Maximizing Your Fire Damage Insurance Claim

The Pacific Palisades and Malibu wildfires leaves many to face the daunting task of rebuilding. ARCA Builders has prepared this guide to address key questions homeowners have when dealing with insurance companies after a fire.

What Will My Insurance Company Cover to Rebuild?

Insurance policies vary, but most homeowners’ policies include coverage for:

Debris removal

Debris removal is usually covered but subject to policy limits. If the cost exceeds the coverage amount, the remaining expense may come out of the total policy payout for the rebuild. Some policies include a separate debris removal allowance, while others require that it be deducted from the dwelling coverage.

Rebuilding the home

Standard homeowners’ insurance policies cover the cost of rebuilding the home up to the dwelling policy limit. However, underinsurance is a common issue, as rising construction costs may surpass what was originally estimated at the time of policy issuance.

Architects, engineers, and designers

These costs may be covered if they are necessary to restore the home to its previous condition. However, insurers may scrutinize these expenses, requiring homeowners to justify their necessity. A detailed scope of work from a qualified contractor and professional estimates can help substantiate these costs.

Temporary housing

Policies typically include Additional Living Expenses (ALE) coverage, which pays for temporary housing, food, and transportation while the home is being rebuilt. The coverage duration varies by policy, typically lasting between 12 to 24 months.

Will Insurance Pay for Code Upgrades?

California’s strict building codes have evolved to improve fire resistance and structural integrity. If your home was built under an older code, you may be required to make costly upgrades to meet current standards. These may include:

• Fire-resistant materials such as non-combustible siding and roofing

• Sprinkler systems and ember-resistant vents

• Updated electrical and plumbing systems

Some policies include ordinance or law coverage, which covers the cost of mandatory upgrades. However, this coverage is often capped at a percentage of the dwelling coverage limit, typically 10-25%. If your policy lacks sufficient ordinance coverage, you may be responsible for the additional costs.

What If the Builder Goes Over Budget?

Insurance companies determine payouts based on a pre-approved scope of work, typically using estimates generated by their adjusters. However, real-world construction costs often exceed these estimates due to:

• Supply chain disruptions leading to increased material costs

• Skilled labor shortages driving up wages

• Unforeseen structural issues discovered during reconstruction

If actual costs exceed the insurer’s estimated payout:

• Negotiate with the insurer: Provide contractor estimates and cost breakdowns to justify a higher payout.

• Supplemental claims: If additional damage is discovered, homeowners can submit a supplemental claim with supporting documentation.

• Guaranteed Replacement Cost policies: Some policies provide additional funds if rebuilding costs exceed the coverage limit, but these policies must be in place before the loss occurs.

Do I Have to Rebuild the Same House, or Can I Remodel?

Homeowners are not required to rebuild the exact same home. However, insurers typically pay based on the cost of restoring the original home to its pre-loss condition. If you want to remodel or make significant design changes, keep in mind:

• The insurance payout is still based on replacing what was lost. Any additional costs due to design upgrades must be covered out-of-pocket.

• Modifications requiring additional permits or structural changes may trigger compliance with new building codes, increasing costs.

• If the footprint of the home is changed, additional zoning and permitting may be required.

Can I Rebuild a Bigger House?

Yes, but insurance will only cover the cost of restoring the previous structure. Any expansion or luxury upgrades must be self-funded. If you plan to rebuild a larger home, consider:

• Ensuring that the property remains compliant with zoning laws and setback requirements.

• Factoring in additional utility and infrastructure costs for a larger structure.

• Securing additional financing for the portion of the rebuild that exceeds the insurance payout.

Navigating the Insurance Claims Process

Hire a public adjuster

If you feel the insurance company's payout is insufficient, a public adjuster can negotiate on your behalf. They work on a contingency basis, taking a percentage of the claim payout, but their expertise often results in higher settlements.

Document everything

Maintain thorough records, including photographs, receipts, contractor estimates, and all correspondence with the insurance company.

Understand depreciation and recoverable cost

Some policies initially pay only the actual cash value (ACV) of damaged items, with recoverable depreciation paid later when repairs or replacements are completed and documented.

Work with experienced professionals

An experienced general contractor familiar with insurance claims can ensure estimates align with what the insurer is likely to approve, streamlining the process.

How ARCA Builders Can Help

ARCA Builders is a full-service design-build firm, handling everything from insurance negotiations to construction. Our team ensures that homeowners receive the maximum possible payout, comply with all new building codes, and execute their rebuild efficiently and cost-effectively.

Contact us for help navigating the complexities of post-fire reconstruction in Pacific Palisades and Malibu.