Advocate Claim Service, Inc

Advocate Claim Service Newsletter November 2007

It is with great satisfaction that we bring this newsletter to you. In this issue and in coming months, we will discuss pertinent insurance topics which may affect you. We sincerely hope that you will find this newsletter informative and please do not hesitate to contact us should you have any questions or needs.

This months topics:

• Does Your Homeowner's Policy Cover Sewer Backups?
• Minimize the Likelihood of a Homeowner's Insurance Non-Renewal or Rate Increase
• Securing Homeowner's Insurance Should Be a Priority for Home Buyers
• Interpreting the Coinsurance Clause in a Builder's Risk Policy
• Don't Be CLUE-less When It Comes to Insuring Your House or Vehicles

Does Your Homeowner’s Policy Cover Sewer Backups?

Most homeowners would probably be surprised to learn that, without a specific endorsement for it, their homeowner’s insurance policy doesn’t cover a sewer backup. Given the costly damage that can be caused by a sewer backup, the low price of this coverage represents a real bargain for most homeowners.

As a homeowner, you are responsible for the maintenance and repair of the pipeline that connects the city sanitary sewer main and your home. You own this pipeline, including any part of it that extends into the street or public right of way. Thus, you should understand how backups are caused so you can prevent them and save yourself some costly repairs.

Three causes are the culprits behind most sewer backups:

• Blockages in the pipeline caused by tree roots — Trees need moisture, so they naturally are drawn to cracks in the sewer line, where there is abundant moisture. Root growth typically starts with just a few small roots penetrating a crack in the pipe. However, as the roots continue to grow, they can cause extensive damage by entering the pipe at joints and causing blockages. Tree roots can also travel the length of the pipe, completely clogging it.
  
  If you suspect that city trees are causing a problem, contact the city. Samples of the roots will identify the trees to determine who is responsible for cleanup. If the blockage is caused by a combination of city and private trees, cleanup costs are split between the city and the property owner.
• Blockages in the sanitary main — A blockage can occur in a city sanitary main, resulting in sewage backing up into your home. Usually this happens gradually, giving you time to call a licensed plumber to assess the damage. If, however, there is a rapid flow of water entering your basement, you should call the city public works office to report the problem.
• Heavy rains — A storm sewer or sanitary sewer can back up into your home if it can’t handle the amount of rain falling. The water usually comes into your home through a sump well, or washtubs and toilets in the basement. However, this type of damage can happen anywhere in the house. Having both a sump pump for draining water and a backup generator to run the pump in case of a power loss helps to avoid this occurrence.
  
  The damage from any of these events can be quite expensive. Water and sewage can harm or destroy anything they come in contact with. Water damage typically occurs in the basement where items like the furnace and hot water tank are located, and the cost to repair or replace them can run high. By calculating how costly the potential loss from water and sewage damage can be, it is easy to see that purchasing the additional sewer backup coverage is well worth the price.

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Minimize the Likelihood of a Homeowner’s Insurance Non-Renewal or Rate Increase

Almost three million households have lost their homeowner’s insurance since 2003 according to a 2007 national telephone survey conducted on behalf of Trusted Choice and The Independent Insurance Agents & Brokers of America. Two-thirds of the households that lost coverage were located in the South. Only half of the nonrenewed households said they were able to find other coverage.

As part of the current study, respondents were asked about changes they’ve made since 2003 to secure their home in the event of a natural disaster. Overall, a mere 28 percent of households indicated they have taken steps to secure their homes. Even in the South, where the threat of hurricanes is an annual occurrence, only 31 percent indicated that they had secured their homes.

The survey results also showed that about 35 percent of all American households had experienced a homeowner’s insurance rate increase in the previous 48 months. Twenty-two percent of the respondents answered that they had received anywhere from an 11 to 25 percent rate hike, while 13 percent said that they had received more than a 25 percent increase.

Trusted Choice offers the following tips to lessen the possibility of non-renewal or rate increases:

• Monitor your claim activity - Insurance companies track how many and what type of claims you file. Frequent claim activity, no matter how small, can impact your rates and chance for renewal.
• Stick with one insurance company - An insurance company is more inclined to look past an item on your claims record if you are a long-term customer. Changing insurance companies on a regular basis makes it difficult to build a relationship with an insurer.
• Bundle your coverages - Keeping your homeowner’s and auto policies with one insurer makes you a more attractive customer. An insurance company may think twice about dropping your homeowner’s coverage if it may mean losing your auto insurance business, too.
• Review your deductibles - Make sure that your deductible isn’t so small that you will be submitting every potential claim for payment, nor so large that it will cause financial hardship in the event of a loss.
• Home improvements help - Your home’s wiring, plumbing, heating and roofing should be in good repair at all times. At least twice a year, walk through your home and inspect it for developing problems.
• Know a house’s claim history before you buy it - Ask for a disclosure report, which can be obtained from your real estate agent or the seller’s agent. Insurance companies will be wary of a home with previous structural or water-damage claims.
• Consult your insurance agent - Working closely with an agent may be the easiest way to stay insured affordably. And they will be your advocate when you have a claim or other problem.

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Securing Homeowner’s Insurance Should Be a Priority for Home Buyers

Your loan package has been approved, your closing date is just days away, everything you own has been packed, and all that remains is a quick call to your insurance agent to line up a homeowner’s policy. That’s when the nightmare starts.

Your agent informs you that your new home is uninsurable due to a history of insurance claims filed by the previous owner. Despite home inspections and various required real estate disclosures, this could happen to you.

Obtaining homeowner’s insurance used to be one of the last tasks a buyer performed before closing; now it should be one of the first.

Insurers always check a property’s claims history before issuing a policy. Water damage claims are red flags, of course, but homeowners can also set off alarms simply by inquiring about their coverage, without ever filing a claim.

Most insurers research past claims through a shared database called CLUE, which stands for Comprehensive Loss Underwriting Exchange. When you apply for homeowner’s insurance, the insurer will request a CLUE report to determine whether you or the seller have filed any claims during the past five years. Even if you currently own a home and have a squeaky-clean claims history, if you buy a house with multiple claims filed against it, you may not be able to secure insurance coverage.

Unfortunately, you can’t order a CLUE report if you are not the homeowner. However, you could always ask the seller to order a copy of the report as a contingency to your offer.

If you are ever denied insurance because of past claims you can request a free copy of your CLUE report. In the event of a dispute with your insurer, you have the right to ask that your account of the events be included in the report. If you are simply curious about your home’s history, you can order a copy from ChoicePoint, the company that manages the CLUE database.

It pays to educate yourself about homeowner’s insurance when seeking affordable coverage. Consider the following:

• Learn the rules regarding homeowner’s insurance renewals in your state. Regulators of some states exercise control over when an insurer can refuse to renew your coverage.
• Pay for small losses yourself. Insurers take notice of customers submitting frequent small claims.
• Think twice before calling your agent or insurance company. Once you call the insurer opens a claims file on you regardless of whether you actually file a claim.
• Increase your deductible and consolidate insurers. To reduce your homeowner’s insurance premium, consider raising your deductible. Also, most insurers offer discounts if you insure both your car and home with them.
• Examine your credit record. In addition to your past claims history, insurers often use your credit score to determine whether to issue you a policy.

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Interpreting the Coinsurance Clause in a Builder’s Risk Policy

As the name implies, the coinsurance clause—which is typically found in a builder’s risk completed value policy—makes the policyholder a co-insurer of risk. Under certain conditions, when there is a coinsurance clause, the insurance company will not pay the full amount of a loss; part will be borne by the policyholder.

The advantage of buying insurance with a coinsurance clause is the policy’s premium will generally be lower than a similar policy without the coinsurance clause. To avoid an unpleasant surprise in the event of a loss, it’s important to understand what the coinsurance clause requires. Typically, the clause in a builder’s risk completed value policy reads as follows:

"Need for Adequate Insurance. We will not pay a greater share of any loss than the proportion that the Limit of Insurance bears to the value on the date of completion of the building described in the Declarations."

Policyholders are often confused by the relationship between the policy limit and the coinsurance clause. When a policy has a limit of $100,000 and the amount of a loss is $20,000, well below the policy limit, it would seem as though the insurer must pay the full amount of the loss. Due to the coinsurance clause, however, the insurer may or may not pay the full amount of the loss, depending on whether the insured has maintained the amount of insurance necessary to avoid the coinsurance penalty.

Here’s an example of how the coinsurance clause would be applied: You have a policy with a $100,000 policy limit. A windstorm does $20,000 worth of damage. At the time of the loss, it is determined that the completed value of the project will be $120,000. The policy value of $100,000 is 80% of $120,000 (the actual value of the project). Therefore, the insurer will pay only 80 percent of the $20,000 loss, or $16,000.

Whenever the insured receives less than the full value of the claim due to the discrepancy between the policy limit and the completed value of the project, the insured is said to have experienced "a coinsurance penalty."

One common mistake by policyholders, which often leads to a coinsurance penalty, is not reporting cost overruns. When there are cost overruns the increased completed value must be reflected in the policy limit. Therefore, it is critical to keep your insurance agent informed so that your policy limits can be updated appropriately.

Another mistake is using the amount of the construction loan as the limit of insurance. The completed value of a project is almost always more than the construction loan. Here’s an example: A developer funded a significant portion of a building project with cash, but did not include this amount when computing the completed value, and obtained insurance only for the financed amount. The policyholder learned a tough lesson when the insurer applied a 50% coinsurance penalty to a $5.9 million loss.

Sometimes policyholders fail to include overhead and profit, usually figured at 10 percent each, in the completed value of a project. Since these items represent up to 20 percent of completed value, leaving them out could lead to a large coinsurance penalty.

On the other hand, some items should be excluded from the calculation of completed value. The largest of these is land value. Other items, such as excavations and underground work, should also be excluded. If you include them in your calculation of completed value, you incur extra cost with no benefit in the event of a loss since these items are excluded from most policy forms.

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Don’t Be CLUE-less When It Comes to Insuring Your House or Vehicles

You’re about to buy a new home or new car and you believe you’ve found the perfect one for you. You need to insure your new treasure, but for some reason you can’t find a carrier to cover it. Is there any way you can find out why you seem to be uninsurable? The answer is simple, get clued in with CLUE.

CLUE, also known as Comprehensive Loss Underwriting Exchange, is a database of consumer claims compiled by a company called ChoicePoint that insurance companies access when they are underwriting or rating a homeowner’s or auto insurance policy. An insurer can request a report for a piece of personal property that it is underwriting and receive claims information provided by the insurance companies who previously insured the property. This report also includes details such as the policyholder name, policy number, date of loss, type of loss, amounts paid, and a description of the property covered. The database contains up to 5 years of personal property claims history.

Under the Fair Credit Reporting Act, ChoicePoint can produce a CLUE report when a person or company intends to use the information in connection with the underwriting of a consumer’s insurance policy. This includes situations where the consumer asks for an insurance quote or applies for insurance; or when the insurance company or agent requests the CLUE report.

Why would an insurance company investigate loss history? Actuarial studies have shown a high correlation exists between a consumer’s prior loss history and future loss potential. This history, along with other factors, can be considered when a company is deciding whether to issue a policy and what premium to charge. It is legal for a company to investigate a prior owner’s loss history in determining your eligibility for coverage.

As a consumer, you are not without rights when it comes to CLUE. Under the Fair Credit Reporting Act, you have a right to see and correct information on your claims history reports. If you have been denied insurance or charged a higher premium, contact ChoicePoint or ISO within 60 days of your denial to request a free report.

Otherwise, you will be charged a small fee for your claims history report. You can find more information by logging on to ChoicePoint’s website at
http://www.choicepoint.com/industry/insurance/pc_ins_up_2.html

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Disclaimer

Information contained in this newsletter about product offerings, services, or benefits is illustrative and general in description, and is not intended to be relied on as complete information. While every attempt is made to ensure the accuracy of the information provided, we do not warranty the accuracy of the information. Therefore, information should be relied upon only when coordinated with professional tax and legal advice.

Advocate Claims Service provides insurance claim help to Florida home and commercial property owners
to ensure you receive a fair settlement for your property insurance claim.

We provide public adjusting services to South Florida including:

Broward County, Miami-Dade County & Palm Beach County

and the cities of

Boca Raton   •   Coconut Creek   •   Coral Gables   •   Coral Springs   •   Davie   •   Fort Lauderdale
Hallandale   •   Hollywood   •   Jupiter   •   Margate   •   Miami   •   Mirimar   •   Pembroke Pines
Plantation   •   South Beach   •   Stuart   •   Tamarac   •   West Palm Beach

Residential Insurance Claims   •   Commercial Insurance Claims   •   Condo Insurance Claims
Hurricane & Windstorm Insurance Claims   •   Mold Insurance Claims   •   Flood Insurance Claims
Fire Insurance Claims