Homeowner's Insurance: Current Difficulties|
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As of the time of this writing, Fall 2002, there is a serious issue in California (and elsewhere) relating to Homeowner’s Insurance. It can affect buyers and sellers, as well as homeowners who are not selling. The issue is mold. Insurance companies are fearful of run-away liability in this area of increasing public concern. This is especially true in California, which has the reputation of being the most litigious state in the nation. The information that follows is general in nature, the specifics varying from company to company. Also, details change as the situation continues to evolve.
The information below notwithstanding, from what I have been able to determine, Homeowner’s Insurance of some sort is available in (nearly?) all circumstances. It may be hard to find, it may cost more than conventional coverage, and the policy provisions may or may not provide the customary degree of protection. Nevertheless, I’m told it is out there.
1) A number of major insurance companies have withdrawn from the California market altogether, notifying their existing customers that their policies will not be renewed after the end of the current policy term. Other companies are continuing to renew existing policies, but are not writing new policies.
2) Two claims by a policyholder within a three-year period can result in the non-renewal of an existing policy. This can be true even where the policyholder decided not to proceed with an actual claim, and the insurance company paid out no money. Further, a formal conversation with an insurance agent or a company representative about a loss is recorded as though it were an actual claim.
3) A policyholder’s loss from a car burglary, even where the burglary occurred off-premises, is covered on their Homeowner’s Policy, and therefore counts toward the two-claim total.
4) A single water-related claim can result in the non-renewal of an existing policy.
5) Buyers are likely to have difficulty obtaining insurance through normal channels on a property where there has been a water-related claim within the previous five-year period.
6) When a buyer applies for Homeowner’s Insurance the following are taken into account: the claims history of the subject property, the claims history of the buyer as it relates to Homeowner’s or Renter’s Insurance, and the credit-worthiness of the buyer. A buyer who has made two Renter’s or Homeowner’s Insurance claims in the previous three years, or who has less than very clean credit, can encounter difficulties in obtaining Homeowner’s Insurance.
A homeowner can find their existing insurance policy will not be renewed. A buyer can find that they are in contract to purchase a property with a claims history that effectively closes the normal channels for obtaining insurance. A seller can find that they are in contract with a buyer whose claims history or credit history severely limits that buyer’s choice of insurance carriers.
Until there is an industry-wide resolution that meets with the approval of the state legislature and/or the California Department of Insurance, the issue will persist. Even after that however, it is likely that insurance companies will be more selective than in the past as to the properties and persons they are willing to insure.
Meanwhile, there are a few things that you can do:
If you are a homeowner, you should consider carefully whether a covered loss is worth pursuing with (or even mentioning to!) your insurance company. Also, consider raising your policy’s deductible amount to the highest limit allowed by your mortgage lender (typically $500 or $1000, depending on the lender and the loan amount).
If you are buying a home, try to find out as early as possible about its claims history so you will know where to look for insurance. Also, be aware that your own claims history and credit-worthiness will be factors. Lastly, as suggested above, consider selecting the highest policy deductible amount allowed by the mortgage lender.
If you think that you may be buying a home in the future, consider getting Renter’s Insurance now from a company that writes Homeowner’s Insurance for their existing Renter’s Insurance policyholders. There will be requirements as to the minimum length of time you must have been covered under the Renter’s Insurance policy.
If you are selling a home, if possible, determine ahead of time whether the buyer is likely to encounter difficulty in obtaining insurance.
For both buyers and sellers, appropriate provisions in the Purchase Agreement can be of help in establishing each party’s rights with respect to the insurance issue, and in specifying procedures to be followed in different circumstances that may arise.
I will continue to monitor the insurance issue as it develops and will post information here about any substantial changes.
The GRUBB Co.