When an insured requests or inquires about a particular type or extent of insurance coverage, insurers may have some obligation to notify the potential insured of deficient limits. However, according to the California Court of Appeal in Vulk v. State Farm insurers and their agents do not have a legal obligation to ensure that a homeowner’s policy covers the full amount of a loss to property. Thus, a non-specific request for the best policy and a general assurance of full coverage does not qualify as an assurance of 100% replacement cost coverage.

The case arose from the 2014, Boles Fire that devastated the town of Weed, CA. The plaintiffs lost their homes as a result of that wildfire. They filed suit against State Farm alleging various claims, including breach of contract and negligence. They argued that their homes were insufficiently insured due to State Farm’s negligent failure to calculate reasonable policy limits for the full replacement costs of their homes. State Farm argued that there was no breach of a contractual duty of care, or the implied covenant of good faith because all benefits due under the plaintiffs’ policies were paid and the claims handled reasonably and in accordance with industry standards.

The court held that neither insurers nor their agents have a duty to inform an insured that additional insurance coverage may be needed on their property. The court also outlined specific exceptions to this general rule, but, determined none of them applied in Vulk. Consequently, the court’s decision protects insurers who take reasonable measures to inform and advise their clients as to their property insurance coverage.

Insurance companies and their agents do not have an affirmative duty to inform an insured of the likely need for them to increase policy limits to cover the replacement costs of their home. The court advised that there are three exceptions to this general rule:

1. the insurance agent misrepresents the nature, extent, or scope of coverage being offered or provided;
2. there is a request or inquiry by the insured for a particular type or extent of coverage; or
3. the agent assumes an additional duty by either express agreement or by holding themselves out as having expertise in a given field of insurance being sought by the insured.

In Vulk there was no evidence that the plaintiffs specifically requested that their insurance agent include full replacement cost coverage for their home before the fire took place or that they ever asked the agent whether their insurance coverage was adequate to replace their home in the event of a total loss. Plaintiffs never determined a current estimate of the cost to rebuild the home despite this being recommended by State Farm in its bi-annual disclosure form, which is designed to prevent underinsurance of an insured’s property.

The court concluded that the insureds’ requests that they be given “the best policy” and the agent’s assurances that he had “full coverage” were not enough to show that the agent breached any special duty of care owed the plaintiff, or that the words used resulted in a breach of contract or negligent act by the insurance agent.

The agent did not have a duty of care under these circumstances to ensure that the policy limits were adequate enough to cover the full costs of rebuilding the home after it was destroyed by the fire.

The Vulk decision provides clarity to insureds as to the insured’s requests that could trigger an insurer’s obligation to provide adequate coverage. Before requesting property insurance coverage, especially homeowners insurance, insureds should consult with their attorney and heed the advice set forth in Vulk to assure that they actually get full replacement cost insurance and the best policy.

The information presented is not intended to be, and does not constitute, “legal advice.” Because each situation varies, and only brief summary information is provided here, you should not use this information as a basis for action unless you have independently verified with your own counsel that it applies to your particular situation.