WALDO CANYON FIRE: Disaster raises insurance issues [The Gazette, Colorado Springs, Colo.]

July 07--Tonya Hall had 15 minutes to grab what she could and get out.

After the Waldo Canyon fire swept over a ridge and tore through the Mountain Shadows neighborhood on June 26, Hall's home, along with 345 others, was gone in a matter of hours.

In the days after, tending to her business and reassembling the basic necessities of life took up her time, and it's only now that she's finally had the time to begin wrestling with the question of what comes next?

"You just kind of have to absorb this -- suddenly you're freed up of everything," Hall said. "You have nothing; everything I own now fits in the back of my vehicle. I still love her, my home; I miss her, I miss the happiness I had there."

Rebuilding is an option, but Hall said buying elsewhere in the city, or potentially moving somewhere else, are also on the table. Before she and her neighbors can make such decisions, though, they will have to work with their insurance companies to figure out how much their policies will cover.

"I think we just don't know yet; we're just starting to go over the paperwork today," Hall said. "It looks like it's going to be a cumbersome process."

Here's a look at some of the questions that Hall and others -- including those in Colorado Springs neighborhoods outside of Mountain Shadows -- will face in the weeks ahead as they deal with the aftermath of the fire:

Question: Will insurance companies continue to sell homeowner policies in neighborhoods west of Interstate 25, adjacent to forest lands?

Answer: Some insurance companies might have put a temporary halt on writing new policies in certain areas while the fire continued, said Marianne Goodland, public information officer for the Colorado Division of Insurance. However, insurance companies cannot cancel a policy or elect not to renew a policy after a federal disaster declaration; President Barack Obama declared areas affected by the Waldo Canyon and High Park fires disaster areas June 29. Nor can insurance companies deny writing new policies based solely on risk, unless your home is actually in an evacuation or pre-evacuation zone.

Insurance companies often temporarily suspend writing new policies if there's an "imminent danger," said Carole Walker, executive director of the Rocky Mountain Insurance Information Association, an industry trade group. However, Walker said she hasn't heard of any insurance companies that plan to stop writing policies in Colorado Springs because of the wildfire.

"We haven't heard of any insurance company that is restricting their growth or not writing in the foothills," she said.

Q: Will homeowner premiums increase as a result of the fire?

A: One disastrous fire and one busy wildfire season will not directly affect premiums, Walker said, since insurance companies base rates on a rolling, 20-year average for claims. As bad as the fires have been this year, she said, events like hailstorms may have a bigger impact on insurance rates over time; the June 6 hailstorm, for instance, caused more than $321 million in insured losses.

"That gives people some perspective, even looking at this particular wildfire season," Walker said.

Gary Stephenson, a State Farm Insurance spokesman, said rates aren't set to recoup claims from a single catastrophe. Rather, he said, rates are based on the cost of catastrophe claims averaged over many years, along with non-catastrophe claims and the estimated cost of future claims and the company's day-to-day business and operating expenses.

Roger Wildermuth, a spokesman for USAA, the financial services and insurance giant that has a regional office in Colorado Springs, said it's "way too early" to determine if rates will be affected as a result of the fire.

Q: Am I expected to continue to pay my mortgage even if my home has been destroyed?

A: Yes, but some lenders will work with homeowners to delay payments.

Bill Vogeney, executive vice president and chief lending officer for Springs-based Ent Federal Credit Union, said Ent is allowing owners of destroyed homes to defer their mortgages for a month or two while they work with their insurance companies on making claims and deciding what to do next on rebuilding and repairs.

"We've got the ability to do that and it makes sense," Vogeney said of the mortgage leniency. "The borrower has an awful lot to worry about and deal with, and it's one less thing to worry about."

Cindy Leonard, a senior vice president of Peoples Mortgage in Colorado Springs, said government-backed mortgages have built-in protections so that homeowners can delay payments in the event of a federally designated disaster. An additional safeguard: The reporting of missed monthly payments to the nation's big three credit reporting agencies also would be delayed, she said.

But homeowners should talk with their lenders to understand their options, she said.

Q: What's the process for homeowners filing a claim?

A: Generally speaking, call your insurance agent, go to the agent's office or visit the insurance company's website. The company will arrange for a claims representative to meet you at your property, where damage will be assessed and your homeowners coverage will be discussed. You'll receive an estimate that will assess the cost to repair or rebuild your home.

Homeowners will be a step ahead if they've inventoried possessions ahead of time; dealing with personal property can be the lengthiest part of the claims process, Goodland said. If homeowners took photos or videos before they evacuated, that's a great resource. If not, she said, ask friends or family members if they have any photos that might show some of the possessions.

"The insurance companies are sending in their very well trained professional adjusters," Goodland said. "For the most part, they will work very well with homeowners, but sometimes that does not happen."

If homeowners have problems with their insurance companies, Goodland encouraged them to call the Division of Insurance at 1-800-930-3745.

"We know that this is an extraordinary awful time for people, but the other thing we do ask is that they try to be patient," she said. "The insurance companies are getting inundated right now."

Through Friday, three major insurance carriers serving the Pikes Peak region -- State Farm, USAA and American Family Insurance -- reported residential claims totaling nearly 1,700 as a result of the Waldo Canyon fire. Those claims range from destroyed homes to smoke damage.

Homeowners also might be contacted by public adjusters, who offer to manage insurance claims and be an advocate for the policy holder, typically for a fee of 10 percent of the claim amount. Goodland said homeowners should check with the Division of Insurance to make sure the adjuster is licensed.

Q: What's covered by homeowners insurance?

A: Many cover the home's replacement cost -- rebuilding the same-sized home on the same site, using similar construction materials at today's prices. Some policies, however, cover the property's cash value, which is the home's replacement value minus depreciation. Policies also cover the contents inside the home -- but not the land on which the home sits.

Homeowners who were evacuated could be eligible for coverage of living expenses, such as hotels and meals, Stephenson said. Likewise, going forward, they could be eligible for additional living expenses as they are unable to occupy their homes while they are being rebuilt or repaired, he said.

Q: Are vehicles that were parked in a driveway or garage considered part of the homeowners' loss?

A: Cars and trucks are covered by motor vehicle policies, not homeowners insurance. If you have comprehensive coverage as part of your auto policy, which covers damage unrelated to collisions, then your vehicle is protected, said Stephenson and Wildermuth.

Q: When can a homeowner expect to receive a claim check?

A: Claims vary depending on issues with contractors, permits, lenders and other factors, Walker said. But homeowners will usually receive a settlement offer for smaller items such as smoke damage, repairs and vehicles within 30 days and a settlement offer for total losses within 60 to 90 days, she said. Settlements for personal possessions and living expenses typically come later.

"With catastrophic loss, it is more difficult to put a time frame on claim settlements since it can take longer to work through permitting, debris removal and construction," Walker said. "Some of that time frame depends on homeowners and how much time they need personally to work through the claims process. Residents should know that they have up to a year to reopen a claim and to begin the process, and accepting initial monies will not be a problem in working through their settlement."

Q: Once I receive my check, what can I do with it?

A: If you own your home free and clear, and don't have a mortgage, it's your decision whether to use the money to rebuild or repair your home.

Rebuilding on the site means using insurance proceeds to hire a builder. If the check doesn't cover the full amount of the home you want to build, you might need a construction loan or a mortgage.

If you decide you want to move, you still own the lot where your home once stood and would need to sell it, which brings other factors into play. If the foundation survived the fire, you might need to demolish it or dig it out before selling, and utility lines might have to be capped -- processes that can be expensive, said Leonard, of Peoples Mortgage. Then again, someone might be interested in buying the lot as is, she added.

Q: What do I do with my check if I have a mortgage?

A: Your lender is listed on your policy as a co-beneficiary. As such, when the insurance company issues a check, it will be made out to both homeowner and lender, and must be endorsed by both before its proceeds can be spent. Some homeowners might have more than one lender, since they've taken out second mortgages or home loans; all of those parties must endorse the insurance check.

Given the nature of the disaster, Leonard, of Peoples Mortgage, said she expects most lenders would be flexible on working with homeowners to decide what happens to the insurance check proceeds. Some homeowners will want to rebuild on the same site, Leonard said, but others might be uncomfortable staying there and will want to move.

If homeowners want to move, they must pay off their mortgage, Leonard said. If their insurance check doesn't cover the balance of their mortgage, they might have to sell their home lot or deed it to the lender to cover the difference, although deeding the lot could hurt their credit rating, she said. Talk to your lender to explore your options, she said.

In the case of homeowners who want to rebuild, they'll use their insurance check to pay for their new home, Leonard said. But their existing mortgage will remain intact -- same interest rate, same length of term, she said. So, while the home is being rebuilt, and after it's completed, homeowners will continue to make their monthly payments, Leonard said.

If the homeowner buys a house elsewhere and if the insurance payment is sufficient to pay off the mortgage, the homeowner would still own the lot. If that happens, Ent's Vogeney said, he expects developers to buy up that land and build new homes.

"The Mountain Shadows area has been a very desirable area (and) it will be a very desirable area again," he said. There is some potential for homeowners to come up short if they had second mortgages or home equity loans on their property, Vogeney said, although most lenders require insurance to cover the total amount that's owned on a home.

Q: Some people are now worried about heavy rains causing flooding in areas whose landscape has been scraped bare by the fire. Are there policies available?

A: Flood insurance is a separate policy written by the National Flood Insurance Program, part of the Federal Emergency Management Agency, Walker said.

"It may be worth it to look into separate flood coverage," she said. "Up to 25 percent of flood claims come from low-to-moderate risk areas. Certainly in a burn area, it's an increased risk."

Keep in mind, however, that there is a 30-day waiting period before homeowners can file a flood claim.

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