New Insurance Laws…No Free Lunch

California and Arizona legislators are tinkering with insurance laws in ways that may be popular with voters but, as usual, there’s no free lunch.

Standard homeowner’s policies always cover fires but generally do not cover mudslides without an earthquake or earth movement companion policy. But what happens when a fire causes a mudslide?

That was a big issue in California recently when $421mm was paid out due to mudslides. Most insurers paid out on the “fire-caused mudslides” but the California legislature wanted to go a step further and now has a bill pending that insurers “must pay these costs”.

If passed the immediate effect will be these claims will be paid faster in the future if you have insurance. But the more hidden consequence is that lawyers will now claim all mudslides are ultimately fire-related causing all policies to have de facto mudslide coverage. As a result, homeowners in risky areas (e.g. northwest LA, parts of Pacific NW) are likely to face even higher insurance rates and possible non-renewals and declines.

Over in Arizona, the governor recently vetoed a bill that would raise minimum liability for drivers. Around 20% of drivers in AZ have no insurance which suggests lax enforcement of existing law. And the current minimums are ridiculously low ($15k per person, $10k for property). But rather than require drivers to carry reasonable insurance, the governor is trying to keep limits low to prevent more people going from bad insurance to no insurance.

The reality is if you drive in AZ or any other state for that matter, you need to protect yourself against the actions of other drivers. It won’t matter if an accident is totally their fault if they don’t have any insurance or money. You need Uninsured/Underinsured Liability insurance equal to your standard liability limits, and depending on your risk tolerance you may want an Uninsured/Underinsured Liability endorsement on your umbrella.

Desert Insurance Solutions is an independent, multiline, boutique insurance broker with offices in La Quinta, CA and Scottsdale, AZ. Contact us for more information.