We currently have insurance through the California Fair Plan (CFP) to their allowed maximum amount of $20M. The premium is $76,609 per year, about what CW was previously paying to Farmers before CW was dropped. Our agent has recommended we budget for a 25% premium increase this next year (insurance renews April 1) and we have done so.
CFP has CW rated as a relatively low wildfire risk which is at odds with the industry, part of the reason we cannot get insurance elsewhere. We’ve recently completed roof repairs from 2022/23 Winter damage but there are still seven balconies that need repairs that are working their way through the building approval process and might be completed in November with favorable outcomes in the building department and good weather. The CFP policy claims that they will retroactively cancel our policy if there are repairs in process, though they knew of the repairs during underwriting. To our knowledge they have not done a site inspection, so the policy is at risk of canceling and underwriting changes on inspection. CFP is so backed up that any issues seem unlikely.
There are several perils that the Farmers policy covers that CFP does not cover, such as snow and ice damage (the entirety of the damage being repaired from 2022/23, about $1M). We are looking into difference-in-conditions (DIC) policies to cover those. However, insurers will not write a policy on property under repair (though the seven specific balconies might be excludable or the work might be completed), nor with Federal Pacific Electric electrical panels (fire hazards). We are working to replace the panels and just received an estimate of about $100K (which will come from reserves) and that even acquiring the equipment is about one year out. The Liberty Utilities infrastructure is out-of-date and the utility may need to upgrade the system just to be able to turn off the power to only portions of the buildings, otherwise it is what they would consider a major shutdown and a very serious issue for them. So we might not be able to even approach new insurance carriers for some time.
Some homeowners obtained HO3 policies to satisfy the lender (single-family residence rather than townhome). While this made the lender happy, this may not stand up should there be a loss. CW are townhomes with the homeowner owning the land under the unit, but the homeowner, by the CC&Rs, only owns and is only responsible for the finished wall surface in ward of the exterior walls (and some other details), more like a condo. The units are actually physically separate (a couple of inches apart) and only connected by the outside siding. The HOA is responsible for the unfinished drywall outward (subject to other details). Changing this to legally have the homeowner responsible for the entire structure would require a change in the CC&Rs, homeowner approval, all homeowner insurance policies to change and complicate how the buildings are maintained. Our legal council tells us that getting the wording right and enforceable might be unworkable.
Given the above, we are working to remove the blocks to getting insurance. We will be going to other contractors out of the basin to bid the FPE replacement work, but the work may be stalled by the utility. I’m in contact with our agent every few weeks, and the cost still seems to be in the $1M range and would involve many layers of insurance policies, but might still not be replacement cost insurance. We are not planning on going that route at this time.
While the operating budget has 9.2% available for all general contingencies (about $84K), this will only soften the amount the insurance companies will charge in the current market. We cannot even speculate what will happen next year with the costs.
