DennisBeaverMay 17, 2019 • By Dennis Beaver

November 8th, 2018 began as a beautiful, sunny day for the residents of Paradise, California, a small town in rural, Northern California. Within hours, most of the city was gone, with over 18,000 structures destroyed in the deadliest and most destructive wildfire fire to ever hit the state.

But there was one nightmare none of the residents of Paradise could have imagined, and no matter where you reside in the United States, what they are going through right now–their same fate–could be yours by making a serious mistake.

I’ll tell you in a moment what it is, but first, this question:

When purchasing Homeowner’s Insurance, given the fact that most policies are fairly similar–does it matter which insurance company you go with? If you are presented quotes from several carriers to chose from and they all get reasonably good Yelp reviews, wouldn’t you agree that price should probably be the main reason you select company A over B?

One former resident of Paradise I spoke with told me, “I thought that it didn’t matter whose policy I had. I was so wrong, and it wasn’t because of they way our family was treated after the fire by the claims adjuster – because there was no claims adjuster!”

Merced Property and Casualty Company Files Bankruptcy

Within days of the fire, a small, regional insurance carrier, that had policies on many Paradise properties, filed for bankruptcy. It had 23 million dollars in assets and estimated 65 million dollars in likely claims.

Now, does this mean that the people who were insured by Merced wind up with nothing? “No, because when an admitted insurance company is found insolvent, policyholders are protected by the California Insurance Guarantee Association,” explains Los Angeles-based insurance broker, Karl Susman, who also testifies as an expert witness on complex insurance cases.

An ‘admitted’ or ‘licensed’ insurance company must file its rates and specific requirements with the California Department of Insurance–or other states–and cannot change them without authorization.

“All admitted property carriers are required to participate in a state’s Insurance Guarantee Association and most states have one. So, in the event that an admitted company declares bankruptcy, or depletes its reserve of funds—the Association steps in to pay policyholders up to the specified limit of, for example, $500,000 in California” Susman points out.

“Sadly, in Paradise, there were homes whose value far exceeded that amount. If they were insured by Merced, it truly is a tragic situation.”

So, you are probably wondering, “Does this mean that non-admitted insurance companies aren’t any good? What if I am insured by one of them and it goes belly-up, am I out of luck?”

Susman replies, “There are many large, financially sound insurance companies that choose to not be admitted. It is a business decision having nothing to do with their claims-paying ability. But, yes, if one of them fails, policyholders will not have Guarantee Association protection, so ideally, purchasing insurance from an admitted company should be a first choice, if at all possible.

I’ll bet you are thinking, “What does ‘If at all possible’ mean?

“Many admitted insurance companies will not write insurance covering properties located in high-risk areas, and this gap is often filled by the non-admitted carrier,” he notes, adding:
“Not having proper limits of coverage is another huge problem, and we see this all the time, people being seriously under insured for a Paradise type of catastrophic loss.”

Are You Under-Insured?

Susman cautions that “You simply must determine what it would cost to rebuild in the event of a total loss,” and makes these recommendations:

(1) Find a large, national company that is willing to send out an inspector to your home, and don’t fear the inspector. They seldom tell homeowners to fix this or that. If they do, it will protect the house, for example, a tree leaning against the roof. Most are non-insurance company employees and their job is to point out the obvious things that are potentially dangerous.

(2) The inspector will give you useful information for free and a more accurate replacement cost estimate.

(3) If there is ever a loss, the homeowner can correctly claim, “You told me what to insure it for.”

(4) Call your agent and say that I want my house inspected. The company pays for it and you get a report.

(5) Ask your agent “What do you think I need to insure my property for?” Get his recommendation in writing.

Finally, Susman concludes “Because a national carrier insures so many homes, their estimators will be more accurate than those who have only insured a small number in one particular area.”


Dennis Beaver practices law in Bakersfield and enjoys hearing from his readers. Contact Dennis Beaver.