Existing federal law directs the federal government to provide various forms of assistance to state and local governments that have jurisdiction over a designated area that has been declared a major disaster area, as specified, including the removal of debris from the affected area. Existing federal law generally prohibits providing direct assistance to an individual or private organization for the cost of removing debris from their own property, except as specified.

Existing law, the California Emergency Services Act, confers upon the Governor and upon the chief executives and governing bodies of political subdivisions of this state specified emergency powers and provides for state assistance in the organization and maintenance of the emergency programs of those political subdivisions. A state of emergency, for purposes of the act, includes the duly proclaimed existence of conditions of disaster caused by various conditions, including fire, which, by reason of their magnitude, are or are likely to be beyond the control of the services, personnel, equipment, and facilities of any single county, city and county, or city and require the combined forces of a mutual aid region or regions to combat.

Existing law generally governs the business of insurance in the state, including, among other things, residential real property insurance disclosures.

This bill would authorize, in the event of loss relating to a state of emergency, as defined, due to a wildfire, the Governor, or his or her designee, to implement require an insurer for a residential property insurance policy, if a consolidated debris removal program program, in which a residential property owner who has insurance in effect at the time of a wildfire that provides coverage for debris removal voluntarily assigns any rights, benefits, and proceeds for that coverage to a county or designated agency and makes any benefits and proceeds directly payable to that county or designated agency. The program would provide that the owner agency, is implemented following a state of emergency, to provide the assignee with relevant policy and claim information and to issue payment directly to the assignee, as specified. The bill would provide that a residential property owner who makes an assignment by executing a right of entry form is not liable for any additional costs of the debris removal in the designated area in which the debris removal program is implemented. The bill would provide that, if coverage for debris removal is not separately specified by the policy, but is included within another coverage category, the payment to the county or designated agency would be limited to the amount of the unused benefit, if any, in the other coverage category after the residence is rebuilt or replaced. The bill would also provide that these provisions do not require an insurer to pay more than a reasonable amount for debris removal services based upon the type and quality of services provided by the consolidated debris removal program, and that the programs provisions are severable.

Existing federal law directs the federal government to provide various forms of assistance to state and local governments that have jurisdiction over a designated area that has been declared a major disaster area, as specified, including the removal of debris from the affected area. Existing federal law generally prohibits providing direct assistance to an individual or private organization for the cost of removing debris from their own property, except as specified.

Existing law, the California Emergency Services Act, confers upon the Governor and upon the chief executives and governing bodies of political subdivisions of this state specified emergency powers and provides for state assistance in the organization and maintenance of the emergency programs of those political subdivisions. A state of emergency, for purposes of the act, includes the duly proclaimed existence of conditions of disaster caused by various conditions, including fire, which, by reason of their magnitude, are or are likely to be beyond the control of the services, personnel, equipment, and facilities of any single county, city and county, or city and require the combined forces of a mutual aid region or regions to combat.

Existing law generally governs the business of insurance in the state, including, among other things, residential real property insurance disclosures.

This bill would authorize, in the event of loss relating to a state of emergency, as defined, due to a wildfire, the Governor, or his or her designee, to implement a consolidated debris removal program in which a residential property owner who has insurance in effect at the time of a wildfire that provides coverage for debris removal voluntarily assigns any rights, benefits, and proceeds for that coverage to a county or designated agency and makes any benefits and proceeds directly payable to that county or designated agency. The program would provide that the owner is not liable for any additional costs of the debris removal in the designated area in which the debris removal program is implemented. The bill would provide that, if coverage for debris removal is not separately specified by the policy, but is included within another coverage category, the payment to the county or designated agency would be limited to the amount of the unused benefit, if any, in the other coverage category after the residence is rebuilt or replaced. The bill would also provide that these provisions do not require an insurer to pay more than a reasonable amount for debris removal services based upon the type and quality of services provided by the consolidated debris removal program, and that the programs provisions are severable.

The bill would apply these provisions retroactively to any applicable claim filed on or after July 1, 2017.

Date of Hearing: May 16, 2018

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Lorena Gonzalez Fletcher, Chair

ABPCA Bill Id:AB 1923

Author:(Limón) – As Amended Ver:April 19, 2018

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill establishes a statutory framework for creating consolidated debris removal programs after natural disasters. Specifically, this bill:

1. Establishes rules governing a "consolidated debris removal program," defined as a program in which an insured residential property owner voluntarily assigns benefits for coverage for debris removal to a county or designated agency conducting the program.
2. If an insured owner submits a specified form and has coverage available for the purpose, requires insurers to pay benefits to a county or designated agency to cover the cost of debris removal through a consolidated program.
3. Specifies a residential property owner who assigns benefits to a county or designated agency is not liable for any additional cost for debris removal.
4. Limits the cost an insurer must pay to the county or designated agency to the costs directly incurred while performing debris removal services at the insured property and specifies it does not require an insurer to pay more than a reasonable amount for debris removal services based upon the type and quality of services provided by the consolidated debris removal program at the insured property.
5. Requires the county or designated agency to submit an invoice to an insurer no later than six months after the debris removal services are completed.
6. Provides insurers immunity from liability to any person or entity from actions taken to comply with this bill.

FISCAL EFFECT:

This bill may result in uncertain but potentially significant state GF and local costs related to future disaster cleanups. The cost of a consolidated debris removal program is borne by government entities and some costs are offset by what can be collected from insurers. To the extent this bill restricts amounts that can be collected by government entities from insurers, it could increase the state GF costs and local costs of cleanup by unknown amounts.

COMMENTS:

1. Purpose. This bill is sponsored by the California Department of Insurance (CDI) to codify an existing process often conducted by public agencies to consolidate cleanup efforts after a natural disaster. After the Valley and Butte Fires, CDI reports many policies did not have clear debris removal language, and the debris program invoices did not include adequate disclosures. Following the 2017 wildfires, CDI reports similar issues have caused many homeowners to not participate in debris programs. CDI believes it is prudent to clarify and streamline participation in debris removal programs for both policyholders and insurers.
2. Background. Instead of relying on each of homeowner who loses their home in a large-scale disaster to arrange individually for cleanup, local, state, and federal agencies have created debris programs that speed recovery, increase efficiency, and combine public and private funding for the cleanup effort. Homeowners must opt-in to the debris program, and those who do opt-in must assign any insurance payments covering debris removal to the government agency. Participating homeowners bear no expense for the cleanup beyond whatever insurance payments are available through their policy. Consistent with the insurance contract, an insurer is billed by the local government for the cost of debris removal on the insured property. For homeowner's policies that include debris removal in the coverage for structure loss, the counties have generally only sought insurance payment from whatever residual insurance coverage is available after the home is rebuilt or replaced. This bill seeks generally to codify rules that have been used in past cleanup efforts.
3. Recent amendments. Amendments taken in the Insurance Committee attempt to address issues that have been raised in past cleanup efforts, including insurer concern that invoices were not submitted in a timely manner and that charges were not calculated based on efforts necessary to remove debris from the specific insured property.
4. Cost-sharing in a declared emergency. According to the Office of Emergency Services, cost-sharing for a federally declared emergency is generally on a 75% federal, 25% state-and-local-basis. Federal rules govern cost-sharing, and generally require local or state agencies to recoup benefits from any applicable insurance policies. Within the state/local cost share for a federally declared emergency, as well as for a solely state-declared emergency, cost-sharing is generally on a 75% state, 25% local basis. Existing regulations (Title 19, Chapter 6: Disaster Assistance Act) describe state and local obligations during an emergency. These regulations specify a local agency does not receive state assistance for losses for which an entity has legal means of recoupment. They also specify a 6-month time limitation for debris removal from the time of an emergency declaration, which can be extended by the state.
5. Staff Comments. Even if some of the restrictions are intended to put reasonable parameters around the invoicing process that are consistent with general principles of contractual obligations of insurers, there may be fiscal consequences to government agencies. First, it is unclear how the imposition of a six-month timeline from debris removal completion impacts determination a local entity has a legal means of recoupment, and thus whether the state would consider costs that could have been recouped through timely invoicing would be eligible for state reimbursement. For instance, if an invoice was submitted to an insurer after six months, when an insurer is no longer obligated to pay according to this bill, would the unpaid costs in that invoice fall on the local agency or be shared by the state and local agencies?

This bill also states invoices need to be submitted within six months after the debris removal services are completed. It is unclear whether the entity must begin the six-month clock when the entire debris removal project is complete or when the debris removal at the insured site is complete. In addition, it appears the imposition of a standard that an insurer is not required to pay "more than a reasonable amount for debris removal services based upon the type and quality of services provided by the consolidated debris removal program at the insured property" raises the possibility of additional disputes or litigation about this standard, beyond what is governed by current law and contractual obligations. Finally, federal rules for disaster assistance generally require local entities to collect any applicable coverage from insurers, so potential interaction of this bill's restrictions with federal requirements is unclear.

In conclusion, though some of the potential dynamics remain unclear, since the state is generally responsible for most of the state/local cost of cleanup, to the extent the amount paid by insurers for debris cleanup is more limited than under the status quo, the state may end up paying more than under the status quo. ­

Analysis Prepared by: Lisa Murawski / APPR. / (916) 319-2081

Date of Hearing: April 18, 2018

ASSEMBLY COMMITTEE ON INSURANCE

Tom Daly, Chair

ABPCA Bill Id:AB 1923 (

Author:Limón) – As Introduced Ver:January 24, 2018

SUBJECT: Residential property insurance: wildfires: consolidated debris removal

SUMMARY: Establishes a statutory framework for creating consolidated debris removal programs after natural disasters. Specifically, this bill:

1. Permits the Governor to form a consolidated debris removal program (debris program) in conjunction with a declared state of emergency.
2. Requires all insurers with homeowner's insurance policies in force in the area affected by the state of emergency to participate in the debris program.
3. Provides than an insurer has the obligation to obtain consent from the policyholder before including the property in the debris program.
4. Permits individual property owners to refuse to participate in the debris program.
5. Defines a debris program as a program that allows policyholders to assign the debris removal benefit in their homeowner's policy to a local government agency that is coordinating a communitywide cleanup effort.
6. Provides that a homeowner participating in the debris program does not have any liability for cleanup costs that exceed the benefit provided in their homeowner's policy.
7. Provides that if the homeowner's policy does not establish a separate limit for debris removal, the debris program is not entitled to bill for cleanup costs until the home is fully rebuilt or replaced, and that the debris program may only be paid if there is an unused benefit amount remaining.
8. Provides that an insurer is only responsible for reasonable costs based on the type and quality of removal services provided by the debris program.
9. Specifies that the bill applies retroactively to claims filed on or after July 1, 2017.

EXISTING LAW:

1. Provides a comprehensive system of regulation for transacting insurance including homeowner's insurance.
2. Provides a standard form contract for homeowner's insurance.
3. Requires an insurer to provide homeowner's insurance policyholders with specific disclosures regarding their policy and their rights under that policy.

FISCAL EFFECT: Undetermined

COMMENTS:

1. Purpose. According to the author, policyholders and insurers have expressed concerns over previous debris programs and the high cost shown on the invoices. After the Valley and Butte Fires in 2015, the average cost of debris removal was about $115,000 per property, but there was confusion as to who was responsible for paying that amount. It was found that in most cases the policyholder had no obligation to pay and the insurer’s obligation was capped to a much lesser amount than if the cleanup was performed independent of the debris program.

For example, after the Valley and Butte Fires, the Department of Insurance reports that many policies did not have clear debris removal language, and the debris program invoices had lack of information and disclosure. Following the 2017 wildfires, DOI reports that similar issues have caused many homeowners to not participate debris programs. The DOI believes this bill is needed to clarify and streamline participation in debris removal programs for both policyholders and insurers.

1. Wildfires. California experienced a record fire season in 2017 with the largest fires in state history in terms of acres burned (Thomas Fire in Southern California) and in terms of structure loss (Tubbs and other fires in Northern California), and loss of life. CalFire statistics indicate that more than 1.2 million acres burned in California in 2017. The October and December firestorms resulted in the loss of more than 10,000 structures and, tragically, more than 40 lives. California has never witnessed this scale of devastation from fire before. With more and more residential development occurring in or near areas of extreme fire risk, widespread tree deaths resulting from a long draught, a century of fire suppression policy that has allowed a massive increase in the fuel load, and changing weather patterns (global warming), it is expected that California will continue to experience more and more losses from wildfires.
2. Established Process. The rebuilding process begins with cleanup. However, cleanup after devastation on this scale is daunting and requires different solutions than used in smaller fire events. Instead of relying on each of the more than 10,000 homeowners who lost their homes to arrange individually for cleanup, local, state, and federal agencies have created debris programs that speed recovery, increase efficiency, and combine public and private funding for the cleanup effort. Homeowners must opt-in to the debris program, and those who do opt-in must assign any insurance payments covering debris removal to the local government. Participating homeowners bear no expense for the cleanup beyond whatever insurance payments are available through their policy. Consistent with the insurance contract, an insurer is billed by the local government for the cost of debris removal on the particular insured property (subject to the policy limit), not a pro-rata share of the total cost. For homeowner's policies that include debris removal in the coverage for structure loss, the county will only seek insurance payment from whatever residual insurance coverage is available after the home is rebuilt or replaced.
3. Retroactivity. In addition, the bill imposes its terms retroactively on the 2017 coordinated cleanup programs. Inserting retroactivity provisions into pending legislation is an inherently dangerous step. Imposing terms retroactively invites years of litigation, particularly in insurance matters which are fundamentally grounded in contract. In addition, retroactively applying the terms of the bill would potentially create thousands of after-the-fact violations by government agencies and insurers who may well not have followed the rules of this bill, despite engaging in what was at the time a voluntary program. That would be a nonsensical result. The principal virtue of a bill creating mandatory debris programs at this point is establishing a clear template for cleanup efforts after future disasters. Imposing a new set of rules on completed debris programs (as the bill would take effect on January 1, 2019 it is highly likely that cleanup from both the northern and southern California wildfires will be completed by the time it took effect) would appear to impose all the legal risks of retroactivity while providing no benefit to pre-existing debris programs or their beneficiaries. If the concern is response to disasters that may occur before January 1, 2019, that concern is misplaced. There has been broad willingness among insurers to participate in these debris programs. The processes and rules established in the prior debris programs provide clear template for responding to any disaster that might occur before the bill becomes effective. If the author believes a statutory mandate is necessary prior to January 1, 2019, then the appropriate remedy would be to seek the addition of an urgency clause to the bill instead of imposing the bill's requirements retroactively.
4. Immunity. Because the bill requires insurers to participate in debris programs, they have sought an amendment to the bill that provides immunity from any lawsuits based on actions an insurer takes to comply with the requirements of this bill or a debris program. Their concern is reasonable, as these debris programs require insurers to deviate from the terms of their policies by paying out benefits to the county rather than the policyholder. These deviations do occur with the consent of the policyholder, but insurers are concerned that their participation in a debris program could be used against them in a legal proceeding arising from a later dispute.
5. Amendments. In its current form, the bill proposes impractical deviations from the processes used in coordinated cleanup efforts in both the 2017 wildfires. The committee should consider requiring the author to accept a set of amendments that has been provided to both the author the committee members. These amendments include language to: 1) bring the bill closer into line with the processes established in the recent debris programs, 2) further clarify that insurers can only be charged for costs incurred for cleanup at the insured property, 3) require timely billing by the county, 4) establish immunity for insurers who comply with the statute, 5) eliminate the insurer's obligation to obtain the homeowner's consent to participate in the debris program, and 6) remove language applying the bill retroactively to claims on an after July 1, 2017.

REGISTERED SUPPORT / OPPOSITION:

Support

Department of Insurance (sponsor)

Opposition

American Insurance Association

National Association of Mutual Insurers

Pacific Association of Domestic Insurers

Personal Insurance Federation of California

Property Casualty Insurers Association of America

Analysis Prepared by: Paul Riches / INS. / (916) 319-2086