California has enacted a law that doubles the penalties insurers face for breaking claims-handling rules during a declared emergency, and that makes them pay restitution straight to policyholders. Senate Bill 876, called the Disaster Recovery Reform Act, was signed by Gov. Gavin Newsom and announced on September 28 by Insurance Commissioner Ricardo Lara, who sponsored it. Provisions begin January 1, 2027, with more following in 2028. The law targets the kind of dispute that followed the Los Angeles wildfires, when thousands of survivors complained to the state about how their claims were handled.
The author is Sen. Steve Padilla, a San Diego Democrat who chairs the Senate Insurance Committee. Lara said in the announcement: “No family who has lost everything should have to fight their insurance company to get the benefits they paid for.” Padilla said that when disaster strikes, families should not face a second disaster in the claims process. The department says its own review of more than 2,000 Los Angeles wildfire complaints has already produced $338 million in additional payments to policyholders.
The law reaches Californians who own or rent property with an insurance policy and who may someday file a claim after a fire or another declared emergency. Newsom’s legislative update dated September 27 lists the bill among those signed. Most of the new duties fall on insurers, but several are written to change what a policyholder sees at the start of a policy and in the weeks after a loss: a mandatory coverage offer, regularly updated rebuilding estimates and a fixed deadline for a status report when the adjuster changes.
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Doubled penalties and direct restitution
The penalty change applies only to declared emergencies. The Department of Insurance says violations of the state’s fair claims practices and settlement law committed during one carry doubled penalties. The release does not give the new dollar amounts. A summary of the law by the firm Clyde & Co puts civil penalties for unfair claims practices at up to $10,000 per act, or up to $20,000 if the violation is willful, during a declared emergency. Other trackers describe the penalty structure differently, so the department’s own rule-making will be the place to watch for the schedule insurers actually face.
Restitution is the second change. The new law requires insurance companies to pay restitution directly to policyholders when they engage in unfair claims settlement practices. That puts the remedy in the hands of the household that was shortchanged, not only the state. Clyde & Co describes the commissioner’s power as an order for direct restitution, which makes the Department of Insurance the body that decides when it is triggered.
What insurers must offer when a policy is written
The law also changes the sale. When a policy is written, insurers must make a mandatory offer of extended replacement cost coverage and of additional living expenses coverage, the part of a policy that pays for rent, food and other costs while a home is uninhabitable. The department says the offers are meant to provide adequate recovery funds. Clyde & Co reports that the extended replacement cost offer must be at least 50 percent above the dwelling limit, and that an insurer needs a documented declination if the customer refuses it.
Insurers must also provide regularly updated replacement cost estimates for new business and renewals. Amy Bach of United Policyholders, a consumer group, said SB 876 attacks both underinsurance and claim delays and called it a major step forward. The department’s release does not say how the updated estimates must be calculated, so the method will likely come from later regulation.
Adjuster reports, recovery plans and rebuilding codes
Several provisions deal with the weeks after a loss. Whenever a new adjuster is assigned to a claim, the insurer must send a status report within 15 days. The 15-day rule puts a clock on each handoff. Insurers must also write disaster recovery plans describing how they will handle claims and meet legal timelines, and the Department of Insurance reviews each plan before an emergency rather than after.
The Clyde & Co summary says admitted insurers must file those plans by April 1, 2028, and that insurers writing $20 million or more in California premiums must report residential claims data. It also says insurers must pay the actual cash value of a total loss within 30 days, then pay undisputed replacement cost within another 30. The department’s announcement does not list those deadlines, and the firm is the only source cited here for them.
Rebuilding costs get a rule of their own. Building code upgrade coverage will apply at the time of rebuild, not the time of loss. Building codes can change between a fire and the day construction starts, and the new timing means the upgrade coverage follows the code in force when the work is done.
Taking a claims dispute to the Department of Insurance
Until the new duties start, existing complaint channels remain the route for a disputed claim. The department lists a Consumer Hotline at 1-800-927-4357, with TTY users dialing 1-800-482-4833, and its website carries the complaint forms. The department says its review of more than 2,000 wildfire complaints is what produced the $338 million in added payments.
The department’s September 30 release says SB 876 phases in beginning January 1, 2027, with additional provisions on January 1, 2028. It is one of nine department-sponsored bills Newsom signed that week. Another, Assembly Bill 1795 by Assembly Member Mike Gipson, sets what the department calls the nation’s first science-based standards for investigating smoke damage, with provisions starting January 1, 2027 and later.
The open question is enforcement. Doubled penalties and direct restitution depend on the commissioner using them, and the department’s signing announcement names no dollar figure for either. The first emergency declared after the provisions take effect will show whether insurers face the larger penalties in practice, and whether the plans they file with the department change how fast claims move.
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This article was produced with AI assistance and reviewed by The Money Overview’s editorial team.
