Merely having a homeowners/renters insurance policy does NOT mean you are protected. The events and circumstances that are covered depends on the policy.
There are three main categories of Homeowners coverage:
- Dwelling Protection Coverage – this insures your house and other structures.
- Personal Property Coverage – this insures your personal property, such as clothing, sports and camping equipment, art, furniture, jewelry, appliances and other such items.
- Liability Coverage- this insures your assets if a claim is ever filed against you because of damage or loss suffered by another.
The most common problems involving homeowners insurance include:
- Whether the loss is covered under the policy.
- Whether all or part of the loss is subject to an exclusion or dollar limit. These include exclusion for mudslides, settlement, dry rot, or negligent construction; or a deductible or a cap on the coverage.)
- Whether the claimant’s scope of repairs or repair bids are excessive.
- Whether the claimants are seeking repairs that would constitute “betterment” of the condition of the property from its pre-damage condition. This is based on the “code upgrade” or “replacement cost guarantees” set forth in the policy.
- Whether the insurer is entitled to take a depreciation credit on the lost or damaged dwelling or personal property based on its pre-claim condition.
- Whether the agent or broker who sold the policy negligently underinsured it.
- Whether the company misrepresented the coverage that would be provided through misleading advertising or promotional statements or material.
- Whether claimants failed to comply with policy requirements such as:
- the filing of formal proofs of loss,
- the submission of required documentation or
- the meeting deadlines set forth in the policy or under the laws of the particular state.
- Whether the claimants breached their “duty to cooperate” with their adjusters, investigators or other company representatives and thereby relieved the company of its obligations.
Disasters are almost as unexpected as the reasons behind a homeowner’s claim denial, and No insurance policy covers ALL loss caused by ANY event. Therefore, before you meet with an agent to purchase Homeowners/Renters insurance, you must be prepared. Many people do not do this, but it is very important.
When purchasing homeowners insurance you need to assess:
- the types of coverage that may be included in a homeowners policy,
- the events or disasters for which you may be at risk, and
- questions to ask the insurance company, agent or broker about your potential policy.
Items to Cover by Dwelling Protection Coverage Preparation
Begin with a list of these category items:
- Exterior Features (Landscaping Driveway, Retaining walls, Storage building, etc.)
- Construction (Expensive/Custom Features of the Home)
- Perils (see below)
- Disasters (see below)
- Liability (see below)
- Personal Property (see below)
Amount of Coverage
Estimate what it would cost to repair or replace these structures and features TODAY.
When estimating the cost to repair or rebuild your home, do not accept some arbitrary number.
Make sure that your house and other structures are insured for the actual cost to rebuild, with “like and kind” quality. Otherwise, if you suffer a loss, you may find yourself underinsured by tens of thousands of dollars or more. If you want to intentionally underinsure in order to save premium dollars, do it knowingly, recognizing the risk you are choosing to take.
Rebuilding estimates can often be obtained free of charge from qualified licensed contractors.
To estimate the amount of dwelling protection coverage needed, you should do the following:
- obtain the total square footage of your living area;
- obtain the total square footage of all non-living areas (unfinished basement, attic, garage, other storage areas);
- obtain the square footage of all other areas to be covered by the policy (patios, decks, pool, driveway, retainer walls, etc); and
- obtain cost estimates to repair each of the above. (Make sure this estimate is for “LIKE KIND AND QUALITY” MATERIALS AND WORK.)
Pay special attention to expensive moldings and woodwork and custom cabinets, doors and light fixtures, marble, granite, limestone or other expensive finishes. You don’t want these things replaced with prefabricated materials.
Ask yourself what you need to do to ensure that the estimates you have prepared are kept current with inflation and with increasing costs for labor and materials.
Next, you need to think about the kinds of losses that pose significant concern to you. This assessment will differ from one area or region to another.
• Firestorms where there is a dry season,
• mold and mildew in areas where it is wet and humid,
• hurricanes in Florida, Texas, Louisiana and other storm prone states,
• tornados in Kansas, Tennessee, Oklahoma and the central US,
• floods in low-lying areas, and so on.
Do you live by the ocean? Near a river? Is your home located in a flood plain or near mountains where runoff from winter snowstorms can cause flooding? Is there a levee nearby?
Floods are caused by varied and unexpected events, including hurricanes, the overflow of inland or tidal waters, the unusual and rapid accumulation or runoff of surface waters during a heavy rainfall, the collapse of a levee or dam, or a heavy snow runoff. The Federal Emergency Management Agency (FEMA), located at http:\\www.fema.gov, can tell you the level of flood threat in your area. Local government authorities can also advise you as to whether you live in an area where flood is a potential threat.
Damage caused by floods can be extensive and expensive, and so most homeowner policies attempt to exclude all flood related loss, even in policies that specifically cover storm damage.
Efforts by insurers to accomplish this have led to some of the most obtuse, ambiguous policy language imaginable. It has also led to dozens of contradictory court decisions on subjects like “ensuing loss,” “policy ambiguity” and “multiple causation”.
An Example of Insurance Gobbledegook and Ambiguous Language
“Some exclusions may include “ensuing loss” clauses. An ensuing loss clause limits the scope of what is otherwise excluded under the policy. And ensuing clause may read as follows:
The Company will not pay for loss or damage caused by or resulting from any of the following.
Faulty, inadequate or defective:
1) Planning, zoning, development, surveying, siting;
2) Design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction;
3) Materials used in repair, construction, renovation or remodeling, or
4) Maintenance; of part or all of any property on or off an insured premises.
However, in the event of an excluded cause of loss that is listed in item 3 above results in a Covered Cause of Loss, the company will be liable only for such resulting loss or damage.”
- The National Flood Insurance Program (NFIP) offers two policies. One for structural damage. Another for personal property. Please note that the dollar amounts listed below are subject to change.
- The structural damage policy is limited to $250,000.
- The personal property policy is limited to $100,000.
- For higher coverage you can buy an excess policy offered by private companies.
- The structural policy covers your home, foundation and other specified items.
- The personal property policy covers clothing, furniture and other specified items.
- Personal property is covered for actual cash value. Not for replacement cost.
- If a flood causes extensive damage NFIP may give you up to $30,000 to raise, tear down or move your home.
- But the total still can’t go above $250,000.
- The policies offered through NFIP are issued through private insurance companies.
In addition to issues surrounding homeowners insurance there are also issues concerning National Flood Insurance. See Google’s list of 60 Minutes Hurricane Investigations for more information.
These issues have resulted in questionable practices by insurance companies ranging from falsifying structural damage reports to lying about replacement cost bids. If you experience loss from a natural disaster of any kind – especially from storm or water damage – you should request a free IC lawyer consultation immediately, and before talking to ANY insurance representative.
Effective earthquake coverage is hard to find, expensive and lacking in benefits in most places where residents most need such coverage. It’s easier to buy hurricane insurance in California and earthquake insurance in Florida than the other way around.
Today, most of the earthquake coverage in effect in California is sold through the California Earthquake Authority (CEA). The CEA is a privately funded, publicly managed consortium of insurance companies that was created after California’s infamous Northridge quake. The problem with the CEA’s policies is in its exclusions, limitations and deductibles.
When considering an earthquake policy, pay close attention these issues under each portion of the coverage. Unfortunately, many people find that the combination of these restrictions leave little left to be covered.
Fire damage under a homeowners policy is almost always covered. This is often required by state law or insurance regulations, and is usually so whether a fire was caused by a firestorm, acts of God, someone’s negligence or even by wrongdoing.
The most conspicuous exceptions are fraud or arson by an insured or acts of war or insurrection.
Fire Loss may even be covered if it results from an uncovered cause. For example, a flood may cause short circuits which burn a house down. Even though flood damage may be excluded, damage caused by the resulting fire may be covered.
Fire losses include both dwelling and apartment structure damage and personal property damage.
Personal Property Coverage Preparation
Items to cover :
- Coins and Collectibles
- Floor coverings
- Antiques and other items of value
In order for such things to be insured, they may have to be appraised.
You don’t have to count every sock and pencil, but go through the house thoroughly, listing the items above, plus valuable electronics, clothing, household items, sports equipment and personal property.
Documenting personal property with photos may benefit you when filing a claim.
Amount of Personal Property Coverage
Note that often your personal property limit is determined simply on the basis of percentage of your total dwelling protection limit. This is not the best way to determine how much you’ll receive to repair or replace damaged property. It’s much better to go through your home, determine what you own and calculate its worth.
Amount of Liability Coverage
Determine the total value of all your current assets. Include:
- equity on your home or other property;
- stocks and bonds;
- retirement accounts;
- any businesses in which you have a financial interest;
- earnings you (and your spouse) receive from work;
- personal property of value.
Make sure your liability limits are sufficient to protect your assets.
Definitions To Remember
Replacement guarantees: A replacement guarantee is supposed to increase your dwelling protection limits to the actual cost of rebuilding or replacing property. But be careful, many such guarantees have a maximum cap.
Code Upgrades: Code upgrade protection covers any additional cost resulting from the existence of building code requirements imposed by regulatory authorities as a precondition to obtaining building permits. You should have full code upgrade coverage.Updating Coverage
There is little point in keeping insurance coverage that does not cover your situation anymore.
Therefore, keep your insurance policy up-to-date. Policy updates are necessary when you changes to your dwelling occur, such as:
- remodeling your home,
- building a new addition or structure on your property,
- purchasing new items or receiving gifts that should be added to coverage,
- changes to the property that pose a risk to others,
- decrease in the value of your property or other assets, and/or
- the costs of labor and material has increased significantly since you bought your policy.
When circumstances change, notify your insurer.
Some of your policy updates may not modify your policy or change your premium at all. They simply put the insurance company on notice, and verifies they are aware and have agreed to cover it. Other updates may require you to modify your old policy, purchase a new one or add an endorsement.
Filing a Homeowners Insurance Claim
- First, notify the insurance company of your loss. Do not go into specifics at this time. Wait until you have had time to review what occurred and to re-read your policy and these materials.
- Safeguard your property (“mitigate the loss”). You should take steps to protect your property from further damage. Otherwise, the insurer may contest any additional damage.
- Document your loss carefully. Use photographs, contractor bids, expert reports and appraisals.
- Never discard damaged or destroyed property unless you have received written authorization to do so from the company.
- Keep careful records, including notes of conversations with insurance representatives and letters to and from the insurance company. Never send intemperate letters or make offensive or insulting statements to insurance company representatives.
- Prepare a detailed list of all items of personal property that were lost, damaged or destroyed.
- Ascertain the actual cost (including taxes) of replacing each of these items.
- Determine the conditions of your personal property damage coverage under your policy.
- Are there applicable deductibles or limits?
- Do you have to actually replace specific items before you will be given the replacement value of these items?
- Were specific endorsements or appraisals necessary in order to fully cover all of your lost property?
- Did you have those coverages in place?
Put all of this information together and do the necessary additions and subtractions to calculate your covered personal property losses.
If the amount of your coverage on these or any coverages was insufficient, whose fault was it?
IMPORTANT! If it is the insurance company’s fault, add up what it would have owed had the coverage amount been proper and include this in your demand.
Liability Claims Against You
When you believe a claim or lawsuit may be filed against you, you should do the following:
- obtain a list of any and all witnesses to what happened. Write down and save their names, addresses, and telephone numbers;
- save any possible evidence;
- photograph anything of significance;
- promptly send the insurance company a WRITTEN “Notice of Liability” letter, which states that you believe a claim or lawsuit may be filed against you. Include the date, time and location of the accident and the name, address and telephone number of the person who may file the lawsuit. Keep a copy of this letter for your records; and
- keep careful records, including notes of conversations or correspondence with insurance representatives or others.
Dwelling Protection Coverage Claim
- Do the same thing for damage to your dwelling as to your personal property.
- Obtain rebuilding or repair Bids – not estimates – from your own contractors.
- Do not rely on insurance estimators or computer generated estimates as a basis for settling any part of a claim.
- Do not sign off on any check or settlement agreement until you are certain you know the total amount of your loss.
Additional Living Expenses (ALE):
ALE overage pays for the cost of obtaining alternative accommodations when you are faced with living in a damaged home. It should cover “like kind and quality” accommodations for as long as your house is uninhabitable.
Assess the total cost to you of (like kind and quality) rental accommodations for the time necessary for you tostay out of your home. Check your ALE coverage, noting any applicable limits on the benefits.
Again, if there is any substantial amount in issue do not attempt to handle your own claim. Request a free consult with an IC attorney.
If a lawsuit has been filed against you and you are submitting a liability claim, send the insurance company a “Tender of Defense” letter. This letter should include:
- your name,
- policy number,
- the date,
- time and location of the accident,
- a general statement of what happened,
- the names,
- addresses and telephone numbers of any victims and witnesses, and
- a copy of the suit and/or any documents that have been sent to you regarding the suit.
The Tender of Defense letter should also ask the insurance company to:
- Defend and handle the situation.
- Send you the name of the attorney if one has been selected to represent you.
- Keep copy of this letter for your records.
- Tell the insurance company everything you know about what occurred.
- Make yourself available to speak with insurance company representatives.
- Make any damaged property available for inspection by the company or their contractors or others.
- Preserve evidence of the loss: you should not remove or alter any evidence of the damage without the company’s ok.
Everything you submit to the insurance company must be precise and true. Never overestimate, misstate or exaggerate any aspect of a claim. If you do make a mistake, correct it in writing as soon as possible and keep a copy of the letter in your records.
After you file a Homeowners/Renters Claim the insurance company must respond promptly to your claim.
Dwelling and personal property loss claims, the insurance company prepares a scope of loss, which aids it in determining what property is damaged, how the property was damaged, and how much it may cost to repair or replace the damaged property.
If there is a disagreement between you and your insurer as the amount of the loss, try and negotiate with the claims adjuster or their manager.
Do not under settle just to get it over with. You may wind up being unable to perform the needed repairs or having to pay for the difference out of your own pocket.
You could offer to mediate with a professional firm such as First Mediation or JAMS. In this situation we highly recommend you obtain a consultation with an IC insurance attorney.
If an agreement between you and the insurance company is reached the insurance company will either pay your claim or pay someone to repair or replace the damaged property.
Liability claims, the insurance company will determine whether the suit against you is covered by the policy. The insurance company may agree to represent you, but only with a “Reservation of Rights.” This means that the insurance company is not necessarily agreeing that your lawsuit is covered under the policy. Therefore they may not pay a judgment or settlement. In addition, you may later be asked to reimburse the insurance company for any legal fees incurred in your defense.
If this happens there may be a “Conflict of Interest” between you and the carrier. This means that the attorney chosen by the company to represent your and the insurer’s interests may be representing competing interests. In such a situation you may want to ask the insurance company to appoint a separate independent attorney who represents ONLY your interests.