Both houses of California’s legislature this week passed the Homeowners Bill of Rights (HOBOR), which aims to provide needed protections for homeowners in California.

The bill package by Insurance Commissioner John Garamendi includes four parts. Assembly Bill 2199 (Kehoe) passed from the floor of the Assembly unopposed Thursday afternoon. The other three HOBOR bills–AB 2962 (Pavley), SB 1474 (Escutia) and SB 1855 (Alpert)–were passed earlier this week.

“The insurance industry must fulfill its promises to its policyholders,” said Garamendi. “This bill package will help ensure that they do, and it will help prevent future occurrences of the types of serious problems we are seeing in the wake of the Southern California wildfires.

Garamendi recently held several town hall meetings in San Diego and San Bernardino to hear the concerns of survivors of the 2003 firestorms. The meetings were attended by more than 1,000 residents, many with numerous complaints about the way their claims are being handled by insurance companies. The most serious problems include underinsurance–when the insurance policy does not fully cover the cost to rebuild–and “blacklisting” of homeowners who use the insurance policy to rebuild their home or settle a claim.

The bill package includes:

  • SB 1474: Requires an insurance company to issue and renew a homeowner’s policy unless the consumer made two or more claims within the preceding three-year period. Additionally, no surcharge on a homeowner’s premium can be levied unless there are two or more claims in three years. This bill should protect consumers by prohibiting insurance companies’ “use it and lose it” practices while also providing insurers with the opportunity to re-evaluate policies for consumers filing multiple claims.

  • SB 1855: Requires insurance companies to disclose to homeowners the additional cost of broader insurance coverage than the homeowner’s current coverage. The costs shown would represent the additional premium that the consumer would be charged for the additional coverage, if the consumer were to opt for that category of coverage. Also requires insurers to include additional information about the insured property on the declaration page to reduce the chances and amount of underinsurance in the case of a catastrophic loss.

  • AB 2199: Establishes a minimum 12-month period in non-catastrophic situations and a 24-month period for declared “state of emergency” situations for homeowners to repair, rebuild, or replace their home after a loss, commencing with payment of actual cash value. Also, it allows homeowners the flexibility to rebuild or replace in a different location than where the original loss occurred in the event of a total loss.

  • AB 2962: Establishes a uniform measurement of “actual cash value” and prohibits the depreciation of labor costs from homeowner claims unless it is fully disclosed in the disclosure and policy.

    AB 2962 also prohibits insurers from depreciating items that, by their nature, do not wear out during the normal life of a structure, such as two-by-four studs or cement posts.

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