Interesting question, usually posed by someone who just suffered a loss and then discovered that their insurance policy does not cover that particular loss. It is one of the two most frustrating questions we have to answer because we often sympathize with clients even though there is little we can do to help. The other question is, “Why did my insurance company settle the case instead of fighting for me in court?” That is one for another blog. For now let me stick to the question at hand.
An open ended question like this is often best answered if we first consider the extremes and work toward the middle.
On one end of the extreme are the obvious coverage situations. For example, your auto policy would cover you if you caused an accident and had liability coverage (required by state law). Your insurance company would pay up to the policy limits. No problem. If you own a home and have a standard homeowners policy and your house were to burn down, your insurance policy covers fire and would therefore build the house back for you as it was or as close as possible. No problem. You get the idea. When you buy insurance the obvious events are often the ones you are thinking about and those are covered. Your insurance policy (a legal contract) spells out all of the details even though very few people actually read it. There are always exclusions.
Now the other extreme. There are things that, quite obviously, would not be covered. Examples for a homeowner include damage due to war, nuclear bombs, invasion, and some natural disasters like flood and earthquakes. For auto insurance, you would not be covered for damages to your own vehicle if you bought only liability insurance and were at fault in an accident. Again these are obvious extremes.
Now for the hard part. In the middle of these extremes are life events that happen to all of us and are specifically excluded in some or most insurance policies. Here are just a few examples of those. Shoddy workmanship (specifically if things were not built according to codes); builder defects; a water pipe leak underground outside of he footprint of your home (which causes no structural damage to the house itself); and the one that confuses people the most – maintenance items. For example, if your hot water heater bursts and the water spilling out of it causes damage to your home, that damage is covered, but the hot water heater itself is a maintenance item and you have to replace it yourself. Another common one in the hot Southwest is air conditioners. If your air conditioner simply breaks or stops working, that is a maintenance issue and insurance would not cover it. Items in your home that require maintenance to insure proper operation are usually not covered by insurance. They fall under the umbrella of warranty items and that’s why there is another entire industry called Home Warranty that would help with those items (i.e., air conditioners, appliances, etc.). Whenever you buy a major appliance, the salesman will inevitably ask if you want to buy a warranty package. Why? Because they know things like this break. Home Warranties are big business and there are many companies around that would be glad to help you with those issues.
Of course, there are always extenuating circumstances surrounding any loss and the insurance industry has an army of people trained to inspect and assess any loss you might have. They’re called insurance adjusters and they will come to the scene and tell you what is and what is not covered under your policy.
I could bore you with any number of examples to illustrate the points I’m making above and sometimes an example makes things clearer. I’ll try a few for you.
1. During the night the RO system under your kitchen sink shears away and water runs freely from it while you are sleeping. When you get up in the morning you find yourself is a shallow pool of water instead of that nice warm carpet you’re used to. WOW! What do you do? First, you protect your property the best you can. That is your responsibility. Shut the water off to the house and call a restoration company to come and start pumping the water and drying you out. Then you call your insurance claim line and report the damage. They will take down all of the pertinent information and send out an insurance adjuster who will assess the damage. In the case like this the water from an RO system is considered “clean water” void of bacteria and stuff like that, so the adjuster will probably tell you that your carpeting can be dried out, but the pad underneath will have to be replaced, and if there is any damage to cabinets, etc. they might need replacing as well. Several days may go by while the damage is dried out and cleaned and you may find damage the adjuster didn’t see. You can call and have them re-assess. And the clean up process may take weeks or even longer. Your policy will cover anything that is damaged and can not be brought back to the condition it was in before the loss. If the water had come from the sewer system, it would be considered “dirty water” and then even your carpeting would be replaced. And there are many other specific items that could be considered. It’s really a call made by the trained adjuster. The key is to understand that your insurance policy is designed to put you back is the same position you were before the event. No better and no worse. [this is a real example that happened to me in 2010]
2. You buy a new car but don’t like the sound system the manufacturer put in it. So, you go and install $6,000 worth of upgraded stereo equipment and speakers. BUT, you don’t tell your agent you modified the car from “stock” equipment. Then your car is stolen and never recovered. The insurance company would pay you the market value of your car with all standard manufacturer parts and equipment. The upgraded stereo system would not be replaced unless you specifically added that equipment to your policy. It’s easy to do, but you have to tell your agent you upgraded the equipment and agree to an additional premium to cover it. Most people just forget it… until they have a loss. It’s always a mistake to not know what’s covered and what’s not. But it isn’t always simple.
3. You have an ATV (3-wheeler or 4-wheeler) or a jet ski in your garage and your house burns down. Those motorized vehicles ARE NOT covered under you homeowners policy. You have to insure them separately. The only motorized equipment covered in a standard homeowners policy are lawn mowers and electric wheelchairs.
4. You have a wall surrounding your home (at least on 3 sides) that was put up by the builder many years ago. In fact it has been so long that the builder of your home is no longer in business. The wall falls down and when the claims adjuster examines the scene he notices that the wall was not built to construction specifications and denies your claim. It’s a builder defect, but the builder is no longer around for you to sue. There is no coverage and your options are now very limited.
5. You discover your water bill is very high, but you’re not using any more water than normal. You discover that your driveway is buckling and it’s wet when there has been no rain. You call a leak detection company and they find a cracked water pipe under your driveway. The driveway has to be jack hammered and a plumber has to dig down to the pipe and repair it. Then you have to repair the driveway. What do you think?
Answer: If there was no structural damage to the house there is no coverage in a standard homeowners policy.
6. What about your trees and shrubs and other landscaping? Or your sprinkler system?
If a tree falls on your house during a wind storm, your homeowners policy will cover the damage to the house, but will not remove or replace the tree.
Your sprinkler system is a maintenance item. Unless it causes structural or water damage to the house itself, the repairs are not covered by insurance.
Had enough? If it appears that there are so many things not covered, you need to think about the hundreds of things that can go wrong and the coverage provided for them. Fire, theft, vandalism, wind, hail, lighting, smoke damage, water damage and many more. If you have questions about coverage’s, you need to ask. We’ll be glad to talk you through as many as we can. BUT REMEMBER, every situation has it’s own set of circumstances and that’s what insurance adjusters are paid to do… examine the scene and make a legitimate and fair determination.
Finally, let me assure you that your insurance company and your agent are there to help you protect those things that are valuable to you. But, you must accept some of the responsibility to know what is and what is not covered if there is a loss. It is impossible to discuss every possible scenario before the fact, so it’s best to use good judgment and an experienced insurance agent that you can talk to and trust.