California Supreme Court Affirms Homeowner Reimbursement Protections

The California Supreme Court this week ended a long legal battle between a Richmond homeowner and her homeowners insurance company by declining to consider the insurance industry’s petition to overturn a lower court’s decision that insurers must pay to repair a home even if repair costs exceed the home’s market value.

The case stems from a house fire in October 2011. Richmond homeowner Marlene Garnes submitted a claim for $320,549 to her insurer, California FAIR Plan Association, for the cost to repair her damaged home, less depreciation.

Although Garnes’ FAIR fire insurance policy had a limit of $425,000, the insurer denied her claim and only paid $75,000, which it determined was the fair market value of her property in 2011 during the mortgage-driven recession. The conflict over the claim between FAIR and Garnes led to legal challenges.

“This is an important win for homeowners who should have confidence their insurer will deliver on its promises regardless of housing value fluctuations,” Insurance Commissioner Dave Jones said in a statement.

The First District Court of Appeal in San Francisco ruled in May that a 2004 state law allows homeowners to recover their repair costs even if the policy contained more restrictive payout provisions. Coverage is limited to fair-market value only if a home has been destroyed or damaged beyond repair, the court said. Garnes’ home was badly damaged by the fire, but was not destroyed.

Jones filed an amicus brief supporting Garnes’ argument, pointing out that the insurance code entitled her to be reimbursed for the cost of repairing her home even if it exceeded the fair market value of the home. The lower court relied on Jones’ interpretation of the code when it ruled in favor of Garnes.

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