Advice for LA Fire Insurance Settlement

[moneytaichi]

A friend's mom lost her home in the palisades fire last week.  The house was rented at the time and insured as a rental property.  They filed a claim to USAA. The adjuster is scheduling to go out and inspect this week if they can get access.  The adjuster is eager to formalize the settlement and says they will cut a check the day they confirm its a total loss.  The terms of the settlement appear to be consistent with the policy contract. Some of the item prices appear to be fixed, and others appear to be estimates that the adjuster will turn into fixed prices per the site conditions the observe on their visit.  Right now the adjuster's total estimate amount for the proposed settlement is well below the anticipated market costs to rebuild, like 50% lower.

Given the above, my friend wants to know if there is an option to negotiate the settlement amount and if it is typical for the insurer to want to settle so quickly.  While my friend is anxious to settle asap due to concerns for USAA's liquidity,  he also wants to get a fair settlement. What are the best way to negotiate the settlement with USAA? What are tips, lessons learned or questions to ask on the negotiation?

Then assuming they can come to terms, and because he cannot afford or don’t want to rebuild, he has questions as to when to try and sell the lot for the best price. In general,  does it really matter if he sells immediately or is it better to wait until the market can stabilize? If it's better to wait, how long is the recommended time, given my friend wants to sell? The entire adjacent neighborhood is a total loss so there are potentially 100 to 200 similar properties in Palisades that might come on the market, plus others in nearbly LA neighborhoods impacted by wildfire.

Final question: USAA has a line item for $141k that would be added to the total settlement if the owners either rebuild or if they purchase a replacement residence.  My friend has never heard of this and wonders if this is typical, and anything to watch out or ask questions on.

Because my friend has never been through this process before and is not sure who to tap for advice, any feedback would be greatly appreciated…   
 

[franklin4]

It's not likely USAA will go insolvent. Even if I was in a hurry for the insurance money I would wait at least a few weeks instead of being the first one to settle. Construction costs in LA will go through the roof and there will be empty lots for years. Selling in the near future would likely get a low price but is it worthwhile to hold an empty lot for several years to get an extra couple 100k when the neighborhood has been mostly rebuilt? The best decision about timing will be very different for different people.

The bit about getting more money if the house is rebuilt sounds familiar and I expect that is standard.

[Villanelle]

A friend's mom lost her home in the palisades fire last week.  The house was rented at the time and insured as a rental property.  They filed a claim to USAA. The adjuster is scheduling to go out and inspect this week if they can get access.  The adjuster is eager to formalize the settlement and says they will cut a check the day they confirm its a total loss.  The terms of the settlement appear to be consistent with the policy contract. Some of the item prices appear to be fixed, and others appear to be estimates that the adjuster will turn into fixed prices per the site conditions the observe on their visit.  Right now the adjuster's total estimate amount for the proposed settlement is well below the anticipated market costs to rebuild, like 50% lower.

Given the above, my friend wants to know if there is an option to negotiate the settlement amount and if it is typical for the insurer to want to settle so quickly.  While my friend is anxious to settle asap due to concerns for USAA's liquidity,  he also wants to get a fair settlement. What are the best way to negotiate the settlement with USAA? What are tips, lessons learned or questions to ask on the negotiation?

Then assuming they can come to terms, and because he cannot afford or don’t want to rebuild, he has questions as to when to try and sell the lot for the best price. In general,  does it really matter if he sells immediately or is it better to wait until the market can stabilize? If it's better to wait, how long is the recommended time, given my friend wants to sell? The entire adjacent neighborhood is a total loss so there are potentially 100 to 200 similar properties in Palisades that might come on the market, plus others in nearbly LA neighborhoods impacted by wildfire.

Final question: USAA has a line item for $141k that would be added to the total settlement if the owners either rebuild or if they purchase a replacement residence. My friend has never heard of this and wonders if this is typical, and anything to watch out or ask questions on.

Because my friend has never been through this process before and is not sure who to tap for advice, any feedback would be greatly appreciated…

Could this be a depreciation thing? When we had a significant property damage claim, we got paid out and then had to submit receipts showing we had the work performed, at which point they sent an additional amount.  It was something along the lines of the insurance company would pay depreciated value or pay for full, actual replacement, so if we didn't fully replace it, we only got the depreciated value.  Once we showed that we did actually replace the items that were damaged or destroyed, they topped off the claim for the full amount. 

[AccidentialMustache]

I've had USAA pay out non-totaled claims (hail damage) and yes we needed to submit paperwork showing we contracted for a replacement to get the full payout. There are some limits on how long you can let a claim sit. They extended our hail damage one when I asked, because getting anyone scheduled to fix it (or heck, to quote it) was... problematic. But they still wanted a date I'd have it by and it was clear just chain extensions were not a game they'd play.

You can try to fight them over the claim. There are independent adjusters/vultures who'll descend after a large scale event (... hail damage for me). But most of them want you to have the work done by their people, so you give up any choice in quality of work and just have to hope the work is good. We sent them packing when they came post-hail. I did try to push USAA to cover damage to the cedar siding, but they wouldn't. That said, roofers were very surprised USAA covered the whole roof as most other insurers were only covering the south and/or west facing portions. I'm probably better off they covered whole roof rather than partial roof partial siding, so... no complaints?

Also, I'm midwest, not CA, so YMMV because state rules vary.

[GilesMM]

A friend's mom lost her home in the palisades fire last week.  The house was rented at the time and insured as a rental property.  They filed a claim to USAA. The adjuster is scheduling to go out and inspect this week if they can get access.  The adjuster is eager to formalize the settlement and says they will cut a check the day they confirm its a total loss.  The terms of the settlement appear to be consistent with the policy contract. Some of the item prices appear to be fixed, and others appear to be estimates that the adjuster will turn into fixed prices per the site conditions the observe on their visit.  Right now the adjuster's total estimate amount for the proposed settlement is well below the anticipated market costs to rebuild, like 50% lower.

Given the above, my friend wants to know if there is an option to negotiate the settlement amount and if it is typical for the insurer to want to settle so quickly.  While my friend is anxious to settle asap due to concerns for USAA's liquidity,  he also wants to get a fair settlement. What are the best way to negotiate the settlement with USAA? What are tips, lessons learned or questions to ask on the negotiation?

Then assuming they can come to terms, and because he cannot afford or don’t want to rebuild, he has questions as to when to try and sell the lot for the best price. In general,  does it really matter if he sells immediately or is it better to wait until the market can stabilize? If it's better to wait, how long is the recommended time, given my friend wants to sell? The entire adjacent neighborhood is a total loss so there are potentially 100 to 200 similar properties in Palisades that might come on the market, plus others in nearbly LA neighborhoods impacted by wildfire.

Final question: USAA has a line item for $141k that would be added to the total settlement if the owners either rebuild or if they purchase a replacement residence. My friend has never heard of this and wonders if this is typical, and anything to watch out or ask questions on.

Because my friend has never been through this process before and is not sure who to tap for advice, any feedback would be greatly appreciated…

Could this be a depreciation thing? When we had a significant property damage claim, we got paid out and then had to submit receipts showing we had the work performed, at which point they sent an additional amount.  It was something along the lines of the insurance company would pay depreciated value or pay for full, actual replacement, so if we didn't fully replace it, we only got the depreciated value.  Once we showed that we did actually replace the items that were damaged or destroyed, they topped off the claim for the full amount.

It depends on the policy, which the OPs friend would be smart to read.  Some policies will pay out a cash value equal to the policy limit without any action on the part of the insuree in terms of rebuilding.  I have this type of policy because if my house burns I will simply buy another for 1/3 of the policy payout (and pocket the difference) since I consider their rebuild cost, if correct, astronomically high.

[reeshau]

Speaking from hurricane country, the best way to negotiate a settlement is to hire your own independent adjuster, and have them work with the insurance company.  They will contract for a percentage of the payout, so they are incentivized foe it to be as high as possible.

My Dad did this with Hurricane Ian in Fort Myers.  The guy came in from Louisiana, and contracted for 20% of the settlement.  His house wasn't a total loss, but there was significant water in the house.  AFAIK, Dad was satisfied with the insurance payout.  If your friend's Mom thinks it will be 50% more to rebuild, it could be worth the difference, *if* she has a replacement cost rider on her policy.  Otherwise, she may be SOL.

[TimCFJ40]

Never take the first offer, unless it includes provisions for adjustments to actual cost and you're planning to have the work done to rebuild.  The first offer will always be low, as with any negotiation.

Secondly, if not planning to rebuild, it probably makes sense to hold out on selling the lot for a while.  A lot in the middle of other vacant lots in a fire damaged area will be depreciated compared to a lot between rebuilt homes in a recovered or recovering neighborhood.   Also note, there may be some required costs to demolish and remove what is left of the house, which may be required both by the community and also in order to maximize the appeal of the lot. 

[seattlecyclone]

Regarding rebuild costs: my policy with a different insurer has a number attached to it for rebuild costs. I haven't updated the policy recently so that number is probably too low to actually rebuild my house. It is however the number that is used to calculate the premium and I don't really expect that I'd have the right to claim a higher number than what the policy listed if I haven't been paying for it. Could that be what's going on here?

[Laura33]

1.  Do not take the first offer.  They count on being able to take advantage of people in desperate need of cash to agree to a lowball figure.*

2.  Hire your own independent adjustor.  If you are going to negotiate, there will be a metric shit-ton of work involved, and adjustors earn their money.  More important IME, the adjustors know how the insurers work and are able to frame up claims using the right terminology and in the right format.  For example, State Farm uses proprietary software that literally breaks down each room of a house into square footage, identifies each layer of work required (for us, demolish walls, replace X' of studs, do smoke treatment A on remaining Y' of studs, apply smoke treatment B on Y' of studs, reinstall Z' of drywall, mud and tape Z' of drywall, primer on Z' of walls, top coat on Z' of walls, etc. etc. etc.) -- and then they apply a standard $/ft cost to each specific entry.  The estimate we got from SF was like 110pp long!  We could never, ever have put stuff in that format, nor could we have known enough to interpret how reasonable their estimate was -- for example, the costs can vary quite considerably depending on the level of the finishes involved, and as you can imagine, they're likely going to default to lower-level finishes unless you can prove otherwise.  Again, this is where a good adjustor earns their weight in gold.  (Did you know that decent oak hardwood flooring is running like 3x more than it was 15 years ago?  Or that windows had shot up to like $1,000+ per window for any sort of decent-quality double-paned?  I certainly didn't!)

3.  The way these things often work -- which may be your situation -- is that the insurance company will offer what they calculate as the depreciated value of the house, based on age, quality of materials, condition, etc.  In our case, that number came out to be about 60% of the total value.  If you have bought the rider for replacement coverage, they will pay the full cost of rebuilding, up to the policy limits -- but they want proof you actually plan to rebuild.  They're not going to pay you $1M to rebuild, then have you pocket the money, then sell off whatever remains for $500K and pocket that too.  If they're going to pay you $1M to rebuild, they want proof you're actually going to spend that money to rebuild (sometimes they want receipts, sometimes they just want a signed contract with a builder).  It sounds like rebuilding is off the table, so your focus will be on negotiating the depreciated value, based on all of the stuff I listed in 2.

*When we had our fire, SF earned our loyalty with how they responded -- my agent was walking up my neighbor's sidewalk to meet us literally while the firefighters were still there to make sure we had a place to stay, clothes, etc.; he showed up the next morning with (again, literally) a blank check to cover whatever immediate needs we had, like a hotel and clothes and such (and he asked like 5 times, because he couldn't believe we refused!).  Then he sat and walked me through all of my coverage under the policy and explained the depreciated vs. replacement value stuff and what our riders and such covered and what we were going to need to document to trigger those.  We had a full payout for replacement coverage (up to the full policy limits) within 3 months, which from what I've heard is practically unheard of.  YMMV, of course -- my agent definitely earned his commission.

[moneytaichi]

Thank you so much for your responses! My friend is very appreciative of them. He doesn't know when he can get back to the house because Palisade is still under lock-down, which is a good thing because it gives him some time to think over things and research. I will post later if he has more questions. If anyone else has more feedback or advice, please kindly share. It may help others to prepare for such increasingly common events. I have learned a lot during the process. One of the biggest learning is that I'm so grateful for index funds, where most of my money sit.

[Zamboni]

https://www.youtube.com/watch?v=RMLjzNSthxU

[moneytaichi]

https://www.youtube.com/watch?v=RMLjzNSthxU

Thank you so much @Zamboni !

I found it's often overwhelming to read or list to news so I use AI to summarize them for me. Very helpful! Below is AI's summary on this video:

The video describes a family’s challenging journey navigating the insurance claims process after losing their home in the 2015 Valley Fire in Lake County, California. It offers practical advice for homeowners facing similar situations. Here’s a summary:

### **1. Initial Insurance Experience**
- The family initially dealt with a compassionate State Farm adjuster, creating a false sense of security.
- Later, they were reassigned to a stricter adjuster, which led to more contentious negotiations.

### **2. Four Key Insurance Coverage Buckets**
The video breaks down the typical components of a homeowner’s insurance policy:

#### **A. Dwelling Coverage**
- Covers rebuilding the home; preferable to have "replacement value" coverage.
- Challenges included increased costs due to COVID-era supply chain issues.

#### **B. Personal Property**
- Covers items inside the home, but requires meticulous documentation to maximize claims.
- The family left money unclaimed due to under-documentation.

#### **C. Additional Living Expenses (ALE)**
- Covers temporary housing and related costs during rebuilding.
- Policies often vague; the family struggled to negotiate fair terms, especially since it was a second home.
- Arbitrary rules and poor clarity added stress, leading to a report filed with the California Insurance Commission.

#### **D. Ordinance and Upgrades**
- Covers costs for required code-compliant upgrades.
- Their $100,000 coverage was negotiable and extended to $125,000 for additional needs.

### **3. Key Lessons and Tips**
- **Document Everything:** Create video inventories of belongings in your home pre-disaster.
- **Negotiate Firmly:** Insurance companies aim to minimize payouts, so persistence is essential.
- **Consider Professional Help:** Hiring an adjuster, despite their fees, helped some neighbors secure better settlements.
- **Company Quality Matters:** Companies like USAA received high praise, while others like State Farm presented more difficulties and even dropped the family post-fire.

The video aims to empower homeowners to advocate for themselves effectively during a stressful time. For more details or specific questions, viewers are encouraged to comment.