Wednesday, May 30, 2007

Fire claim creeping along

May 30th, 2007 - Memorial day has come and gone, and still no word from the insurance company. I called Tuesday, but no call back from Kym. If I don't hear something by this afternoon, I'll call Sentry directly.
Last week I received a call from Larry S. Larry is a Certified Fire Inspector from a Cleveland area company called S.E.A. I'm guessing the adjusters report and the fire marshals report were not enough information for Sentry Insurance, so they ordered a fire inspector to make sure the house next door burned down and caused my fire. Whatever.
Last Saturday, I had a meeting with a local contractor to got an estimate for the damage repair: $93,000 is his estimate. He didn't have anything in writing for me; I'm guessing so I won't use his work as reference material. Anyway, it's a starting point for when I hear back from my adjuster.
The house next door has been cleared away, nothing left but a foundation and a few pipes where Columbus water came in. Since the debris had been cleaned away, you can get to my house. Now some more windows will need to be boarded up.

I'm working on the replacement cost article, it should be done shortly. More later.

Friday, May 25, 2007

Replacement cost

One of the great mysteries of the property insurance world is replacement cost. During my agent days, I was frequently asked to insure property and determine a replacement value of someones house. Talk about conflicts, here's what I'm up against: I've got a homeowner who doesn't want to pay anything for house insurance, a mortgage professional who dictates to me how much coverage he needs and an insurance underwriter who has her own idea of what it should be insured for. Try keeping all three happy at the same time. For my own peace of mind, I always imagined delivering a check, in person, after a total loss and asked myself: would these people be happy with the results? I always aimed for satisfied, not mad (too little) or ecstatic (too much).

To imagine the difference in property valuations, let's look at two different but similar sized houses. One is a Duffy home (I'm just picking a random builder) built in 2001 and the other is a 2 1/2 story federalist style brick home built in 1860 in a historic district of town. Both have a market value that is roughly the same, but the construction techniques are very different.

The Duffy home has 2800 SF and a combo of vinyl and stone facing on the exterior. Common asphalt roof, poured concrete basement, framed with 2X4, 2X6, engineered floor trusses and manufactured roof framing. Steel exterior doors and wood/vinyl windows. Interior is plywood sub-floors with carpet,ceramic tile,vinyl sheet tiling, and engineered wood flooring, walls are drywall. Interior doors are hollow core 6 panel with basic oak baseboard and door trim. Kitchen has standard appliances, granite tile counter tops and semi-custom cabinets. It also includes a Pre-fabricated gas fireplace with manufactured mantel and surround. Modern furnace & HVAC. A very nice home in a upscale neighborhood, market value around $400,000. Good quality all around, but nothing unusual in the construction materials. Almost everything in the house can be purchased or ordered at Lowe's and any competent handyman or construction crew can repair the house.

The 1860 house at 2200 SF has original antique brick exterior with a slate roof. The basement walls are field stone and mortar; at some point the original basement floor has been replaced with poured concrete. The framing is full dimensional lumber with original hardwood floors. Original solid wood exterior doors, original wood windows some leaded decorative windows. Solid wood interior doors, antique oak trim, including hardwood stairs, handrails, chair rails, crown molding (man you'd think the stuff grew on trees). Original brick fireplaces (four of them) and original gas lights (refitted for electric). Modern kitchen and cabinetry, upgraded plumbing, electric & HVAC. A historic home in a upscale historic neighborhood, market value also $400,000. All materials in home need to be repaired since replacement is difficult. To find existing or matching trim, material needs to be salvaged or recreated from antique material. Handymen are usually not up to the job, craftsmen with a specialty in older construction are needed and they don't work cheap.

So what would replacement cost be on both houses? On the newer house, a percentage of the retail value comes from the price of land in a trendy of the neighborhood. Using an industry calculator, the replacement cost for the house would range from $290k to $360K depending on features inside the house. This would suggest the land value of the lot is around $75K.

Using the same calculator on the older house, replacement cost would range from $650K to $750K. The price of the house is dictated more by the market demand for this type of house and less by the value of the land and reconstruction costs. Yet at a real estate closing table, both parties want to see the same replacement cost on their insurance policy. In fact, even after a extensive explanation of historic house replacement, the owner of the 1860s house insisted on a lower replacement cost to keep his homeowners premium down.

Now before we discuss how these two figures are calculated, here are some definitions of property replacement techniques:

Like kind and quality: replace damaged property using the existing construction techniques and similar materials.

Modified replacement Cost: Modifies loss settlement to repair or replace home with “commonly used and available materials”
Extended replacement cost: Will pay to repair or replace home up to 125 percent of insured value.
Guaranteed replacement cost: Will pay to repair or replace home no matter what it costs.
Replacement cost of Personal Property: replace old damaged personal property with new property at current cost without depreciation using current products
Replacement: Rebuilding old from scratch.

Reconstruction: Rebuilding damaged property.

Actual Cash Value: Insuring for the market price of a property. Not enough to rebuild but enough to buy the house next door.

Issues that control the cost of replacement or reconstruction of houses and the major differences between older (say pre-1940) and newer homes.

Replacement Cost.
Valuations based on the cost to replace with similar quality and utility. New replacement cost valuation methods fully consider the additional costs involved in rebuilding a home, particularly older homes, for both partial and total losses.
–For older homes, Full dimensional lumber, original wood flooring, lath and plaster walls and ceilings, heavy rafters and sheathing, stone foundations, extensive use of solid wood trim and doors, crown moldings, etc.
–Impacts of requiring updating to building codes, environmental issues, such as lead paint and asbestos which have to be remediated (particularly older homes).
–Demolition and debris removal costs.
–Higher average labor costs in a rebuilding project.

Reconstruction Cost
Includes more accurate valuation estimates for rebuilding an exact replica of the home, including original materials. Replacement cost contracts require this unless the insured is willing to accept commonly used materials (or if the insured doesn't know he has modified replacement cost on his policy). It also recognizes the higher costs in most situations to rebuild a home – even a newer home.
»Time is of the essence in helping the displaced property owner.
»Wages paid to subcontractors on a single job often are higher.
»Materials costs can be higher due to loss of volume discount and normal demand and availability factors.
»More special orders may be required.

Cost for each type of construction vary widely based on cost of materials and cost of labor in different areas of the country. To improve accuracy, insurers use location adjustment programs that are based on the full Zip code, not just the first three digits.

The intent of any cost valuation program is to maintain a high level of accuracy, recognizing that costs are subject to change. To do this, the programs:
- collect data quarterly from over 2,600 areas in the U.S.
- collect union and wage rates for more than 75 trades
- contain over 30,000 line items of construction, including productivity rates and crew sizes to install each of them.
- take into account regulations, debris removal stipulations and license fees for all municipalities.
- study reconstruction/replacement cost data from past claims to more closely reflect the cost insurers pay when a loss occurs.
- consider local cost concerns such as building code requirements, hillside foundation costs, architect fees, and variables for older structures.
- conduct extensive quality control analyses to validate real cost activity from claim settlements, both partial and total.

Accurately generating replacement cost is a important step to take when closing on a house or reviewing homeowners coverage. It is particularly important to the owners of pre-1940 houses and restoration buffs all over the US. Take time to review your policy or ask your agent pointed questions about your coverage.

Thursday, May 24, 2007

Dogs and Insurance

Dog Liability and Homeowners Insurance
Insurance companies have paid particular interest to dogs in recent years and have worked at field underwriting all Homeowners and Renter’s policies for dog exposures. Their main focus is to eliminate exposure to severe losses. In 2002, dog-bite claims cost insurers almost $350 million, and accounted for a full fourth (1/4) of all liability claims. The potential exposure is significant, so underwriters, looking to earn their keep, have come up with ways to reduce their exposure.

At a typical insurance company, information on all large losses where money has not been subrogated, is gathered and periodically reviewed. Usually a committee of senior underwriters reviews what happened and then try to determine if the event was a truly unforeseen occurrence or was the loss something that they could have avoided by changing or enforcing current underwriting guidelines. From this work they have produced the policies that apply to dogs.
Since a significant percentage of the population owns dogs, insurance companies have choices to make on how to cover dogs. Some of their options:

1. Exclude dogs from coverage. With this option they risk alienating dog owners who don’t have aggressive animals and take their chances that a sharp penciled plaintiff attorney won’t pick the exclusion apart in court.
2. Price policies taking all breeds types into account. Look at all dog bite cases and charge everyone enough to pay for the large losses. The insurance companies that choose this are at a disadvantage for two reasons: (1) they will be priced higher than their competition that restricts dogs and (2) people with dangerous dogs will seek coverage growing their risk exposure, not spreading it out (called adverse selection in insurance terms).
3. Write an endorsement and charge dog owners more money for dog coverage. Again, you’ll get adverse selection with dangerous breeds flocking to you. You'll also alienate owners of less aggressive dogs who can go elsewhere for less money.
4. Identify which dogs account for the majority of bites. Then expand underwriting rules to eliminate these exposures by making them ineligible for coverage. If a risk does not have a policy, then there’s no exposure. This option means less business and fewer premium dollars, but fewer large losses. It also does not alienate dog owners with less aggressive breeds.

The only company I’ve seen that offers option one (1) is Foremost Insurance , a standard market company out of Michigan that offers policies to higher risk properties. A few companies have not restricted dog breeds; Farmers Insurance only restricted dogs with a bite history. As you can probably guess, most preferred-market companies have opted for option 4, so I’ll touch on their restricted dogs list.

Several states have tried to restrict an insurer’s ability to underwrite dog exposures by trying to outlaw breed discrimination. With opposition from insurance company lobbyists these bills have gone nowhere.
Underwriting Rules do not allow aggressive or potentially dangerous animals. The lists vary by insurance company but most have listed the following breed of dogs as unacceptable:
Pit Bull Terriers, Doberman Pinschers, and Rottweilers, or any mix of these breeds.
These are just a few of the breeds that are more susceptible to aggressive behavior and it does not mean these are the only breeds insurers are concerned with. There are some carriers that have a more extensive list of unacceptable breeds. Breeds that appear on these lists include:
Akita, Alaskan Malamute, Chow, German Shepard, Presa Canario, Husky, Staffordshire Terrier and wolf hybrids to name a few.
Insurers reserve the right to decline coverage based on the overall exposure, or where they have inadequate information.
A challenge in underwriting dog exposures is that ANY dog, regardless of breed, has the capability to cause severe injury to others. Just like people, animal behavior can be a product of their environment. In addition, much depends on the lineage, how the dog was bred and how they have been treated or trained. The presence of other dogs on the premises can also have an impact on their demeanor.
The fact that insurance reports (CLUE) do not reflect a claim or that an applicant has had coverage with another carrier while owning the dog does not mean the exposure is acceptable. Keep in mind that some carriers have addressed the issue by excluding any animal liability.
There is a misconception by some that the first dog bite is “free”, meaning the exposure to loss is less. This is a fallacy. In many jurisdictions, strict liability prevails for a dog bite, particularly in those situations where it can be proven the animal is inherently unstable, the insured has had the dog trained to be aggressive or where the dog has attacked with no provocation. These factors illustrate why insurers underwrite each and every dog a homeowner or renter has. Exceptions and exclusions will not be an option.

To properly determine the acceptability of a dog exposure, your insurer will ask questions to develop specific information through inquiry and inspection of your premises:
1. What breed is the dog? A mutt or mixed breed is not an acceptable answer. They need to know the specific breed to properly assess the exposure. If you can’t determine this, then they would want to review a photo of the dog before coverage is bound or even request a statement from their veterinarian on the mix.
2. How long has the Insured owned the dog? It would be appropriate to find out if you’ve owned the dog since it was a pup. If you got it as an adult, where did you obtain it? What was the reason the prior owners gave it up? Was it because of aggression?
3. What is the dog’s demeanor? Is it good with children? Has it shown aggressive tendencies? If there is any indication of inherent aggressiveness, or does not tolerate children well, insurers are not interested in taking a chance.
4. What is the dog’s history (has it attacked before)? If so, insurers will not write the exposure – period.
5. Has the dog been to obedience school? You need to differentiate obedience vs. training for other purposes, i.e. being a guard dog.
6. Where is the dog kept? Is it fenced, chained, or in the home? Is the dog left unattended for long periods, i.e. when the owners are working?
7. What type of fence or enclosure is used, if applicable? Is it in good shape? How tall is the fence? Is there a pen? For any of these, what’s the likelihood of escape?
8. What are the local ordinances involving keeping the dog? This is especially important if kept outdoors.
9. Does the insured live in a metropolitan or rural area? What is the proximity to small children?
If you are unsure on whether or not a dog exposure is acceptable once you’ve asked pertinent questions, I'd encourage you to call your agent to discuss.

If a sign is posted on the property this should send up red flags for a potential liability hazard, even if the insured does not currently own a dog. Perhaps you “dog sit” for a friend or a relative which is still a liability exposure for the insured.
If you do not own a dog but are using it as a theft deterrent you should remove the sign. You would be advertising for a potential loss if you have someone visiting with a dog since both parties can be held liable.

Landlords and Dogs
A landlord who allows a tenant to have a dog on the premises can and has been held liable.
There, it’s been said, you’ve been warned. When interviewing tenants you need to ask what breed of dog they have. If their eyes roll up and to the right, they’re looking for a creative answer because they don’t want to tell you pit-bull. Sometimes they’ll tell you a boxer mix – yeah mixed with pit-bull (been there - done that). Insist on seeing the dog. Approach the dog, is he hostile or aggressive? If yes, find different tenants. On my leases, I write an addendum for animals, that way I can revoke the animal privilege without rewriting the lease.
Insurers will never stop underwriting dogs when writing homeowner policies. Dogs are a liability hazard for insurance companies, and the risk associated with insuring their owners is too great to overlook. Addressing an unacceptable exposure after a loss occurs is too late. Take the time to identify your own exposure. By doing so, you help protect yourself and lessen the risk of lawsuits and insurance issues.

Monday, May 21, 2007

Enter the Contractors

May 21, 2007 - It's been two weeks since the fire and ten days since the Adjuster (Kym T from GAB Robins) has walked through the property. I left a message this morning but have not heard back. I figure for any contractor to walk through and give me an estimate, it is going to take significant work, so I'm not panicking yet. If I haven't heard back in a week or so, I'll call the the Sentry adjuster in Wisconsin.

After the fire, I received a letter from the Columbus Department of Development. Boy, what a group; of all the broken down houses in Columbus, I show up on their radar. Since they've gotten involved in this, now any contractor I work with will have to work with them. Our tax dollars at work.

On Saturday, I walked through the property with a contractor I got in touch with through a referral. Some of the items we discussed: hundreds of gallons on Binz paint to cover up the smoke and water damage; examining the structural damage to the roof and walls and determining what can be salvaged and what needs removal. Supposedly, if the fire charred less than 1/8 inch of the wood in the structure, it can be scrapped, resealed and reused (???). Hmmm, this code nugget I'll have to see for myself.

In the meantime, the house next door is still collapsed on mine. That will need removal before much significant work can be done.

I keep promising a article on replacement cost, I'll get that out soon.

PS - got a call from the adjuster..Kym says she's waiting to hear back from the contractor and things should be rolling this week. Let's prey I'm not calling a claimant attorney this week.

Insider Insurance Secrets

Special Report . . .

“Insurance Insider Reveals Dirty, Behind The Scenes Secrets Your Auto & Home Insurance Company Doesn’t Want You To Know…”

What you need to do to stack the deck in your favor so you won’t ever get ripped off again!

By Stephen J. Evanko, Jr.
Insurance Advisor, Author & Speaker

What you have in your hand -- right now -- is “insider information”! This information is so explosive that your insurance company doesn’t want you to know about it. Even your current insurance agent hopes and prays you never read this!

You’re probably asking yourself… who is this guy? Why is he willing to spill his guts to me? And, why should I believe him?

Let me explain. It started many years ago in October 1982. That’s when I entered the insurance business. I was young, inexperienced and believed everything I was taught & trained to say and do. Boy… was I naive!

I began putting all these bits & pieces together and realized what was being said and what was being done were two different things.

Since then… I’ve made it my mission in life to educate you about these “little secrets” and how they affect your wallet! This way… you are armed with the information to move the odds in your favor.

So… let’s peel back the layers of these institutions and lay them bare. After reading the next five topics, you will learn how insurance operates, how to cut through the clutter and be equipped to take total control of your situation. REMEMBER: knowledge and information are power!

“Rating Territories: Where You Live Can Cost You Big Bucks!”

Rating territories are geographic lines that insurance companies draw up to price their policies. Territories look a lot like election districts – – they are cut up for a purpose.

That purpose is designed to charge you the proper rate for insurance. Example: A densely populated urban area is more expensive to insure than a sparsely populated rural area. More people… more claims… higher rates!

However, some insurance companies don’t have enough customers to develop proper rates. So they act conservatively and charge high rates too!

To be fair, most companies divide territories up by city, county or township. Although, there are some who can pinpoint it down to your 9 digit zip code!

Do not assume all insurance companies place you in the same territory!

It is possible that your neighbor, right across the street, is paying 27% less than you for their auto & home insurance!

Why is that?

You see… some insurance companies have lost fists full of cash in certain territories because of excessive claims. So what do they do? They choose to price their products higher in those territories.

This means you are paying more than your neighbor because his company hasn’t lost money in your territory and has taken a rate decrease.

Are you one of the lucky ones who’s getting a great deal or are you one of the unlucky ones who is paying for other people’s screw-ups?

The funny thing is -- -- you wouldn’t even know about this unless you’ve had an agent give you multiple proposals from different insurance companies.


“Rate Decreases: Get Yours While You Can!”

As of this writing, insurance companies want more business in Ohio. We are in what the insurance industry calls a “soft market”. Every insurance company is aggressively going after your business. That means… most have taken rate decreases in the past year!

Have your rates gone down? If not, one of two things is happening… you’re with the wrong insurance company or your agent is not doing his/her job!

Remember… your agent should work for you not just take your money every 6 or 12 months!

You have the right to receive multiple insurance proposals from multiple insurance companies!

Don’t treat your insurance policy like a utility bill! You know what I mean -- -- you received a quote 10, 8, 5 or 1 year ago -- -- you paid for the policy -- -- you put the policy in a drawer -- -- and another year goes by -- -- and the cycle starts all over again.

If you want the answer to this problem… read on!


“Service: Expect and Demand More!”

A long time ago… once the insurance agent sold you the policy, the insurance company did all the rest and the only time you saw the agent was to pay your bill.

Well, times sure have changed! Now everything related to your policy is handled by your local insurance agent.

This is good for you if… your agent is proactive, up-to-date on technology and enjoys building relationships with clients!

However, it is a nightmare for those whose agents are indifferent, under-staffed, improperly trained and just downright lazy!

Let’s face it – as Americans we’re so beat down, that average service now
qualifies as good service. Actually… a prompt return phone call is even considered amazing!

When was the last time your agent contacted you? (No – it doesn’t count if you called them to change a coverage on your policy!)

This day and age with the modern conveniences of technology (phone, cell phones, fax, email, regular mail) there is no excuse for not staying in touch with a client!

Every insurance agent should treat his/her client like GOLD!!! After all… you are a valuable asset to the agent and it’s time he/she realized it!

You see… communication is the key to protecting you, your family, your business and your assets!

Does your insurance company or agent tell you about the changes in your policy, the insurance industry or how these changes will affect you? If not… you’re not getting the best service & advice possible! And -- -- if you’re not getting the best service & advice -- -- you’re not getting the best protection!

Don’t get lulled in to thinking average is good!

You deserve nothing but the best!!


“Secrecy: Only The Insurance Companies Know What They Are Charging You!”

Back in the old days (1996), every adult got close to the same rate. That’s not true any more!

Let me explain… your rate is now based on hundreds of different factors. Anything from your address, your age, your credit rating, if you rent or own your home, your outstanding loans, your claims history, your marital status – just to name a few.

The computer types call it “multi-variate rate analysis”. To me – it’s just plain confusing!

It’s confusing to both the agents who sell & service the policies… and even more confusing to you, the clients!

To make matters worse -- -- every insurance company ranks these “variables”
differently! This means… you may be a wonderful prospect for one company and an average prospect to the next.

In some cases, you have no control over the rate you are charged by an insurance company.

What you do have control over is what company you do business with!

The Answer: Get professional advice and multiple insurance proposals to see what company offers the best protection for you and your situation!


“Auto & Homeowners Insurance After 9/11: This Does Affect You!”

This horrific event not only turned our nation upside down… it changed the insurance industry forever!

Every insurance company in the U.S. operates dramatically different since that tragic day!

Did you know that insurance companies have insurance on themselves? It is called “Re-Insurance”

After 9/11, the re-insurance companies analyzed their contracts and re-negotiated these contracts with the insurance companies. What does this mean? It means only the best, most profitable, well run insurance companies got the “lowest rates”.

How does this affect you? If your insurance company met the high standards of the re-insurers -- -- they received the low rates -- -- which were passed down to you!

If your insurance company didn’t meet these standards, their rates went up… and so did yours!

I’m sure you’re saying to yourself, “That was in 2001 and this is now!” So what?

Well here is a “little know fact”…

When the owners decided to insure the World Trade Center Towers, they decided the odds of losing both towers completely were astronomical. So they only bought enough coverage to rebuild one tower.

That way if one tower was totally destroyed they were covered or if both towers were partially destroyed they were still covered. No one ever thought that both towers would ever be totally destroyed at the same time! How wrong they were!

Therefore, the additional loss had to be absorbed by the re-insurers -- -- who passed the expense to the insurance companies -- -- who passed the expense to you. (Get the picture?)

And… a loss of this magnitude is felt for many, many years to come!

9/11 also forced the insurance companies to change the policies offered to you by altering coverages!

Did you know… that most insurance companies no longer voluntarily cover acts of terrorism! For obvious reasons -- another massive terrorist attack could have bankrupted the insurance industry.

It is also more difficult for certain business to obtain insurance coverage because they are considered “terrorist targets”.

No one event, in modern history has ever affected the insurance industry so dramatically!


Yes, there’s a lot of information in this report. And, it’s o.k. if you need to go back and re-read it to fully understand how it impacts you, your family, your business and your assets.

What’s your next step… you need to step back and examine your situation!

Ask yourself: Have I switched insurance companies in the last 5 years? Do I have an understanding of what I’m paying for? Does my current agent have choices for me to consider? Am I the only one who is proactive? And finally, do I get regular reviews from my current agent?

If you answer NO to any one of these questions, you should contact me immediately!

Who else has given you this valuable information? Why stay loyal to an insurance company or agent who doesn’t give you the time of day? What would cause you to do business with someone who doesn’t give more than he/she gets?

If your current agent doesn’t offer you choices -- contact me. I have 11 top rated insurance companies line up for your business!

If your current agent hasn’t explained, in detail, what your policy covers and why you’re paying exactly what you’re paying… call me now! You deserve the right to know! I offer explanations in words you can understand… not “insurance-ese”.

If your current agent hasn’t contacted you (and it doesn’t count if you call him) for your annual review – – you must talk with me! My clients receive a review of their insurance portfolio, at least once a year.

Have you even taken your policy out of the drawer in the last year?

You must do so right now! Do not delay!

Don’t treat your insurance policy like a utility bill. (It shows up and you just pay it without thinking twice about it!) You have everything to lose in a blink of an eye!

Contact me and experience what an insurance advisor has to offer!!!

Stephen J. Evanko, Jr.
Insurance Advisor, Author & Speaker
Delaware Insurance Advisors LLC
Call: (740) 369-1040 or (614) 888-4405
Fax: (614) 474-1672

(This is not intended as a solicitation for anyone outside the State of Ohio)

© 2006, Stephen J. Evanko, Jr. The reader assumes all responsibilities for his/her own actions in regards to any items discussed in this report. Adherence to all applicable laws and regulations, federal, state and local, governing the use of any product or service described in this report in the US or any other jurisdiction is the sole responsibility of the reader. The publisher and author assume no responsibility or liability whatsoever on the behalf of the reader of these materials. The reader is encouraged to consult directly with his/her insurance professional.

Friday, May 18, 2007

Liability coverage definitions

May 18th, 2007 - Still no word from the insurance adjuster. I was supposed to meet a contractor to looks at the property but I violated the first rule of Real Estate: Don't forget the keys! I caught him in time and saved both of us a wasted trip.

Since there's not much going on and I haven't got my notes on replacement cost, I'll outline some definitions of covered injuries or damage in liability coverage.

Some helpful definitions:

  1. Insurer - the insurance company issuing a policy.

  2. Insured - the named person(s) covered by the policy.

  3. Tortfeasor - the person in a claim getting his booty sued.

  4. Claimant - the wronged person doing the suing.
An insurer is obligated to cover liability damages under an insurance policy if the nature of the damages are covered by the policy (you can tell I never went to law school). Liability coverage commonly covers:
  1. Bodily Injury - liability stemming from injury, sickness, or disease sustained by a person including death. Some courts have included emotional distress even when it does not cause physical harm.

  2. Personal Injury - liability stemming from libel, slander, defamation, wrongful entry or eviction, false arrest, wrongful detention or malicious prosecution. These fall under the category of intentional torts. Insurance policies will only cover listed intentional torts.

  3. Advertising Injury - liability stemming from libel or slander; publishing material that constitutes an invasion of privacy; misappropriation of advertising ideas; infringement of copyright, title or slogan.

  4. Property Damage - liability stemming from physical damage to tangible property. Includes loss of use and loss of use of undamaged property.

  5. Professional Liability - liability stemming from injury or losses caused by improper rendering of professional services including errors in judgement or omissions.

  6. Wrongful Acts - liability stemming from harmful acts or omissions, allegedly committed or attempted by an insured.

Liability coverage on an insurance policy is expressed one of three ways:

  1. Single limits - contains a single dollar amount that applies to all damages done in one occurrence. Sometime called a combined single limit (CSL).

  2. Split limits - Separate limits for bodily injury claims and property damage claims. Common in auto insurance, expressed as say 100/300/100 limits: $100,000 bodily injury per each injured person, limited to $300,000 total bodily injury for two or more injured persons and $100,000 property damage per occurrence.

  3. Aggregate limits - the maximum amount an insurer will pay per coverage period from all occurrences.

In addition, insurers will pay for defence costs associated with the defence of the insured. This cost will stop if/when the policy limits have been paid out. However, if a claimant does not accept the full policy limit as settlement, the insurer is obligated to continue defending the insured until a final court judgement has been rendered.

Feel free to post comments or join in on any discussion

Ernesto TIG

Thursday, May 17, 2007

Definitions of Rental Property Coverage

May 14th 2007 Called Kym the adjuster to touch base and find out where we were in the claims settlement. No word yet, she's waiting on input from the GC to get her numbers together. I ask if she's received copies of the leases (hint hint I want my loss of rent coverage) she has received them; she says the company will pay out based on how long they estimate the renovation will take and an advance is possible if needed. We'll see how that goes. I'm hoping this doesn't require the services of an attorney.

Since there's nothing going on on my claim I'll cover the basics of Dwelling coverage on rental property (property that's not owner occupied). This applies to residential property with 1 - 4 units and no commercial exposure (no apartments on top of stores or houses used for a public access business). This does not apply to commercial coverage.

A standard policy has four parts:
  1. Declarations - Insurance company name, name of insured, address of property, amount of coverage, premium, and policy period.
  2. Insuring Agreement - Contains consideration clause, effective time & location, policy limits, ACV limitations, company options, direct vs indirect losses, insurable interests and perils covered.
  3. Conditions - Conditions that apply to insurer and insured; an example would be insured requirements to notify insurer of loss.
  4. Exclusions - What's not covered. Flood, war, nuclear, earthquakes and wear & tear (including insect & animal damage) are general exclusions that apply to all policies.
The policy is broken into the base policy (called a standard fire policy or SFP) and a Dwelling Form endorsement (Def. an endorsement is an addition to a Property & Casualty policy that adds more coverage; called a rider if it's Life & Health related). The SFP covers basics like fire & lightning. Additional loss coverage depends on which endorsement you buy:
  1. DP-1 endorsement - Basic Form or DP-1 - Pays ACV (replacement cost minus depreciation) coverage (replacement cost may be available for extra $$) Named coverages are: Wind, Hail, Aircraft, Riot & Civil commotion, Vehicle, Volcano, Explosion & Smoke. DP-1 policies are generally only sold on vacant property (under renovation or for sale) SO another important endorsement is vandalism and malicious mischief (VMM). May not cover trees and scrubs.
  2. DP-2 endorsement - Broad form, Includes all coverages on DP-1 plus replacement cost on structure, burglary damage, falling objects, weight of snow & ice, water leakage, freezing pipes, power surge and glass. VMM is included without an endorsement. Usually includes trees and scrubs.
  3. DP-3 endorsement - All risks -includes all coverages in DP-2 and generally covers anything not excluded. Theft only applies to build in items.

To determine what your coverage is, read your policy (it's a thumping good read..for an insurance geek) or look at your declarations page. If it's still not clear, discuss with your insurance agent or call customer service at your insurance company. Be sure to press for details, since your agent may not know what he's selling.

The policy will pay up to a certain amount of money for the above mentioned losses based on your declarations page:

Deductible - Usually $500 to $1000, amount property owner is to pay before losses are paid.

Coverage A: Dwelling- the building itself including all structures and fixtures attached to the property. May be replacement cost or ACV. Usually contains an inflation provision so coverage (and premium) go up a certain percentage every year on the policy anniversary date. Determining proper replacement cost is a discussion for another day.

Coverage B - Other structures - Outbuildings or unattached items (like fences). Usually 10% of Coverage A. Pays in addition to Coverage A, so on a total loss, if you have $100,000 of Coverage A you would receive up to an additional $10,000 under coverage B.

Coverage C - Personal property - Again a percentage of Coverage A: This tends to vary by insurance company. This is limited to the owners personal property at a rental house, not the tenants things.

Coverage D - Loss of Rents. Usually 10% of Coverage A. Covers fair market rent for up to a year or whatever period the insurer thinks is needed to repair property.

Liability Coverage Sometimes called Coverage E - Usually between $100,000 to $500,000 of coverage. Coverage for owners to pay $$ for negligent acts that caused bodily injury or property damage related to owning the property.

Med Pay - Sometimes called Coverage F -Provides small amounts of medical coverage so injured parties don't need to sue for liability coverage to get minor injuries paid for.

Other coverage included (read your policy to see if they're included):

Board up and securing property after loss.

Debris removal - certain limits may apply, such as removal of fallen trees.

Fire department service charges -typically around $500 is covered.

Coverages for code compliance - extra $$ paid to bring older properties up to current code. For example the asbestos shingles on my rental.

Later I'll discuss how properties are valued and how insurance companies pay claims.

Ernesto TIG

Wednesday, May 16, 2007

Walk through time

May 9th, 2007 - Early afternoon. I meet the adjuster (Kym) and her builder on location and begin the property walk through. The place is a mess. Burnt and damaged vinyl everywhere, the place smells like 100 cigarette smokers and the floors are covered with gypsum and wool insulation. Next door, CFD is pumping more water into the burned out hole in the ground that was supposed to be Condos.

We start with a discussion of the board-up that is still ongoing. The ground floors are boarded where there are no windows. The windows on the fire side are completely melted and in some spots the walls are burned through. The larger damage has been covered with blue tarps. The ceilings on the second floor are gone and you can see the fire damage to the roofing timbers. At this point there's not much to look at and the smoke smell is getting to me, so I leave the adjuster to her work and go outside.

Looking around outside tells a story itself. The fire was so hot, it melted vinyl across the street and even across the street and one door down. A house across the alley had a wooden fence and storage shed. They both ignited and were badly burned. I walk around the property and run into several of the neighbors. One is a retired lady who lives across the street in the former Methodist church parsonage with her husband. She is watering flowers wilted by the heat. Her house has damaged vinyl siding and the windows on her front porch are damaged and won't open. I ask if she's called her insurance company and she says she has. I mention I would have gotten a repair estimate first then called my insurance company, but then again, I carry higher deductibles than most.

In the insurance biz, Property & Casualty companies keep track of claims filed through a service called CLUE (Comprehensive Loss Underwriting Exchange). Based on their CLUE contract, insurance companies are required to report claims to CLUE even if no action was taken or money paid out. Since fire claims get a lot of attention from property underwriters, filing a small claim is probably a bad idea. Too late. Anyhow between replacing two double windows ($800) and matching vinyl siding, we're probably looking at $1500 or so for the claim. Probably more than most people want to pay out of pocket. I also talk to the guy who's fence was burned. Outside his fence, there is a melted trash container. One of the large rolling units provided by the City of Columbus. I suggest he borrow one from the back of my property since it's still intact. He too has been in contact with his insurance company. I hate repeating myself so I don't.

He does provide another clue to what happened in the house that caught fire; apparently it was the owner inside running a circular saw that started the fire. He says the inside had not been drywalled yet so when the fire started it went up like a torch. I didn't realize insulation was so flammable. Guess I'll have to research that. So much for a contractor with insurance to subrogate the claim.

Returning to the front porch I notice something. The outside of the wall that faced this intense heat is fairly intact. On closer inspection I discover an old Columbus trick: the vinyl siding had been installed on top of asbestos shingles. See in some cities, building code are rigidly enforced, asbestos is abated (properly removed and disposed of) and things like this would never happen. In Columbus, unless you're building a nuclear power plant, the city is pretty unaware of building and code violations. Well, regardless of what your position on asbestos is, without those shingles my house would have been a smoking hole in the ground. I do point out the shingles to Kym, she makes a note and will determine if there is a code-enforcement endorsement in my policy (I know there is). I leave to return to work and she continues on inventorying the house and measuring rooms.

Later that afternoon I fax copies of the leases to Kym and wait to hear back. Since I don't hear from her again until the following Monday, my next post will detail homeowner coverage and how it applied to my dwelling fire policy.


Tuesday, May 15, 2007

Here come the adjusters

May 8th, 2007 - My insurance company (rhymes with Sentry) has been called and around 10:30AM local the adjuster calls from beautiful Stevens Point WI. He asks some general questions - what happened, when, how bad, anyone hurt, did you have tenants yada yada. I offer to email him a picture and when he receives it he agrees the damage is bad.

Back up a step, the main reason all of my policies are through Sentry; (1) their rates are decent and (2) I used to be a Sentry sales rep. Overall my impression of the company was good although, with my ultra-preferred book of business, I never really had many large claims. When your clientele is 40+ and well heeled but not rich, your claims are going to be infrequent. This would have been the largest claim on my book ever.

Back to the house, since Sentry only has one adjuster in the state of Ohio (I told you, not many claims) they assign a independent claims adjuster. I'm told they will be in contact with me the same day. Sure enough several hours later the independent adjuster calls. She gets contact data and sets up an appointment the next day to walk through the house. I ask if she know a company to board up and secure the property and of course she does. She says that she'll contact them and get them on the care right away.

Securing damaged property is part of coverage provided and finding companies that do it is not terribly hard, in fact many of these companies will visit fire scenes with business cards in hand and offer to do the job on the spot. The trick is finding someone reasonable (at least reasonable so the insurance company will pay for it) and reliable. A honest adjuster should know both. Also since she took care of it, they'll bill the insurance company directly. No small issue since I'm out May rent, security deposits and the mortgage company still wants to get paid. She also asks about current leases, since loss of rent is part of my coverage. I'll pull the latest leases I have and get her a copy.

So a time is set up to visit the property. The adjuster will bring a contractor with her to access the damage and determine costs. In the meantime, I start a search for my own contractor. Since I've gotten out of the sales rep game ( a story for another day) I don't have many current contacts in the industry anymore. Most handymen I know in the industry are too small to handle such a large task, so the search begins.

More tomorrow ..

Monday, May 14, 2007

The once is a lifetime event

May 7th, 2007 around 2:00 PM. I leave a meeting and check the voice mail on my cell; there's a message from a tenant of mine who lives in half a duplex in a trendy Columbus neighborhood. he's heading home because his son says the house is on fire.

Before I continue allow me to introduce myself. I am a mild mannered insurance professional who's lived the past 16 years in Central Ohio. Though the years I have worked at several of the large insurance companies as well as some other investment and financial institutions. Around Y2K, the job market started to tighten, and looking at my stable finances, I decided to take my knowledge and start my own insurance agency.

As part of my marketing strategy, I networked with real estate and mortgage industry professionals and decided to invest in several rental properties. One such property being a side-by-side duplex I purchased in 2004. The property was neglected and run down when I purchased it for $72000. After $24000 in renovations (new roof, drywall, plumbing, electric wires & circuit breakers, paint and repair of broken windows) I rented both sides for around $1100 a month ($500 and $600 per side). Things were moving along well at this property; one side had long term tenants who liked the place, paid on time and were a blessing to me and the neighborhood. The others side had stayed mostly rented; the last tenant was a single mom who had lost her job and had moved out the weekend before.

Back to the fire. The house next door was a duplex, similar to my own that had gone through a slow-motion renovation. The owner had maintained a low rent house for years. The last straw: crack head tenants convinced him to clean the place up and sell the units as Condos. So June of 2006 he guts the place: all windows, doors and siding are gone, the yard is torn up and the interior removed. Then, nothing until April of this year. Suddenly a horde of contractors descends on the place and overnight the place is better homes and gardens. At least on the outside.

When I arrive, there was nothing left of the house next doors. Columbus fire is spraying my house down but next door there's not enough left for a decent barbecue. My house is badly damaged. One side is scorched and the other has a hole cut in the roof to pour water in since the fire had spread to the roof. The vinyl siding is melted or turned brown and falling off. The fire was so hot, houses across the street have damaged windows and melted siding. All grass within 100 feet has turned brown and flowers have been wilted to the ground.

I identify myself to CFD and they take basic information from me. My tenants are watching this spectacle holding their python (heroically rescued by Columbus Fire) and seem oddly calm about the entire ordeal. They've got that strength in the Lord thing going on for them.

After getting the fire under control, the deputy chief on the scene allows us to walk though and view the damage. The unoccupied side is torched; the walls all blackened, windows are melted or broken, drywall ceilings have collapsed and covered the floors with gypsum 3-4" deep. Parts of the outside walls are burned completely through. The tenants' side is not as bad; there is smoke damage everywhere, the upstairs ceilings have collapsed onto their belongings and several windows are broken where CFD needed entry. There is also sunlight coming though the roof, courtesy of a entrance hole cut by the firefighters. Skylight you always wanted I joked.

After viewing this I find the chief again talking with an arson investigator; I inquired about what he knew and he tells me a construction worker was next door running a concrete saw and set off the fire. Says they've taken a statement and everything. They won't tell me who it was so I guess I'll have to find out when I see the fire marshals report. I check in with my tenants and they are meeting with the Red Cross to arraign temporary housing. They also state they did not have renters insurance, so they will have to salvage as much as they can and replace their own possessions. I'm hoping the construction guy was with an established company and was insured; this would be the only recourse these people have, suing against his liability coverage. At least no one was hurt.

I tell my tenants I'll refund their deposit and May rent ASAP and will help them as much as possible. I check the doors, which are still intact, secure the property as best I can and call it a day. By the time I arrive at home it's a little after 5PM. My insurance company is located in Wisconsin (rhymes with Sentry) , so I know their claims department is still open. I call the 800 number to get the ball rolling. The phone rep takes all information, my contact numbers and tells me a property adjuster will be calling tomorrow. I call it a day and head off to my little girls softball game.