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It's The Wild, Wild West! -California Insurance Issues

Thursday, December 28, 2023 2:31 PM | Anonymous


California’s Insurance Issues

The California Association of Mortgage Professionals held a seminar on November 7, 2023 regarding California insurance issues. EIC is happy to share notes from that webinar and many conversations with insurance agents and escrow professionals throughout the state:

  1. Homeowners - It is imperative that you pay attention to the mail from your insurance companies. If existing insurance premiums are not paid on time, companies are canceling or increasing the rates astronomically on lapsed insurance.

  2. California Fair Plan - Is this a viable choice? In some areas, plans will increase by 40% in December of 2023. Fair Plan historically only provided fire insurance, leaving other insurance coverages  like liability, personal property, etc. to be covered elsewhere. A lawsuit between DOI and Fair Plan was upheld and Fair Plan may now need to look into providing more “comprehensive homeowner’s insurance policy options.  Furthermore, our insurance agents state that due to a new system installed at this very inauspicious time, Fair Plan must “approve the insurance agent submitting the application first,” before they will consider the application for new insurance. For further news, please contact your insurance agent. A reminder that it may take 10-15 days OR MORE after application is made for approval and issuance.

  3. Forced placed insurance - this insurance is placed by Lenders when Borrowers do not provide their own coverages. They only protect the Lenders.

  4. Restrictions - many companies are looking at the following:
    1. Age of structure
    2. Type of roof
    3. Evidence of whole house leak detection kit installed
    4. Automatic gas shut off valve installed
    5. Contractor’s statement that all gas, electrical water systems have been updated
    6. Claims history of property
    7. Insurance claims history of potential insured
  5. Amount of coverage - companies may limit the amount of structure coverage. It may be difficult to find coverage for the amount needed for properties with a high value. May need to go to a surplus line for additional coverage.

  6. HOA Master insurance - Do not allow insurance to lapse! Insurance companies may not renew or will allow renewal at a very unaffordable rate. Do give a copy of coverage to Lender for review early in the application process. Lenders may require additional HO3 “walls in” coverage (structure insurance). HO6 and common area policies may not be sufficient

  7. HOA condo unit insurance - some companies are not insuring condo units at all. Farmers Insurance states that they will only insure owner-occupied single family homes, not condos.

  8. Bundled insurance - some companies will only give you insurance if you will allow them to insure all of your assets, including auto, RV, boat, etc.

  9. Other types of insurance - be aware of the types of insurance a company will offer.  Some will not offer tenant, landlord, or condo insurance. Commercial properties are separate.

  10. Changing the insured names - changing insured names may trigger a decline to continue coverage. Example - from individuals to their LLC or vice versa.

  11. Insurance companies have had instances of canceling existing coverage if they ascertain that the property is listed as vacant in the multiple listing services.

  12. Rejection/return of premium payment - certain insurance companies have cashed an escrow check for payment of premium and then returned the amount to escrow after closing, without notification or explanation to the client. Clients have to immediately find alternate insurance, maybe at a much higher cost, possibly affecting their insurance impound amount. Rejection may be due to any of the reasons stated above.


  1. Potential Buyers or existing Borrowers need to immediately research coverage (when opening the transaction).

  2. Ask the Buyer/Borrower to have his preferred insurance company research and run the claims history for the property immediately. They may also look at Buyer/Borrower’s past history on claims filings. What you don’t know may prevent you from getting the necessary insurance.

  3. PAY for the binder coverage in advance of closing. Insurance companies are giving a 30-45 day time period to allow for closing and occupancy. However, companies may not be amenable to changing the effective date, so be careful when you ask for any changes.

  4. Buyer/Borrower to obtain Lender insurance underwriting requirements immediately upon opening escrow and convey to potential insurance brokers. This includes Condo unit HO6 insurance.

  5. Obtain Lender approval (or disapproval) of HOA Master insurance policy early in the transaction. Make sure they are not asking for Buyer/Borrower to obtain more structure coverage (HO3).

  6. Borrowers with existing insurance - do not change title and vesting unless absolutely necessary. Do not give insurance companies a reason to cancel.

  7. Borrowers with existing insurance - watch your mail! Do not miss an insurance renewal notice. Insurance companies are not renewing insurance that lapsed because the insured forgot to pay.

  8. To better service your clients, Escrow Holder should consider sending the payment by overnight/tracked mail service to the insurance company at closing.

  9. Escrow Holder should consider checking their outstanding check list weekly for uncashed insurance checks. Alert your client immediately.

As always, ask your client to check with their insurance agent for questions and particular concerns.

Do you have stories to share? Please forward them to Admin@EscrowInstitute.org.

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