Good Hands May Not Be Enough – Getting the Most From Insurance

Some of the saddest cases that an attorney may handle are those where a client’s home or business is destroyed in a catastrophe such as a fire or flood. Such losses are usually covered by property insurance, but many clients find that they were not in as “good hands” with their insurer as they had believed.

Most people obtain property insurance on their homes or places of business when they first acquire them. The policy limits on such insurance are generally based upon the purchase price of the property, which can result in several problems in the event of a loss.

Historically, in some areas such as California, property values have increased faster than inflation. Many, but not all, property insurance policies have provisions for automatic increases in policy limits, but those automatic increases usually are tied to increases in the Consumer Price Index. This can result in situations where the fair market value of a home or business far exceeds the policy limits of the property insurance that covers it. Then, when a loss occurs, the owner’s insurance company is obligated to pay damages only up to policy limits, which may be substantially less than the owner’s total insurable damages.

I urge my clients to check their property insurance policies at least once a year to make sure that the loss limits on the policies are high enough to cover potential losses. The amount of coverage can normally be found on the declaration page of an insurance policy and is sometimes also on the bills that are sent out by property insurers. If, after checking your policy or bill, you find that your insurance policy has a policy limit less than the present fair market value of your home or business, you should contact your insurance agent and request an increase in that policy limit to an amount sufficient to cover losses up to the fair market value of all improvements on the property.

When a home or business is destroyed in a catastrophe such as a fire or flood, the owners’ insurance problems are not limited solely to inadequate insurance coverage for structures, but also to inadequate coverage for losses to “personal property.” Subject to some limitations and exclusions for items like money, securities, silver, gold, stamp collections or electronic data processing equipment, for property insurance purposes, “personal property” generally means all movable property owned by an insured, from an abacus to a zoom lens.

Upon receiving a property insurance policy, an insured should examine the declarations page and endorsements to determine what personal property is covered and the nature and extent of that coverage. Unfortunately, many people obtaining property insurance on their homes or places of business pay little attention to the coverage provided for loss of personal property. Not all insurance agents discuss such coverage or the fact that policy limits and coverage can be increased. This can create several problems when a loss occurs.

Policy limits for losses of personal property in property insurance policies are often arbitrarily set at amounts equivalent to twenty or thirty percent of the coverage for loss of the insured structure. For some insureds, this may be fine, but depending on the types and amount of personal property owned and its value, when a loss occurs, the insured may be shocked and surprised to find that the personal property coverage provided in his or her policy is not adequate to compensate for all losses suffered.

Few people stop to consider the variety, amount or value of the personal property that they possess and are dumbfounded when they sit down and calculate how much they would have to pay to replace all of their personal property. For example, a typical kitchen can contain thousands of dollars worth of china, crockery, crystal, pottery, silverware, pots and pans, and appliances which would have to be replaced after a catastrophic loss such as a fire. Multiply that by all of the rooms in your house and you may find that it would cost tens of thousands of dollars to replace all of your personal property. Does your property insurance provide sufficient coverage to do that? If not, you should increase that coverage.

Another related problem arises when an insured fails to obtain replacement value insurance. Property insurance policies normally insure damaged personal property only for its value “AS-IS.” This means that if the two year old television that you bought for $750 is destroyed in a covered occurrence, the insurer will pay you only the present value of the television set, which could be considerably less than its purchase price or the amount needed to replace it with an equivalent new television set. When such losses occur, an insured may find his insurance company paying only a small portion of the replacement value of the insured items that are lost.

When a loss occurs, the insured is asked by the insurer to list all of the property that has been destroyed, its purchase price and date of purchase on a claim form. If a structure is totally destroyed in a fire or tornado, it is often impossible for the insured to remember all of the personal property that he or she owned. I recommend to my clients that every few years, they should go through each room in their houses with a video camera to obtain a running inventory of their personal property that can be referred to in the event of a catastrophic loss. Each drawer and closet should be opened and their contents photographed. I also recommend that the videos made be placed in safe locations away from the insured’s house, to assure that they are not destroyed with the structure in a castastrophe. In recent years, the use of electronic data disks for videos also makes it possible to make multiple copies of the inventory videos that can be stored in several off-site locations. These videos will not only refresh the owners’ recollections of the assets that they owned, but also give them the best possible evidence that can be provided to their insurers after a loss.

Remember, when dealing with insurance, an ounce of prevention of this sort is worth a pound of cure and can make a difference of tens of thousands of dollars in increased insurance payouts after major losses.

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