All Forum Posts by: Michael Norris

There is a lot to address there but I'm going to try and give you as simple an answer as possible.

It starts with the cause of loss - why was the hot water tank shooting water everywhere? Assuming something broke or it was vandalized then your policy is going to pay for damages and that's going to be about it. Unless you can show the PM company somehow caused the leak then responsibility is going to be on your policy to pay.

Any chance of putting responsibility back on the PM company is going to be in your contract with them and what it spells out. My guess is that it's full of clauses letting them out of most problems.

That really stinks - sorry for your luck!

What John said is pretty solid. I would add that in my experience a half burned down house can cost as much, or more to re-build than a brand new home. You have to factor in the extra expense of demo, re-engineering, zoning hassles, etc on a re-build. Plus you will be in a hurry to get started so the builders are going to charge you full price on everything.

There are a several complicated factors involved many of which are out of your control.

If you have a lender involved they usually want to know you have enough to rebuild the property in case of a total loss. 

Why? If the house burns down and cost $425k to rebuild but you only have coverage for $150k the bank assumes you will not be able to make repairs which means you probably won't repay the loan. Some banks will accept a policy that at least covers how much you owe on the house but... If it burns down the bank will take your insurance check to pay off the loan leaving you with clear title to a burned down house and no insurance money to make repairs.

Generally Insurance companies offer two policy options. 1. A "market value" policy (called a DF1 or DP1) with Actual Cash Value coverage or 2. Replacement Cost Policy (what you were quoted).

One offers significantly more coverage than the other - you need to take the time to understand the difference!

Actual Cash Value (ACV) will depreciate damaged property before it pays on damaged property where as Replacement Cost will pay to replace with like kind and quality.

Simple Example: A wind storm causes $10,000 damage to your 10 year old roof. The expected life of a roof is 20 years so it's about half used up. 

On an ACV policy you may get a payout of $10,000 x 50% depreciation = $5000 payout then subtract your deductible (if $1000 deductible). You'd get a $4k payout on $10k damage. Ouch!

Same situation on a Replacement Cost Policy would pay out $10,000 minus your ($1000?) deductible would pay out $9000.

Talk with your agent - they should be able to walk you through specific examples for your situation. 

Like others posted it depends on the type of policy you have and IF you / tenant have maintained heat in the residence. Typically No heat = No Pay on Claim.

Not all companies are the same - here is my experience as an insurance agent.

An insurance client with a basic rental property policy that had burst pipes because his furnace failed. On notice from the tenant he had a professional furnace company immediately contracted to make repairs and put space heaters in the unit to try and prevent the burst pipes. Unfortunately it happened anyway and he had significant damage.

 The insurance adjuster ruled that he had made all reasonable effort to repair the furnace and prevent the burst pipes so they paid out on the claim. 

From an Ins Agent: An Umbrella policy should be considered excess liability meaning over and above the coverage you already have. Most companies tie the umbrella to the auto and some companies may not require you to also have home insurance with them but most will.

This is for everyone - The price of an Umbrella policy is set up off the underlying limits of your home and auto. The higher your limits on the underlying policies the lower cost your Umbrella will be.

The secret sauce of having high liability limits is that it forces the insurance company to fight harder to defend you.

If you have lower limit policies and get a large lawsuit against you - if the claim looks legitimate it becomes a business case for the carrier. Add in average cost of defense plus the likely payout on injuries and if that is higher than your policy limit the company is going to pay out to the limit of your policy and walk. The insurance company did it's job - but now you have to pick it up and run from there.

Spending 150 to 300 extra per year to max out your liability limits won't change your insurance agents life style - however if you get sued without having the high limits it WILL effect yours.

When it comes to what is/ is not covered on property insurance use this rule.

It's not perfect but will help you understand why something would or would not be covered.

Was the damage or incident Sudden & Accidental?

If something happens over a period of time OR it was intentional or negligent on your part then it will probably not be covered by insurance.

Mold does not happen suddenly - it is generally considered a maintenance issue.

Fuel Oil tank listed above - if it leaks over time that is not sudden so... also a maintenance issue.

A tree branch hangs over the roof and over time damages the shingles - not a sudden event so no covered. You could also say this is a maintenance issue.

The same tree with the branch damaging your roof is blown over in a storm and damages the house - this would be covered as it was a sudden event.

Another potential issue is negligence - If there was a condition at the property that you were aware of and did not remedy it gives the insurance company an opportunity to decline to pay like the tree branch above.

Here is two examples with very different results"

Ex 1- If you knew there was an electrical issue and did not make repairs or delayed repairs beyond a reasonable amount of time and later that issue starts a fire...Because you knew about the issue it opens up for the insurance company to decline - they may pay or they may not so don't leave yourself exposed and make repairs when they are needed.

If someone was injured in the fire they could claim negligence and opens up for them to come after you personally and violate the protection of an LLC.

Ex 2- One of my clients furnace went out in his rental property and with below zero temperatures a pipe burst causing a LOT of water damage. Normally with the furnace being off the company will look strongly at denying a claim for burst pipes. If the furnace is out turn off the water!!

However this client had a signed estimate from a repair company to replace the furnace and since the house was occupied he had put space heaters all through the home in an effort to keep it heated. The companies opinion was he took all reasonable measures to protect the property so the company paid in full on his claim.

I'm going to PM you a suggestion - I can't write a policy in your state but I know a couple companies that you could approach.

I can't write the policy in your state but one of the companies I deal with has a policy that could help cover both aspects of a 2 family primary dwelling.

You can get a Foremost policy on a 2 family home as your primary dwelling (disclose it to the agent and they will set it up) You can insure the dwelling as a 2 family property renting out the other half but also get coverage for your personal property which lets you skip getting a renters policy.

The same agent can also insure the property while vacant during rehab and convert that over to the policy mentioned above. They have low minimum premium so you'll only pay for the part of the time the property is actually vacant and then you can convert it over to being an occupied property.

Outside of that company the other posters above are correct - get a landlord policy on the dwelling and a Renters policy for your personal property.

Different lenders have different requirements. At the root of the situation the bank underwriters job is to protect the bank and as a secondary protect you from yourself.

All good intentions aside - if the house burns down and you have $150k in coverage and it actually cost double or triple that to rebuild the building then chances are you are not going to continue to repay the loan on a burnt down building. Hence the bank wanting higher coverage.

Some lenders will let you get away with dwelling coverage at least matching the loan amount but realize - if it burns down the bank is taking your insurance check to settle the loan balance and you will have a free and clear title to a burnt down house.

There is another factor to consider with insuring the property for less than the 80% figure. Co-Insurance!! If you insure the property for the $150k and it actually costs $480k to rebuild you are insuring the property for about 39% of what 80% coverage should be.

(480k x 80% = $384k - the number the bank wants) then figure co-insurance clause

 ($150k coverage / $384k = 39%) If you had a total loss with $150k coverage the policy would pay  out the full $150k.

BUT - If you have a partial loss - say $100k in damage with $150k in coverage the co-insurance will kick in.

$100k loss x 39% co insurance clause = $39,000 pay out on your claim minus your deductible

Ask your agent - they should be able to break down how co-insurance works.

Only you know your financial situation so ask your self - could you cover an extra $60,000 out of pocket if you have a $100,000 loss and insure the property for $150k?

I have clients of my agency that are willing to take on that risk - but - I make extra sure they know what they are doing before we put the policy in place.

It depends on how much work you are willing to put in making calls and reading your policy. I would suggest getting estimates from a couple contractors familiar with fire repairs and comparing those with the estimate from your insurance carrier.

The third party adjuster will try to get you more on the claim but they will also take a portion of the entire claim for their services.

If you get your own estimates you may find out that "battling the insurance company" isn't necessary. For example - if your company says the damage is $10k and two contractors both say something close to that number than there isn't much to fight about. However if both contractors say the damage is $25k then show their written estimates to your carrier and ask why there is such a difference?

The type of coverage you have also matters a great deal. If you have Actual Cash Value (ACV) coverage your insurance company will estimate the amount of damage then adjust for depreciation on the age of your units. If you have done any recent renovations start digging up those receipts now for proof of the work being done. It will help off set the depreciation.  

Depending how your policy is set up you could also have co-insurance involved if the property is insured for less than 80% or 90% of the estimated replacement cost. 

If you don't already know those details call your agent and ask what type of coverage you have (Replacement Cost? or ACV?) And is there any co-insurance clause applied to your policy?