Recent burglary under a builders risk policy, who is responsible?

Question

More drama with my recent 203k and i need some insight....

We have moved into our 203k rehabbed house about 3 weeks ago. Last friday someone broke into our house and stole about $5000 worth of personal property. I contacted my mortgage company to see who my insurance was covered by (its been awhile since closing and i forgot). They sent over my current policy and turns out im still under a Builders Risk policy.

i did some quick research and i found that builders risk insurance does not cover personal property since personal property on a construction site usually signifies that the owner is now living there.

So now im left we the wrong insurance coverage and $5000 in losses.

Is it the mortgage company's responsibility to notify the insurance company that we have taken occupancy? Thus, making the policy null and void...forcing me to get homeowners insurance?

Can anyone provide me some insight that could help me out? Im somewhat loss.

Jon Holdman · Answer

How would the mortgage company even know you had moved in?  No, its your responsibility to get the correct coverages.

Yep, builders risk often has very, very limited coverage.  You buy it when its specifically what you need.  Otherwise you buy something that has better coverage and almost certainly a much lower rate.

Usually this happens in the other direction.  Someone has homeowners and moves out.  Then they have a claim and its denied because the house was empty.

This is your error and you're going to have to eat the loss.  You should have changed your policy when you moved.  Do it now, before you have more problems.  But you can't fix the past.  You had no coverage for the loss you experienced.

Nnabuenyi Anigbogu · Answer

@Kyle Gregg Yes the mortgagee can and is sometimes required to notify the insurance company. However they are doing it on behalf of the owner which is you. The bank only cares that the property they have as collateral for your loan is insured which is the case under the builders risk policy.

It is ultimately your responsibility to ensure that the right coverage is present especially in relation to your personal property. You can try to make this case to the bank but i would be surprised if they pay you anything or admit fault. Even if you take it to court chances are there is something in your paperwork that probably protects them. It does not hurt to try though.

Jon Holdman · Answer

Unless you have replacement cost coverage, you would probably only get the actual cash value.  For computers that are more than a few years old, that's almost nothing.  So, while you may spend $5000 if you replace everything with new stuff, its not likely that's what you would have been covered for even if you did have coverage.  Consumer goods are worth very little, once you take them out of the store.  I've read that auctioneers are one of the most frugal groups because they get to see what "used stuff" sells for.

Your original post implies you weren't even sure what insurance you had and couldn't find the paperwork.   Don't do that again.  Its very important that you know exactly what you bought.  When you buy a new policy and that little booklet on very thin paper arrives, read it.  I know most people don't.  That's a mistake.  Read it cover to cover.  That tells you EXACTLY what's covered and what's not.  I can pretty much guarantee that there are some eye-openers in that booklet.  If you ever do have a claim, the adjuster will have that little booklet memorized and will whip it out as soon as you have any question.  Usually to show that "no, sorry, you're not covered."  Keep track of the paperwork and read that booklet.

Jason Bott · Answer

@Kyle Gregg Here's my best spin on this bad situation.

If you had purchased a policy, you would have been out of pocket your deductible of $500, $1000, $2,500?  You would not have been reimbursed the full $5k.

You would have recorded a loss on the new property policy, most likely raising future insurance costs.

Jon Holdman · Answer

Had the lender notified the insurance company when you moved in, they would have cancelled your policy on that day.  Buying insurance is your responsibility. You seem to be trying to find someone else to take responsibility for your error.  Its an expensive lesson from the school of hard knocks.  Now you know.  When you change occupancy, you need to update your insurance.  That should have been a priority anyway because builders risk is expensive and has little coverage and getting out of that should have been a priority for you.

That clause you're quoting (wherever its from) is working against you, not for you.  You do something to increase the risk and the insurance company wants to know.  Sort of like the "anything you say can and will be used against you" statement in Miranda rights.  Think that also means "anything you say can be used in your defense"?  Nope.  You made a mistake.  Its going to take money out of your pocket.  Don't make that mistake again.

Philip Burrows · Answer

Unfortunately this happens far too often in the industry. The insurance is placed on the home by an insurance agent throught the mortgage broker and the agent never speaks with the insured, the insured never knows what company is insuring their most valuable investment.I get a lot of referral business from Realtors and mortgage brokers, but I always speak with the insured. It's the ethical thing to do.For what it's worth you may want to try and file an Errors & Omissions claim against your insurance company or the agency who wrote the policy.

Patrick L. · Answer

The mortgage company is not your mom or your babysitter.  If they see there is no coverage on the property they will buy a force placed policy to cover their interest in the structure but they do not care about contents at all.   It's up to you to keep on your policies and know what you are covered for and what you need to update.

Your $5,000 in personal property may have ended up being valued by the insurance company at $1,000-$1,500 so after the deductible you may not have ended up with very much at all.  You certainly wouldn't have gotten the $5,000 back.   One of my contractors recently had his garage broken into and had over $10,000 in tools stolen.   The insurance company came up with a current market value of about $1,800.   He got a check for $800 after the deductible.

Kyle Gregg · Answer

@Jon Holdman

Thank you for all your input. as a first time home buyer going through a 203k, its been quite the learning experience. a sort of crash course on real estate.

Kyle Gregg · Answer

@Jason Bott

That is the sort of info that cheers me up. thanks for making me realize that.

the quote from State farm has a $1000 deductible. i didn't have receipts or serial numbers of the computers stolen so i wasn't too hopeful of seeing complete reimbursement.

School or hard knocks for sure....

Kyle Gregg · Answer

just making sure that i am eating the $5000 mistake rightfully. not trying to squeeze myself out of responsibility, if that's how it looks.

Recent burglary under a builders risk policy, who is responsible?

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