By Matt R. Hale, Attorney-at-Law
There is no question that homeowner’s insurance rates are rising across the country, leading some to wonder if they really need it. The purpose of this article is to provide an overview of what homeowner’s insurance actually covers and why I believe it’s absolutely important to have an adequate homeowner’s policy to manage life’s risks.
If you have a loan on your primary residence, then the lender will almost certainly require you to maintain a homeowner’s insurance policy. If you do not maintain a policy, the lender can force-place a policy on your property. This is simply because the insurance protects the lender against damage or loss to its collateral—your home. In order to guard against that threat, homeowner’s insurance provides coverage for risks that go beyond damage to property or structures—providing coverage for personal property and personal general liability.
Homeowner’s insurance policies, however, are a minefield of exclusions that most homeowners are not aware of until they need the coverage and learn that there is none. Sometimes if the homeowner had been aware of the exclusion, steps could have been taken to avoid it. Usually though, the claims adjuster is able to walk the unwary into making statements that allow the insurance company to deny coverage, leading to an unnecessary loss. It’s at this stage that a person seeks a lawyer to review the denial of the claim, but unfortunately, it is often too late.
This article is intended to provide a very general and basic overview of homeowner’s insurance. Be aware that insurance is regulated by the individual states, and each state has different regulations governing your insurance contracts. This article is not intended to provide state-specific advice, nor is it legal advice. The intent is to inform you of the issues you need to consider when making a choice about homeowner’s insurance.
What’s Covered and What’s Not
Insurance policies are written contracts that define terms and explain what losses are covered and what losses are not covered (excluded) under the insurance policy. Homeowner’s insurance generally provides for coverage for damage or loss to the property (structures and land) and damage or loss to personal property (things inside the structures), and provides general liability coverage for the people residing in the home (when someone’s negligence causes another’s harm). The insurance contract controls and defines what is covered for each of these general areas of coverage and what is not covered.
Damage to the Property (Buildings and Structures): This coverage is generally focused on the primary residence in which you live and provides indemnity for damage to your home or other attached structures on your property. For example, this is the coverage that kicks in if you have a tree fall on your roof resulting in damage. The insurance company will pay for the repair of the roof and removal of the tree within the limits of the insurance contract. The insurance company may provide coverage for a hotel or place for the family to stay if the home is not habitable due to the damage. This is all defined within the policy language.
Damage or Loss to Personal Property: This coverage is for the “things” inside your home and covers them from loss caused by a covered loss to the building or theft. Examples are: 1) a tree falls onto the house and takes out your home surround-sound system; or, 2) a burglar breaks in and steals your home surround-sound system. The insurance company would be obligated to reimburse you for the loss within the terms of the insurance contract.
Personal Liability Coverage: Personal liability arises when you are negligent in some way, and your negligence causes a harm to another person. At first blush, it seems that you do not have to worry if you are not negligent, but stuff happens, and it’s surprising how often this coverage is used. For example, you are walking your dog, and a bicyclist is going by, and your dog gets excited and ends up knocking off of her bike the bicyclist, who breaks her wrist. You are liable for that injury. Other examples include failing to clear snow and ice off of your porch, causing a delivery driver to slip and fall injuring himself, or letting your kid’s friends play on the trampoline, and one of the kids breaks an arm. The examples of events that give rise to potential liability are endless. The purpose of the liability coverage is to provide coverage to protect your personal assets (your home) from a loss arising out of a personal injury claim against you. This protects the lender from losing its collateral because you ended up having a judgment entered against you in a personal injury case.
Understanding Exclusions to Coverage
As already mentioned, homeowner’s insurance policies are a veritable minefield of exclusions. An exclusion means that there is no coverage for that particular loss. Almost all homeowner’s policies exclude damage from flooding. Hence, people in flood zones need to purchase a separate flood insurance policy. However obvious, I also find it important to note that homeowner’s insurance excludes damage related to on-road vehicles, as those have a separate policy of insurance. Many exclusions are more subtle and surprise those who have not read their policy.
The following story is one such example of people being surprised by such an exclusion. A young couple buys a house in one state, but one of them lands a sweet job in a neighboring state. They end up leaving their home for six-week intervals due to the work schedule. At some point, a pipe freezes in the house, ruptures, and bursts in the garage. They call their insurance company and openly and honestly explain the situation. The claim is denied. Unbeknownst to them, their policy excludes damage from water leaks not discovered within 14 days. Because they were gone for six weeks, the coverage is denied, and they have no legal recourse.
Here are some examples of property damage exclusions taken from a contract:
- “[V]andalism and malicious mischief, including fire caused by arson, or breakage of glass and safety glazing materials if the dwelling has been vacant for more than 60 consecutive days immediately before the loss.”
- “[C]ontinuous repeated seepage or leakage of water or steam, or the presence of condensation of humidity, moisture or vapor which occurs over a period of weeks, months or years.”
- “Earth Movement, meaning: the sinking, rising, shifting, expanding or contracting of the earth, all whether combined with water or not. Earth movement includes but is not limited to earthquake, landslide, mudflow, mudslide, sinkhole, subsidence…. This exclusion applies whether the earth movement is caused by or resulting from human or animal forces or any act of nature.”
- “Neglect, meaning your failure to use all reasonable means to save and preserve property at and after the time of a loss, or when property is endangered.”
- “Loss caused directly or indirectly by war, including the following and any consequence of the following: a. undeclared war, civil war, insurrection, rebellion, or revolution; b. warlike act by military force or military personnel; or c. destruction or seizure or use for a military purpose.”
These are just some of the exclusions listed for a homeowner’s policy. It’s important to know and understand the exclusions in your policy, as they are traps for the unwary. A home could be vacant for 60 days because of a hospital stay, death, or a vacation. Imagine coming home to a house destroyed by squatters only to find out you have no coverage for that.
It may be tempting to be less than truthful when making your claim to avoid an exclusion. Know that it is a crime to lie or be untruthful to any insurance company when making a claim. Know that this allows the insurance company to completely deny coverage and usually drop your policy. Be prepared to back up any claim you make with evidence. Once an insurance company has made up its mind about an exclusion, it won’t change its stance until you can prove them wrong.
In regard to personal property, you need to pay attention to your policy declarations page. This is the page that states the amounts of coverage and serves as a ceiling to the amount of money your insurance company will pay for that loss. Many policies have special limits for personal property. This will include limits on things such as pre-paid cards or passes, bullion, gold, silver, rare coins and currency, medals, stamps, trading cards and comic books, securities, debit cards, checks, cashier’s checks, traveler’s checks, money orders and other negotiable instruments, etc…. The list goes on and is extensive. This means that if you have $30,000 in gold coins (with proof that you owned them) that are stolen, and your insurance policy only covers $10,000 in personal property loss, then you can only get the $10,000. You have to talk with your insurance agent to make sure your policy limits actually reflect the value of the personal property you own. It can be possible to have higher limits without providing detailed disclosure of the actual property you are insuring.
Finally, the personal liability coverage provided by homeowner’s policies is more important than most people realize or even consider. The reality is that no matter how careful you are—things happen. If you are the one who’s responsible for those things happening, then you may face liability for harming someone else. These situations can arise in simple cases. A child falling off a trampoline and breaking her arm can lead to surgeries and tens of thousands of dollars in medical bills and hundreds of thousands in damages. Sometimes, health insurance pushes people to hire a lawyer to pursue the claim to recover the medical bills paid. What may seem like a minor issue can turn into something big. Absent some form of liability coverage for those acts not related to driving a vehicle, you are taking a huge risk with your personal assets. Also understand that your homeowner’s policy may not cover everything and may exclude liability that arises out of certain activities. So, again, review your policy to know what coverage you have.
There’s a reason why mortgage lenders require homeowner’s insurance: it protects their collateral. Likewise, a good policy with a good company can help protect your equity in your home. You must be aware of what your insurance contract actually covers, what events are excluded, and what additional coverage you may need to hedge your risk. Having an insurance policy is no guarantee that you will be protected. Insurance companies are well known for shenanigans that harm policy holders. An insurance policy, however, is an enforceable contract that gives you something to go after if necessary. Absent having a policy of insurance, you are on your own.
