Homeowners Insurance: Will You Be Treated Fairly If You Have to Use It? (Part 1)

My blogs usually cover bankruptcy issues, as my practice right now is largely devoted to Chapter 7 and Chapter 13 consumer bankruptcy clients. In assisting clients through the bankruptcy process, many times issues come up regarding homeowners, automobile, or life insurance coverage. It occurs to me that most people have as many concerns and questions about homeowners insurance as they do about bankruptcy, and I plan to devote my next several blogs to this subject.

My law practice over the years has also included a great deal of insurance work. I have worked for insurance companies by representing policy holders who have been sued by someone injured on their property. An example of this might be a case where a visitor to the homeowner’s property slips on ice in the driveway, suffers a broken ankle, and sues the homeowner, who is covered for that liability under his homeowners insurance. I have also at times represented the injured party (the “plaintiff”), usually as a result of an auto accident, but occasionally regarding the liability of a homeowner for those injuries.

I also have represented clients who are the homeowners themselves and have been denied coverage under their own insurance policies for damages to their property resulting from storms, flooding, and other calamities.

From this experience, I know how to read insurance policies and I have a good understanding of Ohio law regarding various issues that arise when a claim is made for insurance coverage. I also have found that insurance companies vary widely in protecting their insureds, especially when it is the insured who’s bringing the claim. I write now to share my knowledge with you, in the event that you have to make a claim on your homeowners insurance.

Let’s start by looking at what a homeowners insurance policy is and its intended benefit to you. You have to keep in mind the special nature of insurance and its role in society. In one sense, an insurance policy is a contract between you and the insurance carrier. Your signature on the contract indicates your agreement with the terms and provisions that the carrier has written into its various policy forms.

On the other hand, an insurance policy is a special kind of a contract. It’s not the same as a contract for the purchase of engine parts by GM, where if the supplier doesn’t come through with the goods, GM can buy them from another supplier and still sell its cars at a profit. You don’t buy homeowners insurance for some sort of monetary advantage. Rather, you purchase it to protect yourself from unknown, unexpected calamities which may or may not ever occur. You pay the premiums to insure that if a calamity does occur, you won’t face financial ruin. [That’s why your mortgage company will require that you keep homeowners insurance in place to protect their interest in your residence.]

Therefore, unlike a commercial contract for engine parts, a homeowners policy promises to provide financial security in the event of a catastrophe. As a policyholder, what you have purchased is some peace of mind. However, if you have a loss and your insurance carrier doesn’t follow through with coverage, you fact a nightmare. At that point, you cannot replace its lack of performance merely by paying the prevailing market price for another insurance company to come in and cover the repairs. Rather, you are completely dependent on the performance of your insurance carrier to protect you at a time when you are most vulnerable.

But what happens when disaster does strike, and your insurance company doesn’t live up to your expectations?   What can you do to protect yourself? How do you make sure you’ve picked an insurance company that will deal fairly with you on a significant claim, say a claim of $30,000 or more?

Unfortunately, surveys of homeowners who filed claims over the last few years indicates that the greater the amount of damages, the greater the probability that your insurance company will dispute the assessment and the amount of the claim, as well as delay in handling it.   Insurance companies realize that property loss claims are uncommon, and therefore the policyholders will tend to be unfamiliar with the process when the need for them to make a claim arises. Most consumers shop for home insurance once or twice in their lives, and then forget about it. If they do have a claim, it’s usually relatively small, such as hail damage to a roof or water damage from a burst pipe. That means most consumers don’t develop much expertise shopping for this product, and rarely get a chance to “test” it firsthand to see how it performs. Insurance use this to their advantage when adjusting claims, especially for large losses.

Of course, protection against large losses is exactly why you buy home insurance. So what can you do to protect yourself against catastrophe?   First of all, do some research to make sure you’re using a good company. Ask among your friends and associates to see how satisfied they are with their homeowners’ insurance carriers, being sure to ask if they’ve ever had to make a claim and if it was resolved to their satisfaction. [Keep in mind that insurance companies are very amenable so long as you’re paying the premiums and they’re depositing them. It’s only when they have to provide coverage that disagreement arises!) I would also suggest that you use an “independent” insurance agency that sells insurance for more than one carrier, rather than a “captive” agency that sells only for a particular insurance carrier. An independent agency can provide you with information comparing how the companies they represent deal with claims. Use only a top-rated insurer, keeping in mind that you get what you pay for, and the stakes may be too high for you to gamble when the need arises. There are a couple companies that have stellar reputations for customer satisfaction, including USAA, Amica, Auto-Owners, Erie, and Nationwide. In Ohio, Cincinnati Insurance Company is held in high regard.

Second, once you’ve selected the insurance company, don’t underinsure. Obviously, requesting lower policy limits should result in lower premium payments. That makes perfect sense to keep money in your pocket so long as you don’t have to use the insurance. If you do have a major catastrophe, however, those savings won’t begin to cover the expenses you will incur. It’s estimated that 1 out of every 10 claimants found themselves in trouble because their policy limits were not enough to cover their losses.   Rather than intentionally underinsuring yourself on the basis that you likely will not suffer a catastrophic loss, it might be better to get the adequate coverage, but save money by raising your deductible. Most people have deductibles of about $500 on their standard homeowners policies. Keeping in mind that insurance should be called on to cover significant losses, not just broken windows, a deductible of $1000 would be better to reduce the premium. Of course, in that case, you should consider keeping enough in savings to cover that deductible if your luck runs out and you need it.

In my next blog, I’ll give you some advice with regard to the particular type of policy you should purchase, and how that can affect the insurance company’s coverage of your claim.

About Barbara Horwitz

Barbara Horwitz is an experienced bankruptcy attorney helping people get past financial difficulties. She believes in creating a relationship with clients and is dedicated to making the bankruptcy process as easy and stress-free for clients.

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