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California Wildfires Aftermath Requires Vigilance

Price-gouging, crooked contractors, insurance chiseling often follow disasters

October 28, 2007

Attorney General Edmund G. Brown Jr. said the California Department of Justice is prepared to investigate and prosecute businesses that attempt to wrongfully profit from the devastating fires.

Brown pointed out that California’s anti-price gouging statute became immediately effective after the state of emergency was declared on Sunday, October 21, 2007. Brown issued a warning to those who might try to illegally raise prices for goods, services, or hotels.

"Anyone who tries to wrongfully profit from the suffering of others will be investigated by the California Department of Justice,” he warned.

Penal Code Section 396 prohibits charging a price that exceeds, by more than 10%, the price of an item before the declaration of emergency. This law applies to those who sell food, emergency supplies, medical supplies, building materials, and gasoline.

The law also applies to repair or reconstruction services, emergency cleanup services, transportation, freight and storage services, and housing and hotel accommodations.

Violations of the price-gouging statute are subject to criminal prosecutions, which can result in one-year imprisonment in county jail or a fine of up to $10,000. Violators are also subject to civil enforcement actions including civil penalties, injunctive relief and mandatory restitution.

Insurance worries

Meanwhile, the Foundation for Taxpayer and Consumer Rights (FTCR) joined state Senator Dean Florez to offer advice to consumers affected by the wildfires and to caution policymakers to watch the insurance industry closely to protect consumers as the fires subside and rebuilding begins.

After the 2003 fires, many homeowners discovered that their insurance coverage would not fully repair or replace their homes. The 2007 fires will be the test of whether insurance companies corrected the problems of the past and lived up to the obligation to provide adequate coverage to homeowners.

If insurers fail the test, legislation will be necessary to hold insurance companies responsible for setting adequate policy limits for homeowners, FTCR said.

Premiums should not go up

Insurance companies have made enough money in California to cover any losses from the current fires and there should be no increase in premiums, FTCR argued.

Profits for California homeowners insurers are estimated at $6 billion between 2004 and 2006. In fact, homeowners insurance companies have been reducing rates over the last year because loss ratios -- the amount insurers pay customers in claims -- had reached record lows. Allstate Insurance is the only major insurer bucking that trend and is currently subject to a Department of Insurance investigation of its request to increase rates.

"Consumers pay premiums diligently month after month to be protected in the event of disaster. Rates that were adequate the week before the fires should not go up now that the expected has occurred," the organization said. "Regulators should have a zero tolerance policy for rate hikes in the wake of the fires."

Non-renewal

Everyone in a disaster area should be protected from losing their insurance coverage, FTCR said. However, it noted that many insurers nationally have adopted cut and run policies that find them leaving areas they consider risky just as customers need their protection the most.

A law passed after the 2003 fires prevents insurance companies from canceling coverage for at least one policy period for California consumers whose homes are damaged during a declared emergency. However, insurers may still pull out of an area that was threatened during the emergency.

For example, consumers who were evacuated but whose homes were not harmed are not protected. The Insurance Commissioner and lawmakers should make sure that families in the communities affected by the fires, whether or not they sustained damage, don’t lose their coverage, FTCR said.

Consumers should know they have the right to fair resolution of their claim. Homeowners can visit www.consumerwatchdog.org for the Foundation for Taxpayer and Consumer Rights’ disaster checklist of who to talk to, what records to keep, and when they may need outside help when filing a claim.

Policyholders who are having difficulty with their insurance claim should contact the Department of Insurance Consumer Hotline at 1-800-927-HELP (4357).

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