Water and Insurance

LEARN MORE ABOUT EACH PERIL BY CLICKING ICONS BELOW

HOME PAGE

WALL of SHAME

INSURANCE INDUSTRY MOTIVATION - WATER DAMAGE

According to Eric D. Gerst, author of VULTURE CULTURE; DIRTY DEALS, UNPAID CLAIMS, AND THE COMING COLLAPSE OF THE INSURANCE INDUSTRY, in the aftermath of Hurricane Katrina, billions of dollars in homeowners and business insurance claims were denied by insurance carriers under a "gotcha clause" in their insurance policy stating that they had coverage for hurricane winds but NO COVERAGE if both "wind and water" damaged their property. In other words, pass off the liability to the NFIP (for those that have flood insurance) and leave everyone else hanging. The deception was so overt that the Mississippi Attorney General sued the insurers on behalf of the citizens of Mississippi to recover $2 Billion. Gerst writes:
The anti-concurrent causation clause, as the wind and water clause is known in the insurance industry, is one of those insurance clauses that is hardly ever noticed by the consumer, and, if noticed, is often not understood. As a result, in addition to the normal skirmishes between claimant and insurer as to the valuation of claims, the wind versus water issue added a major new dimension when its implementation resulted in massive denials, outrage among policyholders, and at least one insensitive comment by an industry representative (Jeffry Kline Gilbert of Nationwide) who advised the public to "read your policy."
Insurance industry representatives argue that without the anti-concurrent causation language, insurers could not limit their liability and would be subject to pressure to pay claims that they normally would not pay. The clause, they say, tries to make the policy clear. Policyholders argue that the clause is a perfect example of a"gotcha" provision, with its legalistic language that slips by the consumer and that the insurer does not explain. in effect, policyholders argue, the clauses eliminate the very coverage that insurers appear to be promising when they sell the policies.

"Hurricane", (for many property owners), should be pronounced "flood". Flood, in general, is considered to be a naturally occurring accumulation of water within a geographic proximity of approximately 2.5 acres or more of land. It is fairly well-known that Flood is not covered by homeowners insurance policies. The reason for this is that Floods are very common and usually affect large areas of land at one time. A large flood can generate a very large number of claims all at once, putting tremendous pressure on the bottom line of any insurance company - especially one that may already be over-exposed. In fact, insurance companies' refusal to cover flooding is the very reason that the NFIP exists!
According to the Federal Emergency Management Agency (FEMA), 25-30% of all flood insurance claims come from low-to-moderate risk areas. Unfortunately, a large percentage of property owners in low-to-moderate risk areas do not have Flood insurance (even though it is fairly inexpensive coverage). It is apparent that insurance companies have gone out of their way to make sure that policy holders understand that the burden of conventional flooding is not a liability they are willing to accept. Accordingly, property owners desperately need to understand what their insurance premiums are and are not paying for. The following excerpt is taken from Andrew Wallingford's book, The Claim Game:

There's a saying in insurance about water damage and whether or not it's covered: "Once water touches the ground, it's out of bounds," meaning if water enters a house or dwelling extension from ground level or below, it's not covered. the vast majority of exclusions I've dealt with over the years were from water damage. This includes flood, surface water, tidal water, waves, overflow of a body of water or spray from any of these, whether driven by wind or not. The words in bold are important because wind-driven water means that , according to insurers, surface water is still the root cause - without the water, the wind could not have blown the water and caused the damage. Once the water is on the ground, no matter how it damages a home or other structure, it is not covered. Water damage also includes water that enters a dwelling through the drain or sewer line or pushes up through a sump pump or any type of system that is supposed to drain the water from or around the foundation; and water that seeps from below the ground's surface. Water damage is one of the instances where the exclusions override most covered types of losses. For example, if lightning damages a sump pump and causes it to fail and water enters the basement though the sump pump hole (known as the crock) the resulting structural damages would be excluded. What would be covered is the lightning damage to the sump pump itself.

For this reason, ALL property owners should strongly consider flood coverage through the NFIP regardless of whether your property is located on high ground or not. In 2006, marble-sized hail and then a 4" downpour of rain flooded a beautiful custom home on Aubrey Butte in Bend, Oregon. The home was 3,900 feet above sea level but this "perfect storm" presented a unique challenge for the insurance adjuster (who denied the insurance claim). The small hailstones clogged a curb side storm drain a small distance uphill from the driveway. The storm water came rushing down the steep street, swept over the clogged drain, and then ran down the driveway into the garage of the custom home. The adjuster argued that the damage was from flooding by water on the ground so there was no coverage. The homeowner argued that without the hailstorm first clogging the drain, the water could not have created the flooding. It was a very bad situation for the homeowner. After all, who would have anticipated that Flood was a danger to a home on the side of a butte? The answer, of course, is that a competent builder, engineer or property inspector would have. After all, it could just have easily been winter ice that clogged up that drain prior to a heavy rain. The driveway SHOULD have had a French drain in the driveway and the garage floor SHOULD have been elevated. The homeowner SHOULD have had flood insurance. With his insurance claim denied, the homeowner's only option was to file a lawsuit against the builder of the home. From Coastal 's perspective, this type of scenario is just one more great reason for property owners to take advantage of the Coastal Property Sentinel program.

The adjusting arm of this insurance company clearly pursued an avenue of denial and delay of settlement even though the policy clearly provides adequate coverage. This makes the claims process painful for the policyholder and creates a effective deterrent for those who expect their insurance company to settle promptly and fairly. It also allows the insurance company to continue reaping the investment benefits of their Operating Income while the settlement process is being dragged out - instead of fulfilling their obligation as trustee of policyholder premiums.

Contents - Actual Cash Value (ACV)

Nearly all insurance policies pay only the depreciated value of contents. This poses a huge problem for property owners. Does it seem right to receive a check for $30,000 for your damaged/lost belongings when it will cost $90,000 to replace them? Of course not! Nearly all insurance companies offer a fairly low cost-option to cover the replacement of contents rather than Actual Cash Value.
Pick up the phone and fix your insurance policy RIGHT NOW and make sure you have a "RCV" policy! Also, start documenting the property that you own today. State Farm provides an excellent checklist. They also have an excellent Personal Property Form which you can use for any type of loss.

Additional Living Expenses (ALE)

Homeowner's Insurance usually lists ALE under Coverage D - Loss of Use. Loss of Use creates problems for property owners. For commercial property, Loss of Use often means loss of income. Sadly, many commercial insurance policies do not properly address this issue. In 2006 a horse ranch in Central Oregon that specializes in riding classes and hosting events experienced substantial damage from hail and wind. The horses were beaten so badly by the hailstones that they could not be ridden for more than two weeks. Repairs to the property also substantially impacted the ranch's business operations. The insurance company paid for repairing the structures on the property but the lost business income could not be recovered. The property owners' insurance agent had put them in a Farm policy instead of a Ranch policy. They had coverage for damaged crops but nothing for Loss of Use! Too bad they didn't grow crops! For a homeowner, ALE means any necessary increases in living expenses incurred by the homeowner so that the household can maintain its normal standard of living. This would cover temporary housing, Laundry & dry cleaning, meals, boarding costs for pets, increased transportation costs (drive further to get to work/school), furniture rental, relocation & storage expenses, telephone & utility installation costs at a temporary residence, etc. This area is often overlooked and causes most claimants substantial financial discomfort. Most insurance companies will pay advances to help with ALE but will not offer - you have to ask. Click HERE for an excellent ALE worksheet.

Finding a restoration contractor that works closely with legal counsel is clearly the best avenue for fighting the necessary fight with your insurance company when your energy, emotional capacity, and bank accounts are drained to the point that you don't have the resources to act on your own behalf. Coastal Building & Restoration is a champion for the downtrodden.
We are committed to a 'Just' outcome for our Clients regardless of how difficult the road is to travel. As a Client with fire damage, your greatest challenge is to hold the course and commit to seeing the process through. For more detailed information on fire damage, visit the Residential or Commercial pages on our web site.