Avoid the Home Insurance Catch-22

Follow through on repairs

There was one small but significant error with the Waterstons’ thinking: They never experienced an actual property loss due to the leak. The water never entered their dwelling, instead escaping into the soil and down the hillside; this was not considered a loss.
Because of this, the insurer denied their claim. The insurer ruled that if no loss exists, any expenses to repair plumbing fixtures would fall under the exclusions clause. So, in essence, even though the Waterstons were trying to do the right thing and prevent what might be a much more expensive covered loss, they were denied coverage because the loss hadn’t yet occurred. Those familiar with Joseph Heller’s novel “Catch-22” might be slowly nodding your heads right now.

But wait, it gets worse. After hearing that their insurer would not pay for the tear-out costs unless they actually experienced a covered loss, the Waterstons decided to leave the pipes as is and waited for a covered loss to occur. Huge mistake!
By admitting in their claim that they had intended to make repairs to their old plumbing fixtures, the Waterstons tipped off their insurance company that the pipes in their house were ready to fail. At that point, the insurer knew that any claims arising from future ruptures in the old pipes would no longer be considered “fortuitous,” and thus plausibly be denied.
Sure enough, several months later, the Waterstons did suffer a sudden rupture in their underground pipes, and this time there was minor flooding in the interior, costing tens of thousands of dollars in damage to wood floors, drywall and other possessions. The insurance company – cruelly, but correctly – denied them coverage again, saying the loss was entirely expected.
Would the insurance company have ruled the same way had the Waterstons never contacted them about repairs? It’s hard to say what they might have concluded without any prior knowledge of the pipe’s condition. Perhaps the insurer would have ruled it fortuitous after all. But the poor Waterstons did not do themselves any favors by tipping their hand with that first phone call and then shot themselves in the foot by not following protocol.

One partial reason for the confusion over these kinds of claims is the murky relationship between insurers and their policyholders over maintenance disputes. This is especially true when it comes to water claims.
For most policies, property owners have no contractual duty to make any specific home repairs. Most only require that property owners only “take steps to protect their property in the event of a loss to covered property.” But with some policies, the insurer can prove that a policyholder knew about, and ignored, a potential problem. In this case, when something bad actually happened, the insurer considered that peril to be non-fortuitous.
After reading this sad cautionary tale of the Waterstons, you can avoid a similar fate by following these three rules of thumb:
1. Make sure you have suffered a covered loss before you file a claim. If you aren’t sure, re-read your policy language closely or contact your state insurance department for guidance. Otherwise, leave your insurer out of it.
2. Don’t report to your insurer damage or deterioration that isn’t covered. Most phone calls and emails to insurance agents and adjusters are monitored and/or recorded. A slip of the tongue over the phone about the condition of your property could potentially cause a future claim denial or cause your premium to increase upon renewal.
3. If you do mention that your property needs repairs – for goodness sakes, make them! The temptation may be strong to save your money and hope for the best in this troubled economy, but this short-sighted frugality could come back to haunt you. Once word gets out about a home maintenance issue, think of the Waterstons and start bringing those repairs to a speedy conclusion.

If you have additional questions, or would like to speak to us at the Sturdevant Agency please drop us a line.
The Sturdevant Agency
Falls Church, VA
(703) 822 7505

Special thanks to Randy Woods, the author of this brilliant article.

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