Insurance Dangers of “Distraction” by COVID-19
There is no underestimating the grip that COVID-19 has on our society right now. Most insurance questions I’m fielding are focused on the COVID-19 impacts to businesses and households. But, amongst this backdrop, I have been encouraging my clients to take a step back because such a narrow focus can distract policy holders. COVID-19 has been a wakeup call to many that insurance policies have specific applications and contain exclusions. Just because something “external” affects a business or home doesn’t mean that insurance will respond. Insurance has never played the role of being an “all-encompassing” guarantee to replace any out-of-pocket costs an owner might face.
With all the current focus on COVID-19, it is important to remember that there are many more key exclusions on policies that insureds should keep on their radar. Standard homeowner policies have nine exclusions and business property policies have 21. And these are just the standard exclusions, most carriers add many more.
I wanted to outline a just few that typically surprise my insureds and guide you to examining your own policy:
A 2015 USGS study showed that nearly 50% of Americans lived within 30 miles of a potential earthquake location. Often thought of as just a “California Problem,” many parts of the United States lie near potential faults that could generate seismic activity. In an incredibly rare event, an earthquake even struck near Mt. Franklin’s headquarters in El Paso, TX in April 2020….an area not ever thought of as an “earthquake zone.”
Earthquake is typically excluded on both home and business owners’ property policies unless you live in very specific areas where a bank might require it.
Coverage can be easily remedied. There are endorsements and stand-alone policies to plug the gap, but unless you recognize it as a gap, and request the coverage, if the “big one” hits, there won’t be insurance coverage.
I typically talk to clients about four types of water damage:1) Water that comes from the sky and into a building before it hits the ground, 2) Water from appliances and pipes inside the building, 3) Water that backs up from sewer plumbing, and 4) Water already on the ground that rises, seeps, inundates, or floods.
The fourth type of water damage, flood damage, is almost categorically excluded in every home and business owner policy. In some flood areas, banks might require you to purchase the coverage, but even in non-defined flood areas, floods can happen.
Although flood insurance is most often purchased through FEMA (Federal Emergency Management Agency), there are a number of private flood insurance carriers. Flood coverage can be inexpensive, especially compared to the destruction that water can do, but it takes an active decision by a client to purchase it.
Mold / Fungus
The prevalence of mold or fungus varies based on geography. There is tons of it in wet climates; and less of it in dry climates. While, the opportunity for fungus is omnipresent, its coverage is typically excluded from a standard policy. Even in the driest of climates, mold can creep up in bathrooms or with any long-term water damage. Again, many clients just accept policies with these types of standard exclusions, which are eminently fixable with endorsements and additional coverage. But, unless you take a detailed look at your policy when purchasing it, you’ll only see this gap after a carrier denies the claim. At that point, it is too late.
Ordinance & Law
On both homeowner and business policies, after the destruction of property, an insured can choose to rebuild their property. However, some municipalities might require additional work beyond the original building. For example, there might exist new handicapped requirements or electrical requirements that weren’t incorporated to the original building that are now necessary. Again, this goes against insurance’s core concept to bring the insured “back” from what they lost. Improving the electrical system or accessible entrances would be beyond the scope of insurance, however municipal codes might forcibly require you to comply. This coverage is excluded in a base policy. It is easily obtainable as an endorsement back onto a policy, but unless you discuss it up front, you will be missing that coverage come claim time. I always discuss this with my clients.
Normal Wear and Tear / Neglect
When an unanticipated event destroys property, there is a role for insurance. When, over the course of time, property fails because “nothing lasts forever,” then insurance is not the answer. Insurance is not a “guarantee” or “warranty” for when something is purchased. If an item is not taken care of, in the home or business, and that leads to a loss, then insurance carriers will gladly redirect you to the seller of the product to obtain remedy. This is one of the few areas that a client can’t even purchase a “fill the gap” endorsement to buy coverage. The underlying concept of insurance never addresses the normal deterioration of property during proper usage.
There are dozens of exclusions built into the base policies and more added as “regular business” by carriers. This list represents just a few of the ones that I have seen bite clients more often. During this COVID-19 period when folks are fixated on how carriers will respond, I’m encouraging our clients to take a much more “generalized” view about exclusions throughout their policies, because once COVID-19 comes and goes, all those other exclusions will be sticking around.
Call (915) 599-2900 now or visit us at www.MtFranklin.com for more information.