After the Fire or Disaster: Dealing With Your Insurance Company

Homeowners whose property has been damaged or destroyed in a major disaster, such as wildfires or flooding, will commonly look to their insurance for relief—with varying degrees of success. There can be big dollars at stake in repairing and rebuilding, and neither you nor the insurance company will be particularly eager to shell out the cash. Here are tips to keep in mind as you interact with your insurance company and its adjustors.

1. Get an Advance From the Insurer Against Your Costs of Living

If you were forced to evacuate your home, you might not have grabbed basic necessities—from a toothbrush to a work uniform. Your homeowners' policy will cover the cost to replace these items, but you don't have to file a claim and have it approved before heading to the store.

Instead, ask your insurer for an advance against your eventual claim. If necessary, you can request that a representative bring a check to you wherever you're staying, be it a hotel or a friend's house. Save the receipts for everything you buy, and be reasonable—if you lost khakis and a blazer, don't head for the Armani suits (you'll end up paying the difference).

Check your policy—even if you have "replacement" coverage for the house itself (see Tip Six, below), you might have only "actual cash value" for the personal items that were in your home. A good agent will alert you to this.

2. Secure Your Property Against Further Damage

Every policy requires you to take reasonable steps to minimize the possibility of ongoing harm to your property. In legalese, this is known as your duty to "mitigate damages." It includes such commonsense steps as covering a section of your leaky roof with a plastic tarp until you can get it repaired or turning off the water when you discover a burst pipe.

Your insurance company will pay the repair costs when you make your claim. But to help justify that claim, take photos of things at their worst, before you mitigate the damage.

Other steps you might need to take to mitigate damages include:

• Stop the smoldering. After a fire, if the structure is still burning, contact the fire department to do what's necessary to prevent flare-ups.
• Board it up. To prevent vandalism, place boards across open and accessible parts of your property and consider erecting a portable chain-link fence to keep people away.
• Be vigilant. Depending on the situation, you might need to keep a close eye on your property, checking for new problems and making sure it hasn't been disturbed.

3. File Your Insurance Claim Right Away

All policies require homeowners to report their loss as soon as is reasonably possible. You can comply by calling your agent or sending an email.

After that, you'll be asked to submit a "proof of loss claim," in which you itemize your losses and list their value. If you delay notifying your insurance company, you might find yourself far down on the list when it comes time for the company to send an adjustor to deal with your claim.

4. Make Sure the Insurance Company Acts Promptly

Fortunately, insurance companies are required to handle claims in a timely manner. In California, for example, they must send you a "notice of intentions" within 30 days of receiving your claim. If there's no dispute over coverage, you're entitled to payment within that time, too.

If your company seems to be dragging its heels, write to it (and consider sending a copy to your state's Department of Insurance). Insurance companies are less likely to string you along when they're in the midst of a disaster and know that all eyes are on them.

5. Keep Track of Daily Living Expenses While Living Outside Your Home

Your policy will include a "loss of use" clause, which entitles you to reimbursement for living expenses while you're out of your home. However, you're entitled only to additional living expenses—that is, the difference between what it costs you to live on a daily basis at home and what it costs now. For example, if you ate most meals at home before the fire and regularly spent $300 a week on groceries, but are now spending $450 per week at restaurants, you can claim only $150.

When it comes to the motel bill, however, you can probably claim the whole thing. Even though you can't live at home, you still have to pay your mortgage, taxes, and insurance, so any other arrangement would be unfair.

What if you're living with friends or family? Many evacuees do so, often on an extended basis. Even though you probably aren't paying your hosts, you might be able to convince your insurance company to reimburse them for the cost of putting you up. Ask your hosts to itemize the value of the room and services they're providing. Be reasonable and specific, and be prepared to negotiate with your insurance company over this one. It might help to point out how much more the company would have had to shell out had you chosen to stay in a hotel and eat in a restaurant.

6. Get the Right Repair Estimates

Your homeowner's policy will enable you to rebuild or repair your home. If you have an "actual cash value" policy, you're entitled to the amount of money it will take to return your home or its contents to its market value before the fire, which if it was run down and needed a new roof, could be significantly less than what you'll need for a quality rebuild.

If you have "replacement cost" coverage, you're entitled to the amount it would take to replace the home or contents, up to a limit that was fixed in your policy in advance. (Only a rare type of policy, called "guaranteed replacement" coverage, actually lets you claim all actual rebuilding costs.)

You don't have to rebuild. If you have replacement coverage, that doesn't mean you have to actually rebuild your home on the same site. You can rebuild at a different location (if it costs more to build in Hawaii, for instance, you pay the difference). If you decide to use the money for something else, such as starting your own business or creating a retirement fund, your "replacement" policy will change to an "actual cash value" policy (in broad terms, you'll get about 15% less).

For either type of coverage, you'll need an estimate of the prior market value or the cost to replace the damaged items or parts. Your insurance company will offer its own estimates, supplied by its own adjustors. Because these adjustors work for the insurance company, it's in their best interests to get you to quickly accept a modest settlement. You're under no obligation to accept these numbers.

7. Keep Paying Those Premiums

It might seem ridiculous to continue paying homeowners' insurance premiums to protect property that's severely damaged or gone, but stopping your payments can be a huge mistake. Remember, your homeowners' policy includes liability protection for you and your household, including your pets. This could come in handy if, for example, your stressed-out dog chews up an expensive Oriental rug while you're camped out at your brother-in-law's house.

If you'll be staying somewhere for a while, call your agent and ask for that address to be added as a second location for purposes of liability coverage. If your home has been destroyed, ask your insurance company to cut back on the part of the policy that covers the structure, and ask for a corresponding reduction in premiums.

8. Don't Let the Insurer Close Your Claim Until You Say So

Your insurance company will want to close your claim ASAP. The longer it's open, the greater the chance you'll discover and file a claim for an additional loss. Homeowners often come upon losses that they initially overlooked, perhaps because they were under such stress early on. Protect against this possibility by waiting at least a few months before allowing your claim to be closed.

Don't be surprised if you receive a check from the insurance company before you're ready, saying that you're accepting the payment "in full release of" your claim. Cross-out that language (and initial it), then send a letter to the company, politely thanking them for the check and telling them that you do not consider the matter to be closed.

9. Consider Hiring a Public Adjustor

Despite hiring your own estimator or contractor, you might not be able to reach an acceptable settlement of your claim. In that event, consider hiring a "public adjustor:" an independent, licensed adjustor whom you pay to negotiate with the insurance company on your behalf. You'll typically pay the adjustor between 9-15% of what you recover from the insurance company, but that can be well worth it if the adjustor succeeds in significantly increasing the settlement. To find a public adjustor, start with the National Association of Public Insurance Adjusters, a national regulatory organization, at www.napia.com.

10. Don't Worry About Losing Your Homeowners' Insurance

You probably know that drivers who've had an accident or two commonly face higher car insurance premiums or even lose their coverage. Fortunately, this isn't a realistic fear for homeowners who file legitimate damage claims following a disaster such as a fire. As long as you're not what the industry calls a "habitual claimant" and there's no proof of fraud in connection with your claim, you won't see an increase in your premiums or lose your coverage.

For More Information

Check out these websites for information that disaster victims can use immediately:

• United Policyholders (UP) is an independent, nonprofit organization that gives great advice on dealing with your insurance company, and information on fire disasters in particular.
• The Insurance Information Institute is a news and information site with lots of specific advice for consumers, including how to file a claim.
• Your state's department of insurance is likely to have materials for people facing disasters in your state. For example, the California Department of Insurance has provided emergency phone numbers for various insurance companies during past wildfires in California.

For detailed information about all aspects of homeowners' insurance, see Nolo's Essential Guide to Buying Your First Home, by Ilona Bray and Ann O'Connell (Nolo).