Colorado Wildfire Victims Face Daunting Insurance Situation

Residents and business owners who lost everything in the Marshall Fire face a daunting insurance situation in which skyrocketing property values and supply-chain shortages make it unlikely that many home or business insurance policies will cover the full cost of rebuilding.

"Statewide, we've had all these increases in property values, and very often the policies don't keep up," said Brad Levin, partner at the Denver law firm Levin Sitcoff Waneka. "It's a real problem."

Levin and Nelson Waneka, also a partner at Levin Sitcoff Waneka, represent policyholders against insurance companies. Their experience includes representing people who lost their homes in the October 2020 East Troublesome Fire, the second-largest fire in Colorado's recorded history. They spoke to BizWest on Friday about the difficulties rebuilding homeowners and business people face when dealing with insurance companies.

"I feel confident in saying the vast majority of Coloradans are underinsured for their homes," Waneka said. "It's even more than just property values. The cost of construction has increased even more."

In the Boulder area, average median sales prices are hovering near the all-time-highs that were set earlier this year. And the construction industry has been suffering from shortages of everything from steel to lumber to asphalt to labor.

"The cost of rebuilding a home goes up so much more than inflation," Waneka said. "It's even more acute in fire-danger areas. All the contractors in the area are going to be inundated … Then you have the supply-chain issues from COVID which are still around and probably going to get worse. That's like the levy breaking after a hurricane. That's the only way I can describe it when it comes to the cost of rebuilding."

Levin said that some policies may come with risers for inflation, but that those often don't match the actual inflation rate. Oftentimes, homeowners and businesspeople will purchase the most-affordable policy, then not update their policy limits as it goes unused for years. And insurance companies and agents won't always advise policyholders when they're covered for less than the cost to rebuild.

"For these big catastrophic losses with so many people, they often find out they cannot rebuild the home they thought they could," Waneka said.

Another issue that has appeared in the aftermath of wildfires is insurance companies refusing to underwrite fire damage policies in high-danger areas. That's happening in numerous mountain communities in California that were affected by wildfires, and it's beginning to happen in Colorado, also.

"I think we're already seeing that," Levin said. "We're hearing about that in Grand County. People are having tremendous problems finding affordable insurance. Companies are saying there are certain zones they just won't write."

Waneka added that he had a very difficult time finding affordable insurance for his own home in the mountains.

Louisville and Superior residents hopefully will not have to deal with that, Levin said. The problem has thus far been limited to forested mountain communities.

"This appears to be an incredibly unusual circumstance," Levin said. "Hopefully, Louisville and Superior won't have the same kind of repetitive problem."

For homeowners and businesspeople who suffered a loss during the Marshall Fire, Levin and Waneka said that, as hard as it may be, it's important to not be intimidated by their insurance companies.

"It can be a very daunting experience at a time when they're down as it is," Levin said. "It becomes a very arduous process. Can you imagine having to make a list of every single thing of personal property that you have? Very few people have that kind of preparation. If you're making a claim, stick with it. Don't just accept what the insurance company says."

Added Waneka: "Keep at it. Don't lose faith. Keep going and put everything in writing and don't be afraid to push back if you disagree with something the insurance company says."

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