Fire and residential property insurance

The law requires insurers to offer more coverage options, clarify benefits, and improve claims handling after declared emergencies. It also expands Department of Insurance oversight and penalties for emergency-related misconduct.

What the law does ​

• Requires insurers to offer eligible homeowners extended replacement-cost coverage of at least 50% above dwelling limits and record any rejection.
• Requires insurers to offer at least 50% additional living-expense, loss-of-use, or fair-rental-value coverage above underlying limits when a policy has a dollar limit for those benefits.
• Covers reasonable temporary-living costs needed to maintain a comparable standard of living, permits a fair-rental-value payment option, and extends emergency-related loss-of-use coverage 15 days after a home becomes habitable.
• Requires insurers to assign a primary claims contact within 30 days for emergency-related residential claims and provide a written status report within 15 days after replacing that contact.
• Preserves building-code-upgrade costs that would have applied at the original site when a total-loss homeowner rebuilds or buys a replacement home elsewhere, subject to policy limits.
• Requires biennial rebuilding-cost estimates for replacement-cost policies, including certain California FAIR Plan Association policies, and clearer policy disclosures about code-upgrade coverage.
• Requires residential insurers to file disaster-response plans and emergency claims-and-loss data with the California Department of Insurance; submitted plans and related data are confidential.
• Raises maximum civil penalties for unfair insurance practices related to a state of emergency to $10,000 per act, or $20,000 if willful, and permits restitution for unfair claims-settlement practices.

Who it affects ​

• Homeowners and other primary-dwelling policyholders with residential property insurance.
• Residential property insurers, insurance agents, brokers, claims adjusters, and surplus-line insurance participants.
• The California FAIR Plan Association and policyholders receiving eligible replacement-cost coverage through it.

Context ​

The law becomes operative January 1, 2028.

Breakdown ​

Code Upgrade Costs After Total Loss ​

The bill changes how insurers calculate building code upgrade payments after a total loss. If the insured structure is destroyed, the payment must include all code upgrade costs that would have applied if the structure were fully rebuilt at its original location, even if the policyholder rebuilds or buys a home elsewhere.

Key takeaways

• Insurers already cannot deny or limit building code upgrade payments just because a policyholder moves to a new location.
• For a total loss, the bill requires code upgrade payments to reflect a complete rebuild at the original site.
• The required payment includes all building code upgrade costs that would have applied at the original location.
• The rule applies even when the policyholder chooses to rebuild or purchase an existing home at another location.

Extended Replacement Cost Offer ​

The bill replaces a disclosure requirement with a requirement that eligible homeowners be offered extended replacement cost coverage. Insurers must offer coverage equal to at least 50% above the primary dwelling’s policy limit. If the customer declines, the insurer must document that decision.

Key takeaways

• Insurers may not issue or renew a residential property policy for an eligible property without offering extended replacement cost coverage.
• The offered coverage must provide at least 50% above the policy limit for the primary dwelling.
• The requirement applies only when the property is eligible for replacement cost coverage.
• If an applicant or policyholder declines the offer, the insurer must record an acknowledgment of the decline.
• The bill replaces the prior requirement to provide a disclosure about the possible availability of this coverage.

Replacement Cost Estimates ​

SB 876 removes exemptions that allowed some insurers to avoid providing rebuilding or replacement cost estimates. It also requires the California FAIR Plan to provide these estimates in certain policies that offer replacement cost coverage but have limits below the program's maximum combined limit.

Key takeaways

• Insurers can no longer rely on the former exemptions from the rebuilding or replacement cost estimate requirement.
• The estimate requirement applies at the intervals already required by law.
• The California FAIR Plan must provide a cost estimate when replacement cost coverage is available and the offered or provided policy limit is below the program's maximum combined policy limit.
• The change is intended to cover more policies with rebuilding or replacement cost estimates.

Additional Living Expense Coverage ​

The bill strengthens homeowners insurance protections for people who cannot live in their homes after a covered loss. It requires insurers to give written information about potentially covered living expenses, broadens what those expenses must cover, and adds options and minimum protections for certain emergency-related total losses.

Key takeaways

• Insurers must provide a written list of items they believe may be covered as additional living expenses, and they may send that list electronically.
• Additional living expense coverage must pay reasonable extra costs needed to maintain a comparable standard of living while a covered loss makes the home uninhabitable.
• Insurers may offer policyholders the option to receive the home’s monthly fair rental value instead of submitting itemized additional living expense claims.
• For a total loss connected to a state of emergency, loss-of-use, fair-rental-value, or similar coverage must last at least 24 months and additional living expense coverage must continue for 15 calendar days after the home is deemed habitable.
• An insurer cannot issue or renew a homeowners policy with a dollar cap on additional living expenses unless it also offers extended living-expense, loss-of-use, fair-rental-value, or similar coverage equal to at least 50% above the policy’s underlying additional living expense limit.

Insurance Claim Contact Requirements ​

The bill requires residential property insurers to assign a primary contact person within 30 calendar days after receiving notice of a claim related to a state of emergency. If the insurer later assigns another contact person, it must send the policyholder a written report within 15 calendar days. The bill also updates the standard fire insurance policy form to reflect these requirements.

Key takeaways

• Insurers must assign a primary point of contact for residential property claims involving losses related to a state of emergency.
• The primary point of contact must be assigned within 30 calendar days after the insurer receives notice of the claim.
• If the insurer assigns a later point of contact, it must provide the policyholder a written report within 15 calendar days of that assignment.
• The new contact requirement applies to claims involving one or more coverages under a residential property insurance policy.
• The bill updates the standard fire insurance policy form, and issuing a nonconforming fire policy remains subject to existing criminal penalties.

Building Code Upgrade Coverage Notices ​

SB 876 changes the required wording in residential insurance disclosures and declarations pages about building code upgrade coverage. The notices must say that this coverage pays additional costs to meet building codes and zoning laws in effect at the time of rebuilding and required for rebuilding.

Key takeaways

• Residential insurance disclosures and declarations pages must use updated language about building code upgrade coverage.
• The revised notice ties covered code and zoning requirements to the time of rebuilding rather than the time of loss or rebuilding.
• The notice must state that the code and zoning requirements must be required for rebuilding.

Insurer Disaster Response Reporting ​

The bill requires residential property insurers to give the Department of Insurance detailed plans for responding to disasters and to keep those plans current. It also requires insurers to quickly report claims and loss estimates after an emergency declaration involving covered losses. The submitted information must be kept confidential.

Key takeaways

• Residential property insurers must submit a detailed disaster response plan to the Department of Insurance before April 1, 2028.
• Insurers must update their disaster response plans every two years or when the Insurance Commissioner requests an update.
• When a state of emergency is declared and there is a related covered loss, insurers must report losses, claims, and estimated total incurred losses within 30 calendar days.
• Information insurers submit under these new requirements is confidential.

Stronger Insurance Penalties and Restitution ​

The bill increases civil penalties for unfair or deceptive insurance conduct connected to a state of emergency. It also expands the Insurance Commissioner’s power to order restitution for unfair claims settlement practices and removes exemptions that had protected certain insurance intermediaries from restitution orders.

Key takeaways

• For unfair or deceptive insurance conduct related to a state of emergency, the maximum penalty rises to $10,000 per act.
• For willful unfair or deceptive insurance conduct related to a state of emergency, the maximum penalty rises to $20,000 per act.
• The Insurance Commissioner may order restitution from a person who engages in an unfair claims settlement practice, as specified.
• Surplus line brokers, production agencies, and administrators are no longer exempt from restitution orders.

Residential Property Data Reports ​

The bill raises the premium threshold for insurers required to file residential property experience data reports from $10 million to $20 million in written California premiums. It moves the next reporting deadline to April 1, 2028, and requires reports every two years after that. Reports must cover the prior three years of California policies and be reported policy by policy.

Key takeaways

• Only admitted insurers with at least $20 million in written California premiums must submit these reports.
• The first report under the new requirement is due by April 1, 2028.
• Insurers must file a new report every two years after 2028.
• Each report must include residential property experience data from the previous three years for policies written in California.
• The data must be reported separately for each individual policy.

Effective Date ​

This part of the bill delays the operation of its provisions until January 1, 2028. The bill’s changes do not take effect before that date.

Key takeaways

• The bill’s provisions become operative on January 1, 2028.
• The changes made by the bill do not operate before January 1, 2028.

Public Access Findings ​

This part of the bill adds the required legislative findings for any limits it places on public access to government meetings or records. The findings state that the limits are needed to protect the interests identified by the bill.

Key takeaways

• The bill makes legislative findings to support its limits on public access rights.
• California’s Constitution requires these findings when a law restricts access to public meetings or government records.
• This provision supplies the required justification rather than creating a separate substantive insurance rule.

Coordinating Related Insurance Bills ​

This part coordinates SB 876 with other insurance bills that may amend the same Insurance Code sections. The added changes take effect only if both bills become law and SB 876 is enacted after the related bill.

Key takeaways

• The bill coordinates changes to Insurance Code Section 2051.5 with SB 878.
• The coordinated changes to Section 2051.5 apply only if both SB 876 and SB 878 are enacted and SB 876 is enacted last.
• The bill coordinates changes to Insurance Code Section 2071 with SB 877.
• The coordinated changes to Section 2071 apply only if both SB 876 and SB 877 are enacted and SB 876 is enacted last.
• The bill coordinates changes to Insurance Code Section 12928.7 with SB 1206, under the same condition that both bills are enacted and SB 876 is enacted last.

No State Reimbursement Required ​

This part of the bill says the state does not have to reimburse local agencies or school districts for costs caused by the act. The bill gives a specified reason for excluding these costs from the usual reimbursement requirement.

Key takeaways

• The bill excludes its requirements from state reimbursement for local agencies and school districts.
• California normally reimburses certain state-required local costs, but this act says reimbursement is not required.
• The bill bases the no-reimbursement rule on a specified reason stated in the act.