Why Wouldn't Everyone Opt-in?
Here’s the scenario many in Paradise face, your home is a total loss, destroyed - you’ve now hopefully still managed to enjoy the holidays, and you’re starting to face the reality of the rebuilding process, looking at insurance coverage, deciding to even re-build at all. In case any property owner is unaware, you have two decisions to make BEFORE January 31, 2019 that are crucial to the cleanup and re-building process: 1. You sign a right of entry form, found here: here, wherein you are signing up for the government-sponsored program to have all the testing, cleanup, debris removal, etc. done be federal contractors, or 2. You sign an opt-out form, found here.
During the beginning recovery of the Carr Fire, I read an article in the Record Searchlight where the CEO of the North Coast Builder’s Exchange was interviewed on their experience of re-building after the Napa fires devastated their community. The article, found here, caught my attention as it highlighted their painful experience with property owners opting into the state-sponsored debris removal program in their area. Specifically, the CEO stated that ‘some 10 months after the fires destroyed more than 7,000 homes in the region, less than 10 percent are in some form of construction. He went on to say, ‘this is a long, slow process, adding that it’s not as simple as hiring a contractor and that the debris removal and clearing of lots in his area has been a nightmare.’ In order to advise both our clients and the community in general, I called the CEO to discuss his experiences further and followed up that call by interviewing insurance agents, abatement contractors, and demolition contractors. The information presented below is a summary of the information gained during those interviews, and provides guidance on both opting-in and opting-out.
Why Wouldn’t We All Just to Choose to Opt-In so the Debris Removal Process was Free? First, homeowner’s who wish to opt into the Program are required to remit the portion of their insurance coverage dedicated for debris removal over to the County/City to cover costs for the state-sponsored Program. Second, what if opting-in does turn out to be a nightmare? Again, the information about the potential for the state-sponsored debris removal program being a nightmare is from the CEO of the North Coast Builder’s Exchange who went through, and is still going through, the cleanup process after the Napa fires. Here were his take home points in my opinion:
- The state and federal contractors utilized for the cleanup there were mismanaged with the prime contractor overseeing the program being replaced numerous times. Further, at some point in the debris removal process contractors began being paid by the tonnage removed from the properties rather than by being paid on a time and material basis. Not surprisingly, this led to contractors over-excavating lots by up to 4 feet; removing all swimming pools, foundations, retaining walls, etc. in an effort to increase their billing. This led to a lack of coverage for many homeowners who didn’t have the insurance coverage to re-build all that was removed from their properties. Fortunately, homeowners began to complain about the over-excavation to the California Office of Emergency Services (OES) who then did begin to recognize the problem and at their expense brought soil back to the properties that were over-excavated to allow the homeowners to re-build. The problem there was that the process for having OES remedy the over-excavation was 8 months later for the 400+ homeowners who were successful in having OES cover the over-excavation costs. The average cost for state/federally retained contractors to perform the debris removal and lot cleanup reportedly ranged between 100-200 thousand dollars (preliminary estimates for private contractors to perform the debris removal and lot cleanup locally ranges from 20-50 thousand dollars).
- All of that said, I do feel that many homeowners should opt-in to the program. If your combined insurance coverage is low then we still recommend you opt-in so that your insurance coverage goes primarily to the replacement costs of your structure, possessions, and other property items. If you choose to opt-in, we recommend you be involved in the process – find out if your property did have asbestos identified or not, make sure your property isn’t over-excavated, see if it’s possible to find out exactly what will be removed and why (are swimming pools and retaining walls being removed and if so, why), etc., etc.
- I also feel that CalOES and the City of Redding/Shasta County and the state-hired contractors did an excellent job on the Carr Fire cleanup (i.e. I did not hear stories of over-excavation or abuse by contractors performing work for homeowners who opted-in).
Determining Insurance Coverage for debris removal is apparently trickier than one would think. As we advised previously, the first step for homeowners in regards to the debris removal program should be to determine your insurance coverage for debris removal. What we first believed to be a simple question you should pose to your insurance agency turns out to be significantly more complex. Here’s what you should ask your insurance agent:
- What exactly is my insurance coverage for debris removal AND is that portion of my insurance coverage separate from coverages for replacement costs for my structure, contents, and other structures on my property. It turns out most of our insurances have coverage that extend beyond simple replacement costs (i.e. the coverages for debris removal, or at least a portion thereof, are essentially provided by your insurance and above and beyond your standard coverage at no cost to you).
- Most insurances provide coverage and replacement costs for 3 distinct items: 1. Your structure, 2. Your contents/possessions and 3. Other structures on your property. Each of these 3 distinct items has a policy limit specific to your property; many insurances allow you to utilize 5% of the policy limits for each distinct item (i.e. your coverage for debris removal is likely a cumulative total of 5% of your policy limit for structure replacement + 5% of your policy limit for content/possession replacement + 5% of your policy limit for other structures replacement). Utilizing these 5% portions of your coverages also typically DOES NOT come out of the replacement costs provided by your insurance company. Make sure to verify this with your insurance companies as this information may not be disclosed without you asking for obvious reasons.
If we can help provide you guidance, information, or be of any help in general, please feel free to contact me and I will provide whatever help I can at no charge.
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