Home-owners Insurance Issue!

[CFP83]

I am a financial advisor, that owns a couple rental houses....I do not do any type of P&C insurance as a part of my practice.

The properties that I own are insured through Erie Insurance. Just this past week we discovered a busted waterline in one of our rentals that was in between tenants...it was a mess. It looked like the water had been running for a few days or so. Anyway we discovered this issue Sunday night and I immediatly filed a claim online with Erie. On monday morning I was on the phone with an adjuster. They instructed me to call a restroration company to get the house dryed out. On tuesday and they gave authorization to the company to remove hardwood floors and kitchen cabinets because of damage. This morning the adjuster met me at the property to review the damage and total claim value. He told me that it was "large enough to be out of his ball-park" so another adjuster would be contacting me by this friday. An hour after he said this I got a call from him saying that they reviewed my coverage and that my policy only convered "damage caused by natural perils". In this instance he stated that the furnace quite working (the temperature here lately has been about 10 degrees) and then the pipes burst. He stated that the policy doesn't cover damage caused from pipes rupturing?

When I put the policy in force with my agent over two years ago i made two and only two request. First I wanted a $2500 deductable and secondly, their system was saying based upon "true replacement cost" i needed 200k of coverage on each home....well we only paid 60k for each of these houses. So it turn I stated I wanted a total of 100k of total converage on each house.

My question is this....I simply wanted 100k of coverage on each house and a 2500 deductable. How in the heck did we get a policy that wouldn't insure damage caused from a failed furnace and busted waterlines? Is this an error on my agents part? As of the last few hours the insurance companies stance is that they aren't liable....meanwhile there is probably going to be 20,000-25,000 of cost to replace all the damaged floors,cabinets,drywall, and cover the cost of the water restoration companies services. My stance is I'm not a P&C agent and rely on my agent to build a policy based on my two stated objectives.

I would love to hear any and all feedback from the forum

 

[djs]

I don't know Ohio law and procedures, so, I'll defer to anyone who does. If in California though....

Error on your agents part - probably not. Neither of your objectives was an all perils policy. Given price was an objective, proven by the reduction in coverage, I assume he provided a named perils policy. The stance here is that a ruptured pipe from freezing is not a named peril. To me, cold weather is a natural peril, but their stance is the occurence was caused by the furnace, not the weather. This basically means the weather is a known risk, not a sudden and unexpected risk.

Where the agent went wrong, perhaps, is allowing you to have $100,000 in coverage on a $200,000 building. This has NOTHING to do with purchase value, simply reconstruction value. On a good day, this would mean that the insurance company is only responsible for about 1/2 of the damage, since you only insured half of the house.

This is a bad case of you actually got what you asked for. Unfortunately, what you asked for wasn't really what you wanted. I've had a few clients like this. You try to explain otherwise, but, it can be a pain. Not saying you were, but, I'm relating it to a few conversations I've had during my career.

All that said, I would really push on the adjusters, the furnace did not cause the freezing temperatures. There is usually a standard and acceptable procedure for these and since the last time I saw freezing weather was when I lived in Ohio (a while back), I'm not sure I know how that works.

Dan

P.S. Don't worry what anyone on this forum says, call your agent, have him push the claim. It is amazing what an agent can do from time to time.

When he says he can't do anything, get a bit louder. Call an attorney if you have to, if you feel you are in the right and the insurance company is wrong. Of course, read the policy they sent you first. That is what they will use.

 

[drcoastline]

CFP83,

Sorry to hear about the damage to your property. Unfortunately all to often people find out the coverage on their property isn't what they though it was.

Your question is more complex then what you think it is. It is quite possible your agent didn't make a mistake and gave you exactly what "you" asked for vs. what they advised you to have. My guess is we will never know for sure exactly what the conversation was.

Any way, form your description of the loss and the denial you have a Basic form policy vs. a Broad or Special form policy. I am not going to explain the coverage difference. Google them and you will understand or read your policy (as you should have done when you received it) and you will understand. I also don't think you were denied on the grounds of "damage caused by natural perils".

A Basic form policy does not cover frozen pipes. That was your denial.

Now the question is why do you have a Basic form policy vs. a Broad or Special form policy? Several reasons come to mind. 1. Condition of the property. 2. Cost, you didn't want to pay for Broad or Special from policy, you wanted the cheapest insurance you could get? or 3. You are under-insured and the agent couldn't get you a Broad or Special form policy.

That's! It's 3. You stated it in paragraph 3. They told you Replacement Cost was $200K for each structure but you only want $100K on each structure because you only paid $60k. You are under-insured. No company I know will provide Broad or Special form coverage which would cover the frozen pipes on a structure that is 50% under-insured. Google co-insurance or read your policy and you will understand how the coverage works.

Your agent gave you what you wanted. If you advised me to get out of the market in 2007 and I didn't listen to your advise "as a professional" and I lost it all in 2008 is it my fault or your fault?

Your agent is a professional and knows how to protect your interest that is what they do.

My guess is your agent gave you great "financial advice but didn't listen. You wanted what you wanted. The only question is can your agent prove they advised properly so they can protect themselves from you? Time will tell.

Sorry again about your loss hope you learned a lessen?

 

[CFP83]

Unfortunately no, my agent didn't provide me with "great financial advice" and being an advisor myself I feel I'm a pretty good judge of that. He was very transactional and when he asked me what I was looking for with these coverages. Our convesation consisted of me going into his office and him asking me what I was looking for in this coverage. I then told him the following.
I want $2500 deductables and only 100k of coverage on each house. If something happens that results in a loss greater than our purchase price (60k) since it's a rental, we wouldn't rebuild we would just take the money and move on. I'm not trying to make money off the insurance company or be "better off than", we just want to be made whole again, thats why I think 200,000 of coverage is doesn't make sense on these rentals.

My agents response to this was "I'll work something up and get back to you with the numbers." He gave no advice at all!! Again, fellas remember I've been a financial advisor for years. I wanted coverage that covered our houses up to 100k...i didn't want the cheapest thing out there.

I would have figured that if a policy doesn't cover vandalism, or water-line breaks like Erie is saying mine does not, then there would have to have been some disclosure I signed or at least clear conversation with me on my agents part that this doesn't make sense in his mind because of the large gaps. If someone clearly goes against what I think is "suitable for their situation" I have them sign a "Hold Harmless Agreement". My agent never even had a conversation with me about these obvious gigantic holes in coverage this policy has.

 

[djs]

I suggest you talk to your agent about this, I'm sure he has his side of this as well.

Since you are admitting that he advised you that you needed $200K in coverage, there is obviously more to this story.

Dan

 

[drcoastline]

CFP83,

I'm sure you are a nice guy so though I may come off as being harsh I think there is more to this and you are stating your question so you get the answer you want. As they say there are three sides to every story. Yours, his and the truth.

As a 20 year P&C Agent who has been through (more then once) very similar scenario's I believe the conversation was a little more involved then what you are stating. You state your demands were I want a $2,500.00 deductible and $100K on the buildings and for some odd reason the agent just decided to say the R/C was $200K ea. with no explanation as to why that was mentioned?

I think he ran some calculations determined the the R/C to be $200K got a quote (that may or may not have been Broad or special form, more on that below) and you didn't like the price. Hence a $2,500.00 deductible to reduce the premium. Your logic in your first post and more specifically in paragraph 2 of your last post "if a loss occurred for more then you paid (60K) you would take the money and move on". So that tells me your state of mind is $60K makes you whole again and that is all you want to pay for. Based on that logic why did you choose to insure for $100K? By the agent advising you of the $200K R/C and and coinsurance. I think your logic was $100K insurance we have a fire the building is a total loss we get $50K maybe a bit more maybe we get $60K and still own the land. Now we have a lot free and clear that we can sell and the premium is a couple of hundred bucks less per year.

Also you paid $60K for each property. That is land and structure. But you have a building R/C of $200k? That says to me we have either a run down property or a property in a not so great area or a combination of both. In addition these properties are tenant occupied. Tenants and cold weather go together like oil and water.

I think there is a good chance condition, location and being tenant occupied also played a factor. Maybe he couldn't get you anything better until renovations to the property were done? Roof, Electrical, Plumbing, guard rails on the steps, How about updating the heater because it was over 20 years old and may break down? If that occurs the pipes could freeze.

I don't know just the thoughts of a 20 year P&C agent.

 

[CFP83]

yeah djs, there is more to the story....here is the latest update.

This policy we are discussing covers three rentals that I have in an LLC with two other owners. I also have a Erie policy on a rental I personally own free and clear as well as another Erie policy on my personal residence. After talking with Erie today, the coverage on my personally owed rental as well as my house cover water-line breaks and are what's considered 80% replacement value policies. However this policy on the rental with the water line issue was a 60% replacement value policy, which I've learned is a bacic "natural perils" contract.

So it sounds like my agent got two out of three policies correct! Btw, I have $2500 deductables on all three policies....two out of the three policies provide the coverage I was looking for.