California’s dry weather and the recent spate of firestorms, including the San Diego County wildfire, highlight the reality confronting firestorm disaster victims. When the smoke clears finding funds to rebuild homes and lives is often a difficult process. The question becomes who can be required to step up and pay the bill.

If the fire was caused by someone’s negligence, that party ultimately will have the legal responsibility to pay all property damages suffered by the victim as well as any personal injury damages following a physical injury caused by the disaster. But this party has no fiduciary or good faith duty under the law and is not obligated to quickly or fairly settle these claims. It is also possible that a governmental entity or someone such as a utility using government like powers may be responsible for the fire damage. The obligation of a party responsible for causing a loss ultimately rests upon proof that is presented in court and judged by a jury of community members. This “adversary process” makes it difficult to rely on the party that caused the disaster to quickly pay all claims.

Government disaster assistance can be lifesaving and immediate, but it is not designed to make a victim whole or replace the obligation of a wrongdoer or a victims own insurance company who has been paid in advance to provide disaster protection. When a home is destroyed, the victims will usually turn to their own homeowner insurance company who does owe a good faith duty directly to the victim to promptly and fairly adjust claims. This does not apply however to personal injury damage losses that are typically not recoverable from a policy holder’s own policy and must be recovered directly from the party at fault.

The good faith duty to pay property damage claims is governed by the terms of the insurance contract, which always contains many limitations on the payout obligation. For example, the standard “upgraded” homeowner insurance policy in California no longer contains a “guaranteed” replacement cost provision ensuring that the policy holder will be paid enough to replace the structure and its contents. Full guaranteed replacement cost homeowner insurance policies went out the window following the Oakland Hills firestorm of 1991. And, insurance companies have their own formulas and favored processes for adjusting claims that often come into conflict with the insured’s belief of what is fair. The opportunities for disagreement on adjustment costs are numerous. A typical home has many components that need to be carefully priced to arrive at a fair repair estimate. Disagreements on the scope of repair costs occur. Depreciated value versus cost of repair or “friction points” may be compounded if policy limits are not adequate.

There is an ongoing conflict between insurers and victims about legal liability for fairly estimating proper insurance limits prior to a loss. Underinsurance has been reported to be the most common and formidable impediment to financial recovery for disaster victims in California today, with homeowners underinsured by an average of $240,000.

Insurers, agents and brokers insist that the homeowners are solely responsible for picking the correct policy limit amount. For several years, a number of insurance companies have attempted, through policy language, to limit or eliminate liability for replacement cost insurance that their agents have led homeowners to believe they had. On the other hand agents and insurance companies sometimes make careless mistakes that result in underinsurance for the homeowner. Careful review of the insurance file can uncover these mistakes.

At the end of the insurance process, there may well be expenses and costs fairly associated with the loss that are not covered. This is true even in cases where policy limits were appropriately picked. These uncovered losses as well as the loss of life or limb must be asserted directly against the party that caused the loss. The insurance company that paid its homeowner also has a claim for reimbursement – a subrogation claim. Disagreements between the insurer and the policy holder about who gets paid first out of the proceeds received from the wrongdoer can occur despite the rule that homeowners normally can claim that they are entitled to be made whole before the insurance company is reimbursed.

Lee S. Harris is a partner at Goldstein, Gellman, Melbostad, Harris & McSparran based in San Francisco including the North and South Bay Areas. He has represented injury and insurance clients in numerous disaster claims. He has also served as chair of the American Association for Justice, Insurance and Bad Faith Litigation groups and serves on the board of Consumer Attorneys of California.