As flames incinerated whole blocks in Southern California, fierce winds pushed dark, speckled ash through Rossana Valverde’s door frames, windows and vents. Her home stood a short drive from the worst destruction caused by January’s Eaton Fire, but she had gotten lucky: Apart from a singed tree, her property appeared unscathed.

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Yet the acrid stench in the bungalow she shared with her husband suggested otherwise. The remains of other people’s homes now permeated hers.

Valverde filed a claim with her insurer, State Farm General, and hired a contractor to write an estimate for the smoke damage to her Pasadena home, which overlooked Eaton Canyon near the border of the devastated community of Altadena. The document she received several weeks later listed the cleaning and repairs deemed necessary before she could return.

But as she read through it, she realized the document was not one State Farm had intended her to see.

Starting on the first page, someone working on behalf of State Farm had covered her contractor’s estimate with bright red text. “OS” was pasted on top of scores of line items, which meant “over scoped” — a charge State Farm didn’t intend to cover. “NW” indicated the work was “not warranted.”

Her original repair estimate, the one her contractor had written, totaled $69,000. The red markings spiked more than 150 line items her contractor had recommended — and sliced her estimated payout nearly in half.

These revisions would have left Valverde’s home still dusted with heavy metals and reeking of smoke, said restoration contractors who reviewed her marked-up estimate at the Chronicle’s request. Valverde said they made no logical sense.

“Am I reading it correctly?” she said she wondered. “They’re saying we’ll clean this wall, but not this wall, and they’re saying we’ll clean the top of the door and the door hardware, but not the door?”

The red text on Valverde’s estimate offered a peek into a hidden system that insurance companies use to reduce what they must spend to fix damage from disasters.

The promise behind home insurance is that, in the event of an accident or catastrophic event, policyholders will receive enough to get back into a home of similar kind and quality up to their policy limits. In California, policies must maintain standards of coverage and uniformity regulated by state authorities.

But unbeknownst to most homeowners, State Farm and other companies deploy powerful sets of cost-cutting instructions that betray this commitment, a Chronicle investigation found.

These restrictions are spelled out in a patchwork of documents that state regulators do not routinely examine. When homeowners subpoena these records in court, insurers generally file them under protective orders, keeping them concealed from the public by characterizing them as proprietary.

Reporters obtained hundreds of records outlining these behind-the-scenes rules for nearly every major insurance company in California, showing how they handle damage from wildfires as well as burst pipes and hailstorms.

The practices laid out in these documents — which are used in the vast majority of property insurance claims across the U.S. — have transformed how insurers treat policyholders after disasters, the Chronicle found, often turning the experience of filing a claim into an opaque and adversarial process that forces families to battle for months to get their losses fully covered, if they ever succeed.

State Farm and Farmers Insurance Group — the state’s two largest home insurers — declined to answer detailed written questions or comment on specific policyholders’ cases, saying each claim is evaluated on an individual basis. Liberty Mutual said it strives to pay claims accurately and quickly to take care of its policyholders.

“Every claim is carefully reviewed based on the policy, the facts, and the damages involved,” State Farm spokesperson Sevag Sarkissian wrote in an email. “We also ask our service providers to act quickly so customers can recover as soon as possible.”

Together, the Eaton and Palisades wildfires in Los Angeles County were the costliest in recorded history, causing an estimated $40 billion in losses while killing 31 people and destroying more than 16,000 homes and other structures. Claims filed for “total losses” usually trigger a large payout at or near the policyholder’s coverage limit.

But this tally only counts damage from flames and heat, not from smoke. Thousands of homes still standing in the burn zone were likely contaminated by lead, asbestos and other chemicals from soot and ash.

It’s these homes that have been subjected most intensely to insurers’ in-house claims-editing rules, experts said, because their damage is less obvious. Repairs become subject to debate and interpretation as insurers seek to lower their costs across thousands of smaller claims.

In a September survey commissioned by the Department of Angels, a fire survivor advocacy group, more than a third of Los Angeles County survivors with smoke-damaged homes said their insurer had given them a payout estimate that they understood to be “far below the actual cost” of repair or rebuilding. The vast majority said they faced challenges getting claims paid.

Click here to read the full article in the SF Chronicle