SB 365 rewrites how residential property insurers handle policies after a total loss and in the wake of wildfires. It requires insurers to consult with insureds and either adjust limits/endorsements or issue supplemental coverage at renewal when the primary structure is a total loss; it bars cancellation during rebuilding except for statutorily enumerated reasons; and it prohibits cancellations or nonrenewals for properties in ZIP Codes within or adjacent to a wildfire perimeter for one year after a gubernatorial emergency declaration.
The bill also creates a recurring reporting duty for the Department of Forestry and Fire Protection to deliver ZIP Code perimeter data and for the department to report annually to the Legislature on whether the one‑year prohibition shifted policyholders into the California FAIR Plan. The measure contains targeted exceptions (willful or gross negligence, post‑disaster risk changes making the property uninsurable, unrelated losses) and special rules for earthquake policies and the California Earthquake Authority.
At a Glance
What It Does
Requires insurers to adjust coverages and premiums at renewal after a total loss, prohibits cancellations during rebuilding except under narrow statutory grounds, and bars cancellations/nonrenewals for properties in ZIP Codes within or adjacent to a fire perimeter for one year after a declared state of emergency. It also mandates annual reporting to the Legislature on cancellations and FAIR Plan uptake in affected ZIP Codes.
Who It Affects
Homeowners who suffer a total loss, residential property insurers (including participating insurers and the California Earthquake Authority), the California Department of Forestry and Fire Protection, the Office of Emergency Services, and the Insurance Commissioner. The California FAIR Plan Association is a focal point of the reporting requirements.
Why It Matters
The bill shifts short‑term risk allocation by constraining insurers’ ability to exit recently burned communities, forces insurer‑insured consultation on coverage while rebuilding, and creates data requirements designed to show whether the restriction drives people into the FAIR Plan — information that could influence future market and regulatory responses.
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What This Bill Actually Does
SB 365 creates two linked protections for homeowners after catastrophic fires and for those who suffer a total loss to their primary insured dwelling. First, when a home is a total loss and reconstruction is incomplete at the time of renewal, the bill requires the insurer to consult with the insured about needed limits and coverages and to respond by adjusting limits, issuing an additional policy, or placing an endorsement that reflects the insured’s changed exposure; the insurer must also change the premium to match any coverage change.
The bill forbids insurers from canceling coverage while a reconstruction is ongoing, except for the narrow statutory reasons already in law.
Second, for ZIP Codes that lie within or adjacent to a fire perimeter as determined by CAL FIRE (in consultation with OES), SB 365 forbids insurers from cancelling or refusing to renew any residential property policy for one year after a declared state of emergency, based solely on the fact the property is located in an area where wildfire has occurred. That one‑year protection applies to all policies in force at the time of the emergency declaration but contains explicit carve‑outs for willful or gross negligence, unrelated subsequent losses that render the risk ineligible, and physical or risk changes that make the property uninsurable.The bill also layers on administrative mechanics: CAL FIRE must provide the Insurance Commissioner with perimeter data sufficient to designate ZIP Codes covered by the one‑year prohibition, and the commissioner will issue a bulletin to insurers identifying those ZIP Codes.
The Department must begin annual reporting to the Legislature (first report due January 1, 2027) on cancellation and nonrenewal patterns in ZIP Codes adjacent to, or whose one‑year protections have expired, including metrics on whether policyholders migrated to the FAIR Plan. Finally, SB 365 includes special treatment for earthquake coverage: the California Earthquake Authority and participating insurers may defer initial implementation of these provisions up to a date specified in the text, and the CEA is directed to adopt consumer‑accommodating procedures within its statutory limits.
The Five Things You Need to Know
After a total loss to the primary dwelling, the insurer must consult with the insured at or before renewal and then adjust limits/coverages, issue an additional policy, or attach an endorsement that reflects the changed exposure — and must change the premium to match that coverage change.
Insurers cannot cancel coverage while the primary structure is being rebuilt except under the narrow grounds enumerated in California Insurance Code Section 676 (subdivisions (a)–(e)), and a damaged condition from the total loss cannot be the sole basis for cancellation under subdivision (e).
For any ZIP Code within or adjacent to the wildfire perimeter (as mapped by CAL FIRE in consultation with OES), the bill bars cancellations and nonrenewals for one year after a declared state of emergency, applied to all residential policies in force at the time of the declaration.
The bill lists explicit exceptions to the one‑year prohibition: willful or grossly negligent acts or omissions by the insured or their representatives, unrelated subsequent losses that render the risk ineligible for renewal, and physical or risk changes to the property that make it uninsurable.
Beginning January 1, 2027, and annually thereafter, the Department of Forestry and Fire Protection must report to the Legislature on the effect of the one‑year prohibition — including counts of cancellations/nonrenewals in adjacent ZIP Codes, FAIR Plan uptake, new FAIR Plan policies during and after the prohibition, and comparative FAIR Plan assessments.
Section-by-Section Breakdown
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Post‑total‑loss renewal: consultation and coverage adjustments
This provision makes consultation mandatory at or before renewal when the primary insured structure suffered a total loss and reconstruction isn’t finished. Practically, insurers must propose one of three responses — adjust limits/coverages, write a supplemental policy, or attach an endorsement — and must recalibrate premium to the changed exposure. For compliance officers, the key operational duties are documenting the ‘consultation’ and the basis for the coverage change, and ensuring premium adjustments are transparent and consistent with filed rates and underwriting rules.
No cancellations while rebuilding (with statutory exceptions)
Insurers may not cancel a policy while the primary structure is under reconstruction except for the reasons already listed in Section 676(a)–(e) (e.g., fraud, nonpayment, material misrepresentation). The statute also bars using the damaged condition from the total loss as the sole ground for cancellation under subdivision (e). This rises to a legal protection for rebuilding homeowners but requires insurers to rely on documented, non‑discriminatory reasons if they terminate a policy during rebuild.
Guaranteed short‑term renewals after disaster‑caused total loss
If the total loss was caused by a disaster (per Civil Code reference), not by insured negligence, and there have been no subsequent losses tied to changes making the property uninsurable, the insurer must offer renewal for at least the next two annual renewal periods (minimum 24 months from the loss). That creates a two‑year stability window for insureds after disaster losses, subject to proof the loss was disaster‑related and no new disqualifying risks emerged.
Special rules for earthquake policies and the California Earthquake Authority
The bill permits the California Earthquake Authority and participating insurers to defer initial implementation of these provisions for residential earthquake insurance until a date specified in the text; it also directs participating insurers to perform the required consultation on limits and coverages while allowing the CEA to adopt procedures that reasonably accommodate consumers within the statutory limitations of the authority’s policy scope. Administering these carve‑outs will require coordination between the CEA, participating insurers, and the Commissioner to align consumer protections with the CEA’s statutory restrictions on coverage types and limits.
One‑year ban on cancellations/nonrenewals in ZIP Codes near the fire perimeter and exceptions
Subdivision (b) prohibits insurers from cancelling or refusing to renew residential policies for properties in ZIP Codes within or adjacent to the fire perimeter for one year after a declared state of emergency, provided cancellation is based solely on the fact the property is in an area where wildfire occurred. CAL FIRE, with OES input, supplies perimeter data to the Insurance Commissioner, who issues a bulletin identifying covered ZIP Codes. Subdivision (c) enumerates exceptions — willful or gross negligence by the insured or representatives, unrelated subsequent losses that collectively render the risk ineligible, and physical or risk changes making the property uninsurable — which insurers can assert to escape the prohibition.
Annual reporting and FAIR Plan impact analysis
The Department of Forestry and Fire Protection must report annually to the Legislature (first report due January 1, 2027) on how the one‑year prohibition affected cancellations and nonrenewals in adjacent ZIP Codes and ZIP Codes whose one‑year period expired. The report must include counts of cancelled/nonrenewed policies, measures of whether policyholders found coverage outside the FAIR Plan or through the FAIR Plan, the number of new FAIR Plan policies during and after the prohibition, and a comparative assessment of FAIR Plan uptake before, during, and after the prohibition. The statutory cross‑references in the text are messy, but the practical effect is to require granular, ZIP Code‑level monitoring of market shifts triggered by the protection.
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Every bill creates winners and losers. Here's who stands to gain and who bears the cost.
Who Benefits
- Homeowners whose primary dwelling sustains a disaster‑related total loss — they gain a two‑year renewal offer and protection against cancellation while rebuilding, and guaranteed insurer consultation about appropriate limits and endorsements.
- Residents of ZIP Codes within or adjacent to a wildfire perimeter declared a state of emergency — they receive a one‑year moratorium on cancellations and nonrenewals for policies in force at the time of the declaration, reducing short‑term displacement into residual markets.
- Consumer advocates and local governments — the reporting requirements create data to monitor market displacement to the California FAIR Plan and to build evidence for further regulatory or legislative changes.
Who Bears the Cost
- Insurers writing residential property coverage — they must maintain coverage for rebuilding properties and for policies in affected ZIP Codes for a defined period, document consultations, absorb potential adverse selection, and comply with new procedural and premium‑adjustment requirements.
- The California FAIR Plan Association — the measure explicitly asks whether the prohibition shifted new business to the FAIR Plan, and the Association may see increased enrollments and administrative churn as a result.
- State agencies and regulators (CAL FIRE, OES, Insurance Commissioner) — CAL FIRE must produce perimeter data suitable for ZIP Code mapping and report annually to the Legislature, and the Commissioner must issue bulletins and potentially enforce the new consultation and noncancellation rules, creating workload without an appropriation in the text.
Key Issues
The Core Tension
The central dilemma is straightforward: protecting recently burned homeowners from losing insurance and being forced into the FAIR Plan supports recovery and social stability, but imposing near‑term noncancellation obligations exposes insurers to concentrated, post‑disaster risk and adverse selection—potentially raising premiums, narrowing market capacity, or driving insurers to tighten underwriting in nearby areas. The bill chooses homeowner stability at the potential cost of insurer market functioning; the long‑term effect depends on how precisely regulators implement consultation, mapping, and reporting rules to limit unintended market distortions.
SB 365 balances homeowner stability against insurer underwriting discipline, but it leaves several operational questions unresolved. The bill requires insurers to ‘consult’ with insureds and then ‘adjust’ coverage and premium, yet it does not define what counts as meaningful consultation, what documentation suffices, or how regulators will audit whether insurers have offered appropriate coverage options rather than de facto leaving gaps.
Similarly, the statute bars cancellation during rebuilding but does not define when reconstruction is sufficiently complete to restore the insurer’s ordinary cancellation rights, which could generate disputes over timing and proof of completion.
The ZIP Code‑level prohibition raises mapping and perimeter issues. CAL FIRE is tasked with producing fire perimeter data ‘sufficient’ for the commissioner to identify affected ZIP Codes, but wildfire perimeters and ZIP Code boundaries rarely align neatly; ZIP Codes that are geographically large or contain mixed risk profiles could produce uneven application of the moratorium and invite forum shopping or shifting of exposures across neighboring ZIP Codes.
The reporting regime aims to reveal whether the ban moves insureds into the FAIR Plan, but the statutory text contains duplications and drafting errors that could complicate consistent data collection, and it places a nontrivial analytics burden on an agency whose primary mission is fire suppression rather than insurance market surveillance.
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