Recently Apollo began working with a new client and in doing so gathered information about their P&L Insurance – homeowners (“HO”) and auto plus special circumstances and risks like excess liability, flood, earthquake, hurricane, etc. They were understandably angry when we broached the topic as their current insurer (we’ll leave the name out to protect the innocent – OK by you State Farm?) recently denied a claim arising from the snow and ice storms that have battered the Philadelphia area. Why was the claim denied? Among other reasons the two primary causes were the homeowner’s complicit behavior and having substandard coverage. More on this below.
Lost amongst the noise from bubbly Flo and the guys in Grill Class is a point so obvious most of us miss it. The purpose of HO insurance is to protect against a loss. We don’t buy insurance to save money. If saving money is our goal then we shouldn’t buy insurance since the premium for a non-existent policy is $0. If, however, protecting our most valuable asset is the priority then securing proper coverage is the necessary and logical solution.
So what is proper coverage? There are a variety of standard HO insurance policies.
The most basic (HO-1) covers only a few perils. Insurance companies have stopped selling it in most states.
The “broad form” (HO-2) covers the following perils:
fire or lightning
windstorm or hail
riot or civil commotion
damage caused by aircraft
damage caused by vehicles
vandalism or malicious mischief
weight of ice, snow or sleet which causes damage to a building
accidental discharge or overflow of water or steam from within a plumbing, heating, air conditioning or automatic fire-protective sprinkler system or from a household appliance
sudden and accidental tearing apart, cracking, burning or bulging of a steam or hot water heating system or an air conditioning or automatic fire-protective system
freezing of a plumbing, heating, air conditioning or automatic, fire-protective sprinkler system or of a household appliance
sudden and accidental damage from artificially generated electrical current (does not include loss to a tube, transistor or similar electronic component
The most popular policy type commonly referred to as the “special form” (HO-3) covers everything except certain perils outlined in the policy which are typically as follow:
ordinance or law such as demolition or construction required to bring your house up to code
earth movement such as earthquakes, shockwaves, sinkholes, landslides and mudflows
water damage such as floods and sewer back-ups and water that seeps through the foundation
neglect (meaning the homeowner failed to take reasonable means to save property during or after a loss
war (declared, undeclared and civil
intentional loss (i.e. the homeowner acts purposefully with the intent to cause a loss
destruction, confiscation or seizure of covered property by any governmental or public authority
losses resulting from faulty zoning, bad repair or workmanship, faulty construction materials and defective maintenance
After reading this can you spot the reason(s) why the claim was denied? Insurance provides coverage for sudden and unanticipated losses. The homeowners contributed to the loss by refusing to remove snow and ice that built up over the course of several weeks after a wave of storms. They were aware of the potential for damage and chose not to act.
Policies differ by state and insurer so the best way to find out about exclusions is to read the policy – NOT rely upon a commission-based salesperson to say “you’re covered.” Below are some common weather-related circumstances that arise. Do you know if your policy provides coverage? Here are some typical outcomes:
FLOOD: HO policies do not provide coverage.
SEWER BACKUP: HO policies do not provide coverage.
POWER OUTAGE: The loss of refrigerated and frozen foods is typically covered up to $500 which is less than the deductible most of us carry. In essence it’s a nominal coverage. Electronic equipment such as computers, bazillion inch TVs, etc. are not covered if there’s a power surge upon restoration unless caused by a named peril such as lightning. Speaking of which…
LIGHTNING: Damage to electronic equipment and/or to the home caused by a lightning strike to the home or power line connected to it is covered.
SLIP AND FALL: Go shovel the driveway and sidewalks. Failing to clear a hazard is a mitigating factor that can otherwise cancel out the coverage provided by a policy.
While not weather-related the following are other common circumstances.
HOME-BASED BUSINESS: No coverage provided since HO policies are “personal lines.” Separate coverage is needed. Some basic businesses may require a simple policy endorsement.
LAND SHIFTING: Properties in places like California are difficult to insure (and surely cannot be covered by the off-the-rack State Farms, Progressives, GEICOs and Allstates of the insurance world). A house that slides down a cliff as a result of a shift in the land is not going to be covered. Similarly homes built over old coal mines or near oil/gas fracking sites (think Illinois, Ohio, Pennsylvania and West Virginia) will not be covered if swallowed by a sinkhole.