CA has it's upsides and both states have insurance issues.

You will have to gather more accurate operating costs (vacancy loss, taxes, utilities, insurance, mgmt fees, maintenance, HOA) to best determine potential future performance.

Option 1 - NOI = Rent - (maintenance, vacancy, management, property tax, insurance)or Option 2NOI = Rent - (property tax, insurance)in both cases i assume DSCR = monthly payment/NOI

@Kathie Mata   appliance insurance may work in some places, in my area is quite slow to show up.   

Home prices are one, cost of living and relatively disaster-free weather keeps insurance costs down.You can look up the median home price for every city or metro area.

Can you suggest an insurance company and contacts for our rental houses?

It's a balance of cashflow and wealth accumulation.One of the goals is to have tenants pay as much of your cost-of-ownership as possible (loans, taxes, insurance, etc.)In high-cost areas, any Class A or B property you buy will usually negative cashflow for the first 3-5 years, until rents rise enough to cover the negative cashflow + rising taxes & insurance.Investing OOS increases your risks because you may not know the market and you can't check on everything/everyone all the time.If you move forward with your buddies, HIGHLY recommend creating a solid Partnership Agreement!

Maybe it is more difficult if the damage was more serious like fire or flood but it goes same with any insurance claim.

IE securing them paying tax's insurance etc etc. 

What is on the insurance application that you signed?