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.
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.
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.
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.
Beyond a standard policy, several endorsements and supplemental coverages deserve attention:
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:
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.
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.
[1] California Dep’t of Ins., Insurance Commissioner Ricardo Lara Launches Investigation into State Farm’s Handling of Wildfire Claims (June 12, 2025), https://www.insurance.ca.gov/0400-news/0100-press-releases/2025/release043-2025.cfm [2] University of Colorado Boulder, Study Reveals Widespread Underinsurance Among Homeowners, Exposing Risk in the Wake of Devastating Wildfires (Jan. 9, 2025), https://www.colorado.edu/today/2025/01/09/study-reveals-widespread-underinsurance-among-homeowners-exposing-risk-wake-devastatingLevin Sitcoff is proud to share that partner Susan Minamizono has been named Board Chair…
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