Many, many people have asked me about the situation with insurance companies following Katrina. They have heard rumblings about unpaid claims and have watched a state senator and a state representative sue their respective insurance companies. Something must be up. What is it exactly? And what's all this whining from folks who didn't bother with flood insurance now that their homes have flooded anyway?
My husband and I pay close to $2500 per year for our homeowners' coverage. Participation in the National Flood Insurance Program would have cost us nothing more than an additional $300 per year. So why would we take chances with our home over a mere $300 per year? We had no idea that we were taking that chance. According to the flood maps and our insurance agent - our home was (and is) not in a flood zone and flood insurance was (and is) not required. We had no reason to believe otherwise.
You see, part of that enormous insurance premium includes something our insurance company calls "Special perils" coverage. The 'special peril' they are referring to is specifically "Hurricane Windstorm Loss", where a 'hurricane' is defined as a tropical system named by the National Hurricane Center and categorized as a hurricane on the Saffir-Simpson scale. It is very important to note here that the three components measured to determine the severity of a hurricane on the Saffir-Simpson scale are as follows: central barometric pressure, wind speed, and storm surge.
On August 29th, 2005, a couple hours after Hurricane Katrina's storm surge drained from our home... The word 'flood' never entered our mind. As soon as we were able to find a working telephone we called our insurance company to make our claim. On September 12, 2005, we received a letter from our insurance company informing us that they were asserting their 'Reservation of Rights' based certain language in our homeowner's policy and referring us to "pages F-1 and F-2 within Module HP 3300" of our Homeowner's Policy. The letter went on to quote the section they were referring to (because apparently they were aware how hard it would be to actually find this section in our policy ourselves...):
Section I - Losses We Do Not Cover
D. Water damage, meaning any loss caused by, resulting from, contributed to or aggravated by:
1. flood, surface water, waves, tidal water or overflow of any body of water, or spray from any of these, whether or not driven by wind (emphasis added).
D. Water damage, meaning any loss caused by, resulting from, contributed to or aggravated by:
1. flood, surface water, waves, tidal water or overflow of any body of water, or spray from any of these, whether or not driven by wind (emphasis added).
Now that says a lot more than the simple statement on our declarations page that read: "This Policy Does Not Provide Coverage for Flood Damage." We were shocked that our policy specifically excluded an event which is part of the very definition of the windstorm which we were specifically covered for. When we searched for this section in our homeowner's policy we also discovered that this was not part of the basic policy but an endorsement added to the policy. They covered their behinds.
The argument that this was hurricane damage which was covered under our 'special perils' coverage was quickly shot down as we found this language in the same 'module':
The argument that this was hurricane damage which was covered under our 'special perils' coverage was quickly shot down as we found this language in the same 'module':
"We do not insure for any such loss regardless of: (a) the cause of the excluded event (b) other causes of the loss; or (c) whether such causes acted at the same time or in any other sequence with the excluded event to produce or contribute to the loss..."
What this meant was this -- if Hurricane Katrina had ripped through the neighborhood and blown our house off its foundation with her winds and then the tidal surge came in and carried the debris away.... Our policy would not cover ANY of our loss because an 'excluded event' (i.e. waves & tidal water) was involved in some way.
And this is exactly the situation so many coastal homeowners found themselves in. They came home after a hurricane to a slab (or in some cases, a hole where a slab used to be) and are being told because they did not have flood coverage they will receive no payment. Other companies are sometimes sending in their 'experts' to determine how much of the damage may have been caused by wind without the water -- as if that can be determined by sifting through debris.
Then there are the folks that actually had this fabled 'flood insurance' -- surely they've come out on top of the stack, right? Not necessarily. I've spoken with many homeowners who are simply being bounced back and forth between flood and regular homeowners' policies since no one wants to claim the damage for themselves.
The most difficult thing for us to learn from our experience with our insurance company following Katrina was just how serious the term 'excluded event' can be. Even when we accepted that our policy was not going to cover the water damage to our home -- we had no idea that the exclusion meant that no other losses would be paid. Two hundred thousand dollars in replacement cost on contents coverage -- and we would not receive a penny to even replace a single rusted saucepan. The policy also provided for $67,000 to pay rent for an apartment or hotel in the event of 'loss of use' of the dwelling -- but since an 'excluded event' occurred here we wouldn't see that coverage either.
We were fortunate, however, to have a really tall house. Tall enough to make it impossible for even the slickest of insurance adjustors to blame our roof damage or siding damage on 'flood, surface water, tidal water, or overflow of any body of water'. (Although the damage to the exterior paint of the home was chalked up to "spray from any of these" and not covered...)
There is no way to unexclude the excluded events listed in that endorsement of our homeowner's policy. We do not have that option.. so we continue to carry our crippled Hurricane Windstorm Loss coverage. Not surprisingly, we now carry flood insurance through the NFIP -- although we are still not required to do so. (Apparently FEMA still feels confident that our home won't flood despite all the evidence to the contrary.)
Private insurance companies feel that folks living within 5 miles of the beach are in a special hazard zone requiring them to have special 'windstorm' coverage - and rightfully so... Those same private insurance companies feel that the risk from storm surge arising from said 'windstorms' was too great for them to cover in any of their policies. So great, in fact, that purchasing additional coverage for this peril is not even an option. They neglected, however, to tell their policy-holders this. FEMA on the other hand, apparently did not surmise any such increased risk and limited their 'flood zones' to low-lying areas near rivers, creeks, bayous, and so on which are prone to rising water during periods of heavy rainfall. Tens of thousands of homeowners along the Gulf Coast and quite literally in the wake of Katrina have found themselves squarely in the gap between the two.
On the bright side, we did learn while scouring our homeowner's policy that we are covered for loss arising from 'volcanic activity' - I suppose in the event that a volcano appears tomorrow somewhere within the next 500 square miles and begins to erupt. However, we have learned our lesson and will be sure to check that it doesn't exclude damage caused by flowing lava before it happens.
And this is exactly the situation so many coastal homeowners found themselves in. They came home after a hurricane to a slab (or in some cases, a hole where a slab used to be) and are being told because they did not have flood coverage they will receive no payment. Other companies are sometimes sending in their 'experts' to determine how much of the damage may have been caused by wind without the water -- as if that can be determined by sifting through debris.
Then there are the folks that actually had this fabled 'flood insurance' -- surely they've come out on top of the stack, right? Not necessarily. I've spoken with many homeowners who are simply being bounced back and forth between flood and regular homeowners' policies since no one wants to claim the damage for themselves.
The most difficult thing for us to learn from our experience with our insurance company following Katrina was just how serious the term 'excluded event' can be. Even when we accepted that our policy was not going to cover the water damage to our home -- we had no idea that the exclusion meant that no other losses would be paid. Two hundred thousand dollars in replacement cost on contents coverage -- and we would not receive a penny to even replace a single rusted saucepan. The policy also provided for $67,000 to pay rent for an apartment or hotel in the event of 'loss of use' of the dwelling -- but since an 'excluded event' occurred here we wouldn't see that coverage either.
We were fortunate, however, to have a really tall house. Tall enough to make it impossible for even the slickest of insurance adjustors to blame our roof damage or siding damage on 'flood, surface water, tidal water, or overflow of any body of water'. (Although the damage to the exterior paint of the home was chalked up to "spray from any of these" and not covered...)
There is no way to unexclude the excluded events listed in that endorsement of our homeowner's policy. We do not have that option.. so we continue to carry our crippled Hurricane Windstorm Loss coverage. Not surprisingly, we now carry flood insurance through the NFIP -- although we are still not required to do so. (Apparently FEMA still feels confident that our home won't flood despite all the evidence to the contrary.)
Private insurance companies feel that folks living within 5 miles of the beach are in a special hazard zone requiring them to have special 'windstorm' coverage - and rightfully so... Those same private insurance companies feel that the risk from storm surge arising from said 'windstorms' was too great for them to cover in any of their policies. So great, in fact, that purchasing additional coverage for this peril is not even an option. They neglected, however, to tell their policy-holders this. FEMA on the other hand, apparently did not surmise any such increased risk and limited their 'flood zones' to low-lying areas near rivers, creeks, bayous, and so on which are prone to rising water during periods of heavy rainfall. Tens of thousands of homeowners along the Gulf Coast and quite literally in the wake of Katrina have found themselves squarely in the gap between the two.
On the bright side, we did learn while scouring our homeowner's policy that we are covered for loss arising from 'volcanic activity' - I suppose in the event that a volcano appears tomorrow somewhere within the next 500 square miles and begins to erupt. However, we have learned our lesson and will be sure to check that it doesn't exclude damage caused by flowing lava before it happens.
2 comments:
I'm not sure what your insurance situation is now, since I'm reading from the beginning and so am two years behind, but where I live most insurance companies won't even write homeowners insurance now for houses within two miles of the water.
That also means you can't get liability insurance, since they won't write that without an underlying homeowners policy. To me, more scary financially than the loss of a house is someone slipping on your steps and suing for a million dollars.
trudy: As much as I've thought about homeowner's insurance over the last couple of years... I never thought at all about how important it is to have liability insurance. What a scary thought!! Eep. Good point.
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