First, get another insurance agent! Many don't have a clue about these things! They get nervous because many inexperienced homeowners install the stoves themselves and then there's a fire because they didn't take all the necessary precautions. "But I SAVED money doing it myself!" From what I see the location is perfect for a wood stove or another gas unit. You already have a raised hearth and a non combustable back. The only place I might see a situation arise is the chimney itself. Today's stoves need a 6 inch flue. If your chimney is 8 inches you'll need a liner installed. That can be labor intensive but for a professional it's done every day. Go to a COUPLE of stove shops. Tell them what size area you wish to heat and they'll find the right size unti for you. Also tell them the dimensions of the raised hearth. The hearth might be too small for a wood unit, but only a professional can tell for sure. Also write down the height of the centerline of the opening in the back wall from the base of the hearth. I like wood fires. Not gas. But that's a decision only you can make.

I would post this question on the "Fireplaces Forum" on this site, or at www.hearth.com. Good luck.

We also live in the Bay Area and have the Mendota FV33i. It's our second - we had one in our last house, moved locally this year, and immediately put another one in. We really like it and think the flame and backlights looked much nicer than the other insert options. The one consideration is that it puts out ALOT of heat, so in our milder California winter you'll likely either need to use the thermostat so it turns itself on and off or run it on a very low flame, otherwise it can quickly get too hot.

Matching new and newfangled systems to existing homes can be very challenging. All electric homes were typically very well insulated but even that might not be up to today’s standards. Have there been improvements in air sealing and insulation since the home was built? I can see why the hydronic coil might be useful. You don’t have room for a furnace where the existing air handler is, and the the duct system can’t be made to work with a furnace in the basement. There are a couple of problems to consider with the hydrocoil idea. To have a large capacity, hydrocoils need to be big or run hot, your choice. Since you don’t have room for a furnace with the existing AHU, you might not have room for a big hydrocoil either. You might be able to ameliorate this somewhat with more than one coil in the ductwork if it can be fit. Ok what is the problem with a hot hydrocoil? That seems logical after all. It has to be hot to provide heat, right? It boils down to physics if you'll forgive the cheap humor. For anywhere near efficient boiler operation, you need your return water to be below 130 F. Even lower, much lower, is better. Hot water-driven convectors (aluminum fin baseboards) also need relatively hot water, but not nearly as hot as a typical hydrocoil in an AHU. Toe-kick heaters are hydrocoils. Radiant floor heat can use very low temp water and are a good match for condensing boilers. Cast iron radiators are pretty good too, falling between the convectors and radiant floor heat. You can run them all from one boiler as well as domestic hot water (and melt the snow on your driveway if you want) and it can all be done with upwards of 95% combustion efficiency with skillful design. That is easy with a new building, but you have to be somewhat lucky with an existing home. You also have to know a lot of stuff yourself or have a very good installer. With a boiler in the basement, you could run the hydrocoil and install baseboard close by in the basement in a separate zone. My only caveat there is that small zones can be a problem without a buffer to keep the boiler from short cycling. Maybe efficiency of the boiler is not your top concern. After all, you are going from electricity as fuel to nat gas. The difference between boilers burning at 82 and 98% might not be a big deal. Just don’t let someone install a high efficiency boiler that can’t take advantage of that design because you can’t both run it at low water temps and keep your house warm. It won’t work very well. Note that in less than the coldest weather if the system is set up right, you can still run in an efficient mode with lower water temps, just not for as much of the time. If a modulating/condensing boiler is dropped into a system where it is snapping on and off a lot and can’t condense, it will be neither efficient nor last long. They are not built for that and since they cost more, even a bigger waste of money right from the start.