Recently I wrote a column about the types of claims covered on your homeowner’s policy. Our readers had a wealth of comments and questions. Here are just a few of the responses we received.
1. Earthquakes and fires in California
Pete Moraga, a communications specialist from the Insurance Information Network of California, explained the notion of "proximate cause." Moraga quotes the California Department of Insurance Web site:
"When an earthquake triggers other property losses (such as a bursting water pipe), the earthquake is referred to as the "proximate cause" of the damage, not the "direct cause." CIC Section 10088 states that unless earthquake coverage is in-force at the time of an earthquake, the resulting loss is not covered, even if the direct cause is a covered peril under your residential property policy."
This clause seems to suggest that unless earthquake coverage is in place, the resulting loss from an earthquake is not covered. In California, there is one important exception to "proximate cause":
"Fires in the aftermath of an earthquake can often pose just as much threat to property damage as an earthquake itself. CIC Section 10088.5 provides that your residential fire insurer cover all fire losses that are caused by or follow an earthquake, regardless of whether you have earthquake coverage. Fire is the only exception to the proximate cause law."
Moraga recommends that when you experience a property loss due to an earthquake, do not assume that the damage to your property is not covered.
2. State differences in insurance
Insurance laws vary greatly from state to state. My experience in California was that the lenders normally ask for insurance coverage based upon the loan amount. Most are willing to back away from that demand, provided that the owner insured the property for full replacement value.
According to an Allstate insurance agent from Oklahoma, this is not the case in his state:
"The mortgage company will not accept a policy for less than that amount at closing. They will not close the loan until the policy is written for an amount equal to or greater than the loan amount. If at renewal the insured lowers his coverage below the loan balance, the lender will put ‘forced placed insurance’ on the property to cover the loan amount and charge it to the insured." …CONTINUED
This is an extremely important issue to address. It’s common for loan documents to contain a provision that allows the lender to place insurance on a homeowner’s property when the homeowner fails to provide a policy that meets the lender’s requirements. In virtually every case that I have observed, these policies are much more expensive than what the homeowner could acquire on his or her own.
3. Insurance riders
Another reader said that his insurance agent told him that art, jewelry, antiques and collectibles are insured only up to a specific amount (in most cases, about $1,000) unless you purchase a separate rider (i.e. additional insurance policy that covers these items). This is normally the case for cameras and computer equipment as well. This reader also said that his agent told him that he didn’t need receipts or appraisals for these items.
I had an entirely different experience with my insurance company. They wanted appraisals or other documentation verifying the value of the additionally insured items. It is extremely important that you check your policy to see what requirements your insurer has.
4. Tenant injuries
Another reader asked: "How would you handle insurance on the property you own that is lived in by others? What is the owner’s limit of liability if the tenants’ guests injure themselves?"
First, always advise your tenants in writing that they should obtain renter’s insurance. The challenge is that tenants often believe that your insurance policy will cover them. A smart move is to advise all tenants exactly what is and what is not covered under your owner’s policy. For example, if there were a fire, the tenant’s personal belongings are not normally covered unless the tenant is carrying renter’s insurance.
Liability for injuries can be an extraordinarily complicated issue. For example, assume that a landlord failed to replace the light bulbs in a stairwell and a tenant tripped down the stairs. Was the landlord negligent and does that make him or her liable? If a guest were injured from tripping over a tenant’s toys and that tenant did not have renter’s insurance, would the landlord be responsible? These types of issues can easily end up in court.
Ultimately, the smartest thing you can do is to review your policy thoroughly with your agent. Ask questions about the best type of policy for your situation. Also, if you are moving to a different area, don’t assume that the insurance laws are the same, especially if you are changing states. Carefully investigate the risks, the costs of any riders you purchase, and what types of documentation the insurance company will require if and when you file a claim.
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at Bernice@RealEstateCoach.com.
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