Updated Insurance Mandate for Smoke Damage Claims (Effective 3/7/25)

The California Department of Insurance has issued a new bulletin clarifying homeowners' rights regarding smoke damage claims. Insurers cannot automatically deny coverage and must conduct thorough, fair investigations to determine eligibility.

Official Insurance Bulletin:

Bulletin 2025-7 – Smoke Damage Claims Guidance

Key Facts About Smoke Damage Coverage:

• Smoke Damage is Covered – Recent California court rulings confirm that smoke damage may qualify for coverage if the policy includes “direct physical loss or damage to” property. Insurers cannot categorically deny these claims.

• Insurer Responsibilities – Insurance companies must comply with California law, conduct fair and transparent claim investigations, and cannot reject claims without proper evaluation and documentation.

• Claim Investigation Rules – Insurers must pay for necessary testing to verify smoke damage. They cannot require policyholders to cover testing costs. The California Department of Insurance encourages insurers to provide low-cost, at-home smoke contamination test kits as a reasonable first step.

• Health & Safety Considerations – Wildfire smoke may contain asbestos, heavy metals, and other toxic substances. Homeowners are encouraged to document any visible soot, odors, or residue and request air quality tests if needed.

• Additional Living Expenses (ALE) Coverage – If smoke damage renders a home uninhabitable, homeowners may qualify for ALE coverage, which covers temporary housing and related costs.

Steps to Take If Your Smoke Damage Claim is Denied

1. Request a Written Denial Explanation – Insurers must provide a detailed reason for denial.

2. Ask for a Re-Evaluation – If denied, request an independent review by a third-party adjuster or certified inspector.

3. File a Complaint – If you believe your claim was unfairly denied, contact the California Department of Insurance.

Need Help?

For further assistance, reach out to the California Department of Insurance:

• Consumer Hotline: (800) 927-4357

• Website: www.insurance.ca.gov

• Email: REBPublicInquiries@insurance.ca.gov

Recent Clarification from Los Angeles County Assessor Jeff Prang

Los Angeles County Assessor Jeff Prang has provided further clarity on the rebuilding process and its effect on property taxes:

1. Size of the Rebuilt Structure: Programs that allow for the rebuilding of a property up to 110% of its original size (footprint and height) do not exempt the additional square footage from property tax assessment. While these programs help expedite permits for rebuilding, they do not address the increase in property taxes that might arise from expanding the size of the structure.

2. Governor’s Executive Order: Governor Gavin Newsom has issued an Executive Order that temporarily suspends the standard review process for properties damaged by disasters like fires. This order allows homeowners to rebuild faster, but the property tax implications remain unchanged, especially regarding the 120% value rule.

3. Mayor’s Executive Order: Similarly, Mayor Karen Bass has directed city departments to expedite rebuilding efforts, including allowing a structure to be rebuilt up to 110% of the original size. However, this expedited review does not exempt the homeowner from property tax reassessment if the home exceeds the 120% value threshold. Assessed Value vs. Market Value: The “assessed value” of a property refers to its value for tax purposes, which may differ from its market value (the price it could sell for). The assessed value is determined by the county assessor’s office and is typically lower than the market value of a property.

4. 120% Rule: If a home is rebuilt after being damaged, California Revenue & Taxation Code § 70.5 states that if the rebuilt home exceeds 120% of its pre-damage assessed value, the property will be reassessed based on its current market value. This can result in higher property taxes since the market value is generally higher than the original assessed value.

   • Example: If a home’s pre-damage assessed value was $150,000, the maximum value the rebuilt home can have for tax purposes under this rule is $180,000 (120% of $150,000). If the reconstruction raises the value beyond $180,000, the entire property may be reassessed at a higher current market value.

5. Impact on Property Taxes: If the rebuilt home’s value exceeds the 120% threshold, the homeowner will face property taxes based on the new, higher assessed value. Even if the reconstruction is modest, it may still result in property tax increases if the new value exceeds this threshold.

6. Fire Safety Upgrades: Fire safety improvements required by law, such as the use of fire-resistant materials, do not count as taxable improvements. However, significant upgrades beyond the basic fire code compliance may push the market value of the home higher, potentially exceeding the 120% threshold.

In the aftermath of a disaster like a fire, homeowners may qualify for a reassessment under California’s “Misfortune and Calamity” program. This program allows for a temporary reduction in property taxes to reflect the damage done to a property.

• Reduced Property Taxes: Under the Misfortune and Calamity program, a homeowner may receive a lowered property tax rate based on the damaged property’s value. This reduced value remains in place until the rebuilding process is complete.

• Reinstating the Original Tax Base: When the property is rebuilt to a substantially equivalent condition to its pre-damage state, the original tax base (the assessed value before the damage occurred) will be reinstated.

• Increased Property Taxes for Upgraded Properties: If the homeowner takes the opportunity to rebuild beyond the substantial equivalent of the original property (such as adding extra square footage or luxury features), the new portions of the property will be assessed at current market value and added to the pre-damage assessed value, resulting in higher property taxes.