A couple thought their policy covered the full cost of a rebuild, but found they were underinsured by $600,000. They are not the only ones facing the problem of underinsurance.
LOUISVILLE, Colo. – Less than two months after the Marshall Fire ripped through Boulder County, the Colorado Division of Insurance has received at least 54 formal complaints from homeowners about insurance companies.
One such lawsuit was filed by Andrew and Nicole Malcomson, who lost their Louisville home and everything they owned. They thought their policy would cover the full cost of a rebuild. Now they say they are $600,000 underinsured.
“The space that was our refuge, our home where we raised two children and continue to raise three more, cannot be rebuilt based on what insurance is going to provide,” said Nicole Malcomson.
According to their formal complaint, their Housing A coverage is around $860,000, but after the fire an adjuster estimated it would cost over $1.3 million to rebuild their home. The family said the estimates exclude adjusters for updated codes.
“This delta between coverage limits and actual reconstruction costs is extraordinarily high and defies rational explanation, especially since the policy was originally issued so recently (01/07/20),” the complaint said.
The couple opted out of the Boulder County Debris Removal Program and crews finished removing what was left of their home so they could begin rebuilding. The coming months, however, seem very uncertain.
“We may have to leave,” said Andrew Malcomson. “Others may have to leave, which would change the fabric of this Boulder County community in general.”
He said he thought they had chosen their best option on a policy.
“They’re in the business,” he said. “They should know what it really costs to rebuild a house.”
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Underinsurance issues are one of the biggest challenges the state’s insurance division hears about after the wildfires, Colorado Insurance Commissioner Michael Conway said. Not having enough insurance coverage to rebuild a home is a problem that exists across the country.
The Insurance Division is trying to figure out the extent of the underinsurance problems after the Marshall fire. They plan to get data at the end of this month to help answer that question, Conway said.
“We need to make sure that insurance companies are providing good data, good reliable data to their consumers,” Conway said. “One of the things you hear from insurance companies is that it’s up to the owner to understand what they’re insured for and what they’re not insured for. I don’t think that’s be right.”
Some of the same issues arose after the 2020 Troublesome East Fire in Grand County. At least 53 formal complaints have been filed with the Division of Insurance for this disaster. The top three issues in this wildfire were adjuster processing issues, claim delays and unsatisfactory settlement offers.
Inventory listing requirements for content coverage, which falls under claim delays, is a topic that fire survivors bring up frequently, Conway said.
State law requires insurance companies to pay at least 30 percent of contents coverage to consumers without having to fill inventory. Policyholders must detail everything that has been lost, down to the last spoon, to recover the remaining 70%.
HB-1111, making its way through the state legislature, would increase the autopay to 65%. Conway said he supports this change.
“It really aligns with the data that we’re seeing that insurance companies typically pay out once they’ve gone through the whole process,” he said.
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According to the Division of Insurance, increasing the automatic payment to 65% would not mean a higher premium for consumers. This would mean a larger upfront payment without the documentation requirements, rather than additional coverage.
Conway said he doesn’t think the inventory process is necessary because not all insurance companies take their consumers through it.
More than 70% of formal complaints filed after the East Troublesome Fire were filed against State Farm, which is Colorado’s largest homeowners insurance carrier.
RELATED: After Troublesome East Fire: Insurance Process Slows Rebuilding
“We need to understand why it’s true that they have the number of complaints for this company,” Conway said. “A lot of the issues, frankly, are the issues that State Rep. Judy Amabile (D-Boulder) addresses in her bill, HB-1111.”
A State Farm spokesperson said the company is reviewing its approach to content advances for Marshall fire claims.
Their statement continued: “State Farm is standing with our customers to help them recover from the Marshall fire, but we believe additional modifications are needed for HB 1111. For example, HB 1111 requires a 65 lead % content coverage without inventory. This would be the largest mandated content advance without inventory of any state in the country. We understand that this is a difficult time for our customers and we are working with them to ensure that ‘they receive all the benefits to which they are entitled under the terms of the insurance policy.’
The Malcomsons aren’t covered by State Farm, but they said they want others who haven’t lost a home to know about the challenges they face with insurance.
“I don’t want people to ignore the insurance issue,” Nicole Malcomson said. “Go see your policy. Do it yourself.”
Below: Six complaints filed with the Colorado Division of Insurance by the East Troublesome Fire.
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