Arizona Homeowners Sue Insurers Over Wildfire

June 6, 2005

Homeowners from a vacation mountaintop community northeast of Tucson began filing lawsuits accusing their insurance companies of failing to provide enough coverage on homes destroyed in a June 2003 wildfire.

Seventy homeowner families were filing lawsuits against 16 separate insurers, said the homeowners’ lawyer, Brian Kabateck. A few other insurance carriers have settled with another 27 families without litigation, he said.

The Aspen fire charred 84,750 acres and destroyed 322 homes in the hamlet of Summerhaven. Seven businesses and four other structures were also destroyed in the community, about a 45-minute drive from Tucson.

Among the companies named in the lawsuits filed in Pima County Superior Court-each alleging breach of contract, insurance bad faith and negligence-were United Services Automobile Association and State Farm.

John Henry, a spokesman for USAA in Colorado Springs, Colo., declined to comment, saying he had not seen the lawsuit yet.

In Tempe, State Farm spokeswoman LuWanna Nielsen also said company officials have not reviewed the complaint. But the company is proud of the claim service provided Mount Lemmon homeowners, settling 70 percent of policyholders’ claims within 60 days, she said.

The company also encourages those it insures to be familiar with and review their coverages periodically with their agents, Nielsen said.

“It’s safe to say that each one of these homeowners is simply looking for enough money to rebuild their house,” Kabateck said. A lot of them are underinsured by about half the amount needed to rebuild, he added.

Kabateck said 250 homeowners on Mount Lemmon “have done nothing” and face losing their rights to try to recover total losses unless they act before a two-year statute of limitations expires on June 18.

Several homeowners said they asked their insurance agents to increase coverage after the 2002 Bullock fire on Mount Lemmon, but in most instances were dissuaded from doing so.

But James M. Frederikson, executive director for the Arizona Insurance Information Association, said many homeowners approached “made a conscious decision not to increase their coverage.” He said he didn’t know whether that applied to those suing.

Construction costs on Mount Lemmon are averaging between $200 and $250 per square foot, but at least one homeowner said he was offered as little as $89 per square foot by his insurer.

The average construction cost on Mount Lemmon before the fire was about $200 a square foot, but many homeowners suing were insured for less than $100 a square foot, Kabeteck said.

The homeowners were sending the insurance companies a message that “this underinsurance problem for these victims is going to end,” he said. But the problem of insurance companies not insuring homeowners adequately for fire replacement costs is not isolated to Mount Lemmon, Kabateck added.

“This is a national problem. We believe that 85 percent of homeowners are underinsured, whether it’s Mount Lemmon, Tucson, Phoenix, Arizona or the United States,” Kabateck said.

“People are underinsured because their insurance companies have not written them enough insurance”-in some cases deliberately, and by as much as 100 percent, he said.

As an example, thousands of homes burned in California fires that were total losses were underinsured, with litigation ongoing, Kabateck said.

Insurers don’t want to write complete insurance policies because total losses are their most expensive ones to pay off, he said.

Jim Hogan, a retired contractor, said he was told after a major fire elsewhere on Mount Lemmon in 2002 that his cabin was insured for $85,000. When he tried to increase his coverage to at least $175,000, the agent allegedly said, ‘No, that’s too much. We’ll give you $129,000.”

Hogan insisted on the higher figure and told the agent to reapply for $175,000, but it still came back reinsured for $129,000.

When his cabin burned down in 2003, he said an insurance adjuster told him, “‘Your cabin was 800 square feet, it’s worth $125 a square foot, that’s $100,000.’ Then he said, ‘It’s 44 years old, so we’re going to depreciate it 44 percent, here’s $66,000.’

“I looked right at him and I said, ‘All you’re doing is forcing me to get a lawyer,'” Hogan replied.

Topics Lawsuits Catastrophe Carriers Natural Disasters Wildfire Homeowners Arizona

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