Monday, August 29, 2011

Insurance Tips After Hurricane Irene

In light of the destruction caused by Hurricane Irene's recent assault of the east coast, here are a handful of insurance pointers:

(iPhoto taken by Gerry Barrett from his front porch in
Atlantic, North Carolina during Hurricane Irene; used with permission)
1.         Wind vs. water
  • Typical homeowners insurance policies do not cover water damage ...
In order to obtain coverage for water – or “flood” – damage, you must purchase it separately.  Because flood insurance is usually not profitable, flood insurance through the private market can be difficult and expensive to purchase.  As a result, the large majority of flood insurance is sold through the government-subsidized National Flood Insurance Program.  If you do not have flood insurance, much of the damage to your home may not be covered.  Of particular concern, many homeowners policies contain “anti-concurrent causation” exclusions, which bar coverage when damage results from two or more causes, when one cause is covered and the other is not covered.  For example, if damage to your home was caused by both wind (covered) and water (not covered), then there might not be coverage for that damage.

(iPhoto taken by Gerry Barrett from his house in
Atlantic, North Carolina during Hurricane Irene;
used with permission (not a real hippo, in case you were wondering!))
 2.         Arbitration
  • What if my insurer wants to pay me less than what my damages are?  In the event of a dispute between homeowner and insurer regarding the amount of damages the homeowner suffered, the standard homeowners policy contains an arbitration provision that allows the dispute to be resolved quickly, and without having to resort to a lawsuit.  The homeowner is allowed to pick an appraiser to evaluate the damages, and the insurer is allowed to select an appraiser of its own.  Once both appraisers have completed their appraisals, they check to see if they agree on the value of the damages.  If they do not agree (and as you might expect, they almost never agree), then the appraisers jointly select an independent umpire to resolve the dispute.  The umpire’s decision is, generally speaking, binding on the parties.  (Here's a link to my analysis of a recent North Carolina Supreme Court case addressing some of the difficulties that can arise out of the arbitration process.)
3.         Contractual vs. Extra-contractual
  • The large majority of claims are handled to the satisfaction of both the insured and the insurer.  Sometimes, however, disputes arise that end up being litigated in court.  While the original dispute generally arises out of disagreement as to what is covered under the insurance contract, there are also sometimes “extra-contractual” claims that an insured can, in the right circumstances, raise against the insurer.  Often, extra-contractual claims arise out of the insurer’s failure to properly investigate your claim before denying it.  These extra-contractual claims may subject the insurer to liability over and above the policy limits, and, depending on the circumstances, can include such things as treble damages or punitive damages. 

(iPhotos taken by Gerry Barrett in Atlantic, North Carolina
during Hurricane Irene; used with permission)
4.         Trees
    (iPhoto I took up the street from my house in
    Raleigh, North Carolina during Hurricane Irene)
  • A common concern for homeowners during and after a storm is whether there is coverage for damage caused by fallen trees.  Depending on the specific terms of your policy, the insurer likely is obliged to pay for the tree removal and repairs.  In addition, many people wonder who is responsible if one of their trees falls onto a neighbor’s house.  Unless you had prior knowledge of some defect in the tree that made it more likely to fall, you will typically not be responsible for your tree falling on your neighbor's house.  Generally speaking, whoever’s property has been damaged should report the damage to his or her insurer – even if the damage was caused by a neighbor’s tree.  Your insurer may have subrogation rights against the neighbor’s insurer, and if your insurer has been successful in recovering, you may be entitled to get your deductible back. 
5.         Business interruption
  • What if I own a business that is unable to operate after a storm – can I recover for lost income?  This can be a particularly important issue in coastal communities, who rely heavily on tourism for survival.  If you have purchased business interruption insurance, you should be able to recover much of your losses.  Typically speaking, business interruption insurance will cover such things as lost profits and operating expenses.  Naturally, you will want to document your losses carefully to minimize the risk of disputes with your insurance carrier.
6.         Crop insurance

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