Another catastrophe modeling firm has estimated California wildfire losses will go well above $1 billion, and the state's largest home insurer--State Farm--said it has already logged 2,000 claims and the number is expected to rise.

Meanwhile, there was divided opinion on the amount of claims litigation that could result once the flames are extinguished.

The latest modeling firm estimate came from Boston-based Air Worldwide Corp., which said insured losses were likely to exceed $1.5 billion.

There was also an estimate from Impact Forecasting LLC, a unit of Aon Corporation that insured losses would be between $1.2 billion and $1.6 billion.

Previously, Risk Management Solutions in Newark, Calif., said estimated damage could range from $900 million to $1.6 billion. Eqecat in Oakland, Calif., put out an estimate of a $1 billion loss that it said could go higher.

State Farm said of the claims it has received, nearly 500 of the homes involved are either completely destroyed or damaged to the point they are uninhabitable.

The number of claims should rise, the company said, as claims adjusters, local claims staff and agents make contact with policyholders who have evacuated their homes. At this point, the insurer said it has "hundreds" of people working on claims and has sent in five teams in mobile catastrophe vehicles.

Losses this year should impact more excess and surplus lines insurers than was the case in 2003, when California had a record wildfire season and $1.1 billion in losses, according to a founder of a risk assessment firm.

Dan Munson, vice president of sales and marketing for CDS Business Mapping, said he expects this result because after 2003, insurers tightened up their underbrush underwriting guidelines, no longer taking the agent's word for conditions, while ending exceptions.

Because the standard carriers tightened their underwriting, "the E&S market had to pick up the slack. This is why I think that they will see a larger share of the losses. I expect the losses to be $1 billion to $2 billion, and closer to the high side."

But because Santa Anna winds have flung embers and flames great distances, even companies that wouldn't write home coverage within a quarter mile of brush will be impacted, he said.

Mr. Munson took note of the lawsuits that developed in 2003 brought by homeowners that did not have adequate insurance to rebuild their homes, but said he does not expect a repeat because "most carriers have implemented replacement cost calculators, or improved the ones they already had, so I think that this won't be a big factor this time."

However, Ray Bourhis, a partner in a San Francisco law firm, said he doubts there will be less litigation, because insurers "write policies that nobody can understand," and in their intense pursuit of profits will make low-ball claims offers.

Among issues likely to emerge, he said, are policies that underinsure the value of the home, statute-of-limitation questions when suits are eventually filed, and estimates of damage. Mr. Bourhis has established a Web site (www.insuranceconsumers.com) that gives policyholders suggestions on how to deal with insurers and warns them to be wary.

He said insurers frequently provide estimates for replacement costs that are far too low.

Gene Weisberg, a Marina Del Rey, Calif., attorney who represents insurers, said by e-mail he believed insurance adequacy should be less of an issue this year.

Insurers and brokers, as well as policyholders, "have learned from past experience regarding the need to insure property to value. Estimating programs have improved as well. Because of the fires four years ago, policyholders have increased awareness of the importance of buying adequate insurance limits, and the need to periodically review those limits."

According to an estimate from California Insurance Commissioner Steve Poizner, perhaps a quarter of the homes destroyed by fire are underinsured.

Dennis Jay, director of the Coalition Against Insurance Fraud in Washington, warned against another possible source of legal action.

"Though most homeowners will make honest and accurate claims, some inevitably will try to make up for lack of proper insurance by trying to slip padded claims through insurers," he wrote in the organization's online publication.

This article updated Oct. 29 10:00 a.m.

Special Reports /

Calif. Fire Losses Mount; State Farm Tallies 2,000-Plus Claims

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