
and would require the insurer to offer to renew the policy at least
once in certain circumstances.
The bill would allow insurers and the California Earthquake
Authority, with respect to residential earthquake policies, to defer
implementation of these provisions until October 1, 2005, and would
set forth the means of their compliance with these provisions.
Under existing law, under an open policy, the measure of indemnity
in fire insurance is the expense to the insured of replacing the
thing lost or injured in its condition at the time of the injury, the
expense being computed as of the time of the commencement of the
fire.
This bill would provide, in addition, that under an open policy
that requires payment of actual cash value, the measure of the actual
cash value recovery shall be determined as follows: (1) in case of
total loss to the structure, the policy limit or the fair market
value of the structure, whichever is less, or (2) in case of a
partial loss to the structure, or loss to its contents, the amount it
would cost the insured to repair, rebuild, or replace the thing lost
or injured less a fair and reasonable deduction for physical
depreciation, as specified, based upon its condition at the time of
the injury or the policy limit, whichever is less.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. Section 675.1 is added to the Insurance Code, to read:
675.1. In the case of a total loss to the primary insured
structure under a residential policy subject to Section 675, the
following provisions apply:
(a) If reconstruction of the primary insured structure has not
been completed by the time of policy renewal, the insurer, prior to
or at the time of renewal, and after consultation by the insurer or
its representative with the insured as to what limits and coverages
might or might not be needed, shall adjust the limits and coverages,
write an additional policy, or attach an endorsement to the policy
that reflects the change, if any, in the insured's exposure to loss.
The insurer shall adjust the premium charged to reflect any change in
coverage.
(b) The insurer shall not cancel coverage while the primary
insured structure is being rebuilt, except for the reasons specified
in subdivisions (a) to (e), inclusive, of Section 676. The insurer
shall not use the fact that the primary insured structure is in
damaged condition as a result of the total loss as the sole basis for
a decision to cancel the policy pursuant to subdivision (e) of that
section.
(c) Except for the reasons specified in subdivisions (a) to (e),
inclusive, of Section 676, the insurer shall offer to, at least once,
renew the policy in accordance with the provisions of subdivision
(a) if the total loss to the primary insured structure was caused by
a disaster, as defined in subdivision (b) of Section 1689.14 of the
Civil Code, and the loss was not also due to the negligence of the
insured.
(d) With respect to policies of residential earthquake insurance,
the California Earthquake Authority, or any insurer, including a
participating insurer, as defined in subdivision (i) of Section
10089.5, may defer its initial implementation of this section until
no later than October 1, 2005.
(e) With respect to a residential earthquake insurance policy
issued by the California Earthquake Authority, the following
provisions apply:
(1) The participating insurer that issued the underlying policy of
residential property insurance on the primary insured structure
shall consult with the insured as to what limits and coverages might
or might not be needed as required by subdivision (a).
(2) The California Earthquake Authority, in lieu of meeting the
requirements of subdivision (a), shall establish procedures and
practices that allow it to reasonably accommodate the needs and
interests of consumers in maintaining appropriate earthquake
insurance coverage, within the statutory and regulatory limitations
on the types of insurance coverages and the coverage limits of the
policies that the authority may issue.
SEC. 2. Section 2051 of the Insurance Code is amended to read:
2051. (a) Under an open policy, the measure of indemnity in fire
insurance is the expense to the insured of replacing the thing lost
or injured in its condition at the time of the injury, the expense
being computed as of the time of the commencement of the fire.
(b) Under an open policy that requires payment of actual cash
value, the measure of the actual cash value recovery, in whole or
partial settlement of the claim, shall be determined as follows:
(1) In case of total loss to the structure, the policy limit or
the fair market value of the structure, whichever is less.
(2) In case of a partial loss to the structure, or loss to its
contents, the amount it would cost the insured to repair, rebuild, or
replace the thing lost or injured less a fair and reasonable
deduction for physical depreciation based upon its condition at the
time of the injury or the policy limit, whichever is less. In case
of a partial loss to the structure, a deduction for physical
depreciation shall apply only to components of a structure that are
normally subject to repair and replacement during the useful life of
that structure.