The main reason people buy homeowner’s insurance is because their mortgage company requires it. Homeowner’s insurance, however, is really important. A homeowner’s policy is really two different policies wrapped into one — (1) property insurance and (2) liability insurance. Property insurance covers the residents against events or occurrences that cause damage to the house. It covers the property itself. The liability insurance provides coverage for an accident or insurance. This is similar to auto insurance which protects your car and provides liability coverage which covers other people’s cars and injuries.
There are two general types of property policies. One is an all-risk policy, which covers everything except things that are specifically exclude. An all-risk policy typically has a laundry list of items that are excluded, such as earthquakes or flood damage. Most exclusions are boilerplate take it or leave it and are non-negotiable. The other policy is specified-peril policy, which covers only the things listed as being coverage. The laundry list details the matters that are covered.
Q: Is there ever a time that you can argue that an exclusion doesn’t apply?
Sometimes you’ll hear about exclusions in the property coverage part of a homeowner’s policy, like floods or frozen pipes. One important thing we need to realize is that the insurance company is the one that wrote the policy. Because they are the ones that wrote the policy, the Courts view the policy narrowly. A lot of case law has built up on how the exclusion is to be understood. It is important to get an opinion from an attorney who understands insurance, to read the policy and tell you if the denial is reasonable or not.
For example, after a hurricane, insurance companies try to deny claims arguing the damage was caused by flooding, but the counter-argument to that may be that the damage was caused by wind, not water, which is covered. In situations like this, at first glance, it might appear that the insurance company is right, but an experienced insurance lawyer can dig deeper into it and determine whether there is coverage or not.
Insurance companies will often say that something isn’t covered or is excluded, but if take it to an experienced attorney, he or she can research the law in that state on how that exclusion is applied or interpreted by the court. It might be that the insurance company is reading it incorrectly, and the attorney can pursue it to the standards of how it should be read.
Another example is a policy that had a water loss that the insurance company denied due to an exclusion, saying they don’t cover leaks that had been going on for a long time. The insurance company might be reading that exclusion broadly and ignoring certain language in that exclusion. For instance, a lot of homeowner’s policies have pipe leak exclusions that contain an exception to the exclusion that adds coverage back in if the leak was hidden behind a wall or in the ceiling.. If the leak was hidden in the ceiling or walls than it is a covered loss. In this example, insurance companies often ignore the exception to the exclusion so they can deny the claim. In other words, the insurance company doesn’t want to recognize the exception to the exclusion that they wrote into the policy. If the policy requires the insurance company to analyze or address the exception to the exclusion, it is wrong for an insurance company to flat out ignore that exception.
Q: Are the lawyers at the insurance company or are they just people who work there evaluating a claim to see if it’s excluded?
Most often it is just a claims adjuster or claims handler who is familiar with this type of policy and has worked with these types of claims. Plus, there might be a general knowledge of the company when there is a dispute over whether they should cover it or not. There must be considerable pressure on the claims agent even though it might be hard to get them to testify to that.
Q: Is there ever an exclusion for gross negligence where, for example, a homeowner creates a situation on his or her property that is so hazardous that anyone would recognize it as likely to injure a visitor?
Not exclusively. It might fall under the intentional acts where they say the intentional act was entitled or seen as an expected injury. For example, if there is a hole, you could have expected an injury if you fall through. Imagine a hole that is dug to plant a large tree that lays empty for months before they get the tree or lifting a piano up to get it on the second floor and then stopping mid-process to have lunch underneath it. These are examples where the likelihood of an injury is great.
Insurance companies don’t want to cover an intentional act, such as when an individual goes out and intentionally harms or sets fire to somebody else’s house. If it is intentional they are not going to cover it. They only want to cover events that are outside of people’s control. So, there is that exclusion or a number of exclusions that all generally state that they are not going to cover intentional acts.