Homeowner’s Insurance: a Necessary Evil

Vol. 20 •Issue 11 • Page 5
Legally Speaking

Homeowner’s Insurance: a Necessary Evil

From time to time, I like to divert from topics specifically related to health care and focus on those important to protecting the life and livelihood of therapists in general. This column is one of those, and it begins with a short true/false quiz:

  • If your camera is in your luggage at the airport and gets stolen from your luggage, it isn’t covered by your homeowner’s insurance.
  • If you accidently bump the woman in front of you at the store with your shopping cart, and she falls and breaks her hip, it won’t be covered by your homeowner’s insurance.
  • If your neighbor comes to your house and calls you an ugly name and you punch him in the nose, that will be covered by your homeowner’s insurance.
  • If your father-in-law is visiting you at your house, and your dog chews up his hearing aids, that will be covered by your homeowner’s insurance.
  • If a provision in your homeowner’s policy is vague or ambiguous, you get the benefit of the ambiguity.

    The answers are False, False, False, True and True.

    Although policy language varies from company to company and sometimes from state to state, generally speaking, homeowner’s insurance covers your property no matter where it may be located. So if you are taking the family cross country from San Diego to Bar Harbor and along the way your rental truck and all your worldly goods are stolen, if your homeowner’s insurance is still in full force and effect, your goods are covered. Most people are unaware of this fact, but homeowner’s insurance covers more than just the contents of your home.

    Similarly, the liability insurance that is part of homeowner’s insurance covers you even though the accident may not occur at your home. If you have an accident with a shopping cart at the supermarket, it will normally be covered by your homeowner’s insurance. However, almost all forms of insurance exclude “intentional acts.” If you haul off and turn an aquiline nose into a pug nose through violence, you will usually wind up footing the bill yourself.

    When anything happens that results in damage to the property of another due to your negligence (like failing to keep your dog restrained), in most cases, homeowner’s insurance will make that right. Some policies, however, may not let family members living in the household benefit from your negligence. In almost every instance, if the harm results from an automobile that could or should be covered by another insurance policy, the homeowner’s will not cover it. So if your neighbor buries his car in your house, usually it’s up to the neighbor’s insurer to pay for the damages, not your homeowner’s insurance. If the neighbor is uninsured, your insurer may fix your home and sue him for the damages caused.

    Perhaps the most important rule of insurance contracts, however, is that when they are unclear, they are always construed against the insurer. If a term or policy language is vague about what it covers and that vagueness creates an ambiguity, the policy holder gets the benefit of that ambiguity.

    Homeowner’s policies cover much more than simple negligence, but very few people ever read their policy after they buy it. Hence, very few people ever know what is really covered and what isn’t covered. Likewise, they may not understand their duty to cooperate with the insurer, and in some policies, the duty to provide testimony under oath if the insurer demands it.

    Insurance policies are written in a very formulaic way. First the policy describes what is covered; then the policy describes what is not covered or what is “excluded” from coverage under the terms of the policy. Sometimes these exclusions swallow the coverage by excluding things that most people would think are covered (a good example is that most policies exclude damages caused by floods and earthquakes). After the exclusions, a policy normally sets out a series of obligations that the insured may have under the terms of the policy, like the duty to cooperate or provide testimony.

    Homeowner’s insurance won’t pay for acts covered by other forms of insurance, for example, business insurance or workers compensation insurance. It won’t pay family members living in the home for their own accidental injuries. It won’t pay for arson. It won’t pay for cleanup if you violate environmental laws.

    As important to the insurance company as the exclusions is the language in the policy that requires the insured to “cooperate” with the insurer. Usually this means notifying the insurer of any incident that might cause liability (a fire, a slip-and-fall accident, etc.), or if a lawsuit is filed against the homeowner. It also requires the insured not to work against the interests of the insurance company by admitting liability.

    Most fire insurance policies require the insured to provide testimony under oath if the fire is of a suspicious origin.

    Insurance agents are good at selling insurance policies, but frequently they are bad at explaining them. If you don’t understand the policy, ask your agent to explain it to you. If you ask an agent a specific coverage question (“Am I covered in the event of a flood caused by my washing machine malfunctioning?”) and the agent can’t answer the question, ask the agent again in writing, and require a written response. In the event anything ever happens, the clarification of the policy by the insurer will help you protect your insurance claim.

    Few people are aware that flood insurance is offered only through a federal program at the Federal Emergency Management Agency and is offered through independent agents who write the policies. Unless you have flood insurance, you are not covered for a flood that results from a weather-related cause. If you live on a flood plain or near any body of water or the ocean, usually lenders require flood insurance. However, flood insurance is capped at certain levels, and exceptionally expensive structures may not be fully covered even by the full flood insurance. If you live near water, your insurer should assess whether you need to add flood insurance.

    Coverage also should change and increase over time. If a house is insured for $100,000, and its replacement cost is $150,000, the house is underinsured. Also, some insurance policies provide coverage only for the depreciated value of the property, not for its replacement value. If you don’t know which type of policy you have, you must find out.

    Insurance is a necessary evil. It may seem like you’re paying for something you never use, but it takes only one tragic accident on your property to result in a lawsuit that could take away all you’ve worked to protect.

    A.L. DeWitt is affiliated with the law firm of Bartimus, Frickleton, Robertson and Obetz, Jefferson City, Mo. This column is not a substitute for the advice of qualified legal counsel.