IS YOUR HOME COVERED? WHAT COLORADO HOMEOWNERS NEED TO KNOW BEFORE FIRE SEASON AND WHY YOU NEED TO REVIEW YOUR COVERAGE NOW

Every summer in Colorado, the fire danger index climbs. And every year, in the wake of the fires that do ignite, homeowners discover something devastating: the policy they have paid premiums on for years will not come close to covering what it actually costs to rebuild.

This is not an accident. It is a documented, recurring pattern. We have seen it in our own caseload following the 2021 Marshall Fire, which destroyed more than 1,000 homes in Boulder County. We are watching it unfold again in California, where the state Department of Insurance publicly accused State Farm, the largest homeowners insurer in the United States, of violating the law in its handling of 2025 Palisades and Eaton fire claims. [1] Colorado homeowners face the same risks. Here is what you need to understand before fire season intensifies.

The Underinsurance Epidemic

A January 2025 study by researchers at the University of Colorado Boulder and the University of Wisconsin-Madison provides the most precise picture yet of the extent of this problem. Analyzing insurance contracts from 24 insurers and nearly 5,000 policyholders who filed claims after the Marshall Fire, the researchers found that 74 percent of homeowners were underinsured. Of those, 36 percent were severely underinsured, meaning their coverage limits were less than 75 percent of their home’s actual replacement cost. As study co-author and Leeds School of Business finance professor Tony Cookson put it, “[I]f it costs $1 million to rebuild, that’s $250,000 people have to come up with. Most households don’t have ready access to those types of resources.” The study also found that underinsured homeowners were 25 percent less likely to apply for rebuilding permits within a year — a finding with consequences not just for individual families but for entire communities dependent on reconstruction to recover economically. These were not careless homeowners. The researchers found that underinsurance was not caused by homeowners neglecting to update their policies. It was, in significant part, caused by the insurers themselves. [2]

The CU Boulder study points directly at insurers as a primary driver of this gap. Coverage levels varied widely depending on which insurer a homeowner chose, even for similar properties — and insurers have a financial incentive to compete on premiums by recommending lower coverage limits. “Which insurance company you go with is pivotal for how much coverage you end up with,” Cookson said. [2] A significant part of the mechanism is the software insurers use to generate rebuild estimates. The dominant tools, such as Verisk 360Value and CoreLogic platforms, have a documented history of underestimating reconstruction costs, failing to account for local labor markets, demand surges when an entire region rebuilds simultaneously, building code compliance costs, and post-pandemic construction inflation. In our practice, we have reviewed Marshall Fire claim files in which insurer-generated estimates were less than half of what licensed Colorado contractors quoted for the same scope of work.

Understanding Your Policy: Key Terms and Coverage Gaps

A standard homeowners policy contains several distinct components. Knowing what they mean is the foundation of knowing whether you are adequately protected.

Coverage A: Dwelling

Coverage A is intended to cover the cost to demolish, remove debris from, and rebuild your home from the foundation up at current local construction prices. It is not your home’s market value, which includes land. In high-demand Colorado markets, market value may exceed true reconstruction cost. Ideally, your Coverage A limit should reflect an independent, current rebuild estimate, not what an insurer’s software generated when you first bought the policy.

Policies pay either “replacement cost” value (RCV), the cost generated by the insurer’s cost estimating tool to rebuild or replace with new materials, or actual cash value (ACV), which subtracts depreciation. On an older home or aging roof, the depreciation deduction can be enormous. Check your declarations page. If you’re concerned about being underinsured, ask for extended replacement cost coverage (typically 25 to 50 percent above your Coverage A limit) or a guaranteed replacement cost policy (which pays the full rebuild cost regardless of the stated limit).

Coverage B: Other Structures

The coverage amount for Other Structures is typically a percentage of Coverage A.  Other structures include detached garages, sheds, fences, walkways, and other structures that are not attached to your home.

Coverage C: Personal Property/Contents

Coverage C extends protection to the contents within your home. Discuss with your insurance agent or broker if you require additional coverage or endorsements to protect high-value items like jewelry, art, antiques, or computers.

Additional Living Expenses (Coverage D) and Ordinance/Law Coverage

Coverage D pays for temporary housing and related costs while your home is being rebuilt. Marshall Fire survivors found that rebuild timelines stretched to two and three years, far beyond what many Coverage D limits contemplated.

Separately, ordinance or law coverage pays for the additional cost of complying with current building codes during a rebuild. Many standard policies cap this at 10 percent of the Coverage A limit, but it would be prudent to ask if a higher percentage is available, especially for older homes. In municipalities with building codes mandating fire-resistant materials and construction pursuant to the International Wildland-Urban Interface Code, that sublimit frequently falls short.

What the Industry Prefers You Not Know

Insurance companies have a financial incentive to minimize claim payouts. Colorado law directly addresses this: under C.R.S. sections 10-3-1115 and 10-3-1116, an insurer that unreasonably delays or denies a covered claim is liable for twice the covered benefit, plus attorney’s fees and costs. These statutes exist because the legislature recognized the power imbalance between insurers and individual policyholders.

In our experience handling Colorado fire claims, we have seen insurers use preferred contractors to produce low reconstruction estimates, and present early settlement offers to financially stressed, unrepresented homeowners well below full coverage. Accepting one of those offers without independent review is one of the most costly mistakes a fire survivor can make.

Additional Coverage Worth Considering

Beyond a standard policy, several endorsements and supplemental coverages deserve attention:

• Inflation guard endorsement: Automatically adjusts your Coverage A limit annually to track construction cost inflation. This is critical given the 30-40% rise in residential construction costs since 2020. Many insurers automatically incorporate an inflation guard in their policies without an endorsement.
• Replacement cost for personal property: Converts Coverage C from actual cash value (ACV) to replacement cost value (RCV), which can mean tens of thousands of dollars in a total loss.
• Scheduled personal property endorsement: Standard Insurance Services Office (ISO) policy forms cap jewelry coverage at $1,500 and impose similar sublimits on art, instruments, and collectibles. A scheduled endorsement provides individually appraised coverage.
• Water and sewer backup: seek maximum limits available under the policy.
• Umbrella policy: A personal umbrella policy sits above your homeowners and auto liability limits. While it does not directly address fire loss to your home, it protects against liability claims that could arise from fire-related incidents and provides an important additional layer of coverage at relatively modest cost.

What to Do Before Fire Season

You do not have to wait until a fire happens to protect yourself. Here is what every Colorado homeowner should do before fire season intensifies:

• Get an independent reconstruction cost estimate from a licensed Colorado contractor or certified public adjuster. Compare it to your Coverage A limit.
• Pull your declarations page and confirm your policy limits, and whether you have extended or guaranteed replacement cost coverage.
• Shop on coverage, not just premiums. The CU Boulder study found wide variation in coverage levels across insurers for identical properties. When renewing or shopping for coverage, ask each insurer for its recommended Coverage A limit and compare those figures — not just the premium. An insurer offering a lower premium by recommending a lower coverage limit is not a bargain.
• Create a home inventory. Walk through your home on video, capturing every room. Store it off-premises in a cloud service or safe deposit box. A detailed inventory can materially change the outcome of a contents claim.
• Do not accept a first settlement offer without review. If you suffer a loss, your insurer’s initial offer is a starting point. You have the right to dispute it, and we recommend that you obtain multiple bids from contractors. Consult an attorney before you sign anything.

Know Your Rights. Know Who Is on Your Side.

Levin Sitcoff has spent years representing Colorado policyholders in coverage disputes and bad faith litigation against insurance companies. We know the tactics insurers use after major fire losses, and we know how to challenge them. The best outcome is the one where your coverage was adequate and your insurer treated you fairly from the start. We hope this article helps you get there. If it does not, we are here.

Contact our office for a consultation regarding your coverage or your claim.

About the Author

Susan Minamizono focuses her practice on insurance coverage disputes, bad faith litigation, and high-value personal injury claims. She is recognized by Colorado Super Lawyers for her work in insurance coverage, as well as being honored as one of the Top 50 Women Lawyers in Colorado. Susan has also received the Colorado Trial Lawyers Association’s Consumer Protection Award. She has successfully challenged insurance coverage denials, secured high-value settlements for clients, and offered invaluable assistance as personal counsel to policyholders.