I've been watching the news about the terrible fires in California. Are fires from a natural gas explosion covered? How do insurance companies figure out how much to pay when everything is destroyed?
Your first question is easy. All homeowner's policies we're aware of cover fire losses. In fact, property insurance in the United States started out as fire insurance as far back as Benjamin Franklin, so there is a long history of consumers being paid for losses caused by fire. Explosion has been a covered peril for quite some time as well.
Your second question is somewhat more difficult. Homeowner's insurance is typically sold based on the cost to rebuild the home, and there is usually an inflation protection feature so the limits keep up over time. Coverage limits for other structures, personal property and additional living expense are percentages of the building limit. Let's take a look at each of these parts of the coverage.
For the dwelling coverage, there are usually records available, including public records, blueprints, surveys, and appraisals that describe the home. Using these records and any information available from the homeowner, a replacement cost can be determined. It becomes more complicated if there have been modifications to the home.
Sometimes there are other structures, like a detached garage, fence or gazebo. They may be described in the records mentioned above. If not, the homeowner will hopefully have information that can be used to determine how much it will cost to rebuild them.
Personal property losses may be a real challenge for most homeowners, especially if the home is burnt to the ground. The starting point of a personal property claim is usually asking the homeowner to list all of their property. If you take a minute to think about all of the property you own, every appliance, every piece of furniture, every article of clothing, every towel and linen, everything hanging on your walls, and in your closets and storage areas, most people are going to have a tough time coming up with a complete list. Most people also keep all of their records at home, and so there are likely no receipts or other documents like warranties or other literature to help create a list. Some sources of information include banks, credit unions and credit card companies that may have records of purchases. With big ticket items, there may be store records or warranty registrations available from the retailer. Sometimes friends or relatives may have photos of a holiday or birthday party at the home with personal property visible in the background. They may also be able to provide a statement to the insurance company regarding your belongings.
Homeowner's policies also cover additional living expenses when you can't live in your home due to covered loss. This can include food, lodging, and other expenses over and above what you normally would spend if you had not suffered a loss.
Fortunately, total fire losses like this terrible tragedy in California are pretty unusual. We do recommend consumers keep an inventory of their personal property so they're prepared in the event of a loss or theft. Photographs or video tape of each room in your house or apartment can be helpful as well. The inventory and other proofs should be kept somewhere away from the premises and updated regularly.
We also have a form on our website that may help you create an inventory: http://insurance.oregon.gov/consumer/homeowner-renter/homeowner-tip-1a.html