Is the State Farm Policy Really Worth Anything?
What is the value of insurance if it does not pay for insured losses? Imagine if you had a significant accidental water damage to your home or business, do you know whether your insurance company has your back? Will it really be there to help you? Don’t count on it. Today, modern insurance companies are re-writing their insurance policies to limit what is covered and excluding many losses that used to be covered under all-risk policies. State Farm, as an insurance industry leader, is leading the charge of making an insurance product that no consumer should trust as providing the amount of coverage the insurance product afforded 25 years ago. It is always important to remember that Policyholders Buy Insurance for Peace of Mind and Not Economic Advantage and that concept is being defeated as carriers try to gain economic advantage by changing small print in the policy that may have significant consequences discovered by the policyholder only after disaster happens. To be Fair And Balanced with State Farm, I could have substituted Allstate, Nationwide and USAA into the title.
Need an example of how the small print is killing the so called, “all-risk” concept of insurance? See the recent California case of Freedman v. State Farm Ins. Co., 173 Cal. App. 4th 957 (Cal. App. 2d Dist. 2009). Here are the facts:
“In or about 2000, the Freedmans' home was repiped, and an upstairs bathroom was remodeled, including the replacement of drywall to cover the new piping. On or about August 12, 2005, “extensive water leakage was discovered in the upstairs bathroom wall. One wall was discolored and wet. The drywall fell apart on touch and mold was seen on pieces of the wall. The tile floor was wet and the ceiling immediately downstairs was wet and soft.” When the drywall was removed, it was discovered that a nail that had been used to hang the drywall had penetrated entirely through a pipe. “The pipe was corroded around the points of entry of the nail, and water was release[d] through that area of corrosion.” A damage restoration company discovered mold both upstairs and downstairs. On or about August 15, 2005, the Freedmans submitted a claim to State Farm. State Farm conducted an inspection and, on or about August 25, 2005, denied the claim.” (emphasis added)
Now, I bet most State Farm policyholders are wondering, “Is there any type of pipe breakage where water leaks that would be covered?“ I would ask that question as well because once you read what State Farm does not cover, most policyholders probably wonder if “all-risk” means anything. State Farm’s website conspicuously avoids advertising or discussing all the exclusionary language it relies upon to deny claims. However, I did find this promise and statement by State Farm on its website:
“We protect the roof over your head and everything under it, especially your sense of security.
State Farm® has been writing homeowners insurance for over 60 years. Today, we insure about 15 million homes.
We offer broad protection that you can trust, plus affordable rates, and outstanding service.
The State Farm Homeowners Insurance Policy offers protection for your dwelling, as well as your personal possessions and personal liability.”
The lesson to policyholders and the purchasers of insurance is that the small print is reserved for the policy because most would not purchase the product if it accurately advertised accidental losses would not be covered. While not close to all the exclusions found in the State Farm policy, the exclusionary language cited by the Court in the Freedmans’ State Farm policy was:
“Paragraph 2 of Section I—Losses Not Insured provides: “We do not insure for any loss to the property described in Coverage A which is caused by one or more of the items below, regardless of whether the loss occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these: … g. wear, tear, marring, scratching, deterioration, inherent vice, latent defect or mechanical breakdown; … h. corrosion, electrolysis or rust … .”
Paragraph 4 of Section I—Losses Not Insured provides: “We do not insure under any coverage for any loss which is caused by one or more of the items below, regardless of whether the event occurs suddenly or gradually, involves isolated or widespread damage, arises from natural or external forces, or occurs as a result of any combination of these: … c. Water Damage, meaning: … (4) continuous or repeated seepage or leakage of water or steam from a: … (c) plumbing system … .”
Paragraph 5 of Section I—Losses Not Insured provides: “We do not insure for loss described in paragraphs 2., 3. and 4. immediately above regardless of whether one or more of the following: (a) directly or indirectly cause, contribute to or aggravate the loss; or (b) occur before, at the same time, or after the loss or any other cause of the loss:… a. conduct, act, failure to act, or decision of any person, group, organization or governmental body whether intentional, wrongful, negligent, or without fault;… b. defect, weakness, inadequacy, fault or unsoundness in:… (2) design, specifications, workmanship, construction, grading, compaction; … of any property (including land, structures, or improvements of any kind) whether on or off the residence premises … .”
Many State Farm policyholders reading these exclusions probably worry that anything that accidentally breaks down will not be covered. State Farm and its competitors should make customers aware of how much is not covered, rather than advertise its affordable rates and those syrupy feel good advertisements. The true nature of the insurance company is determined by the coverage sold and the performance of the claims department. Those advertisements have nothing to do with what truly happens in the field on a day to day basis. Just ask the Freedmans.
The Court upheld State Farm’s denial for a number of reasons which I quote below:
“…the Freedmans' policy exclude third parties' negligent conduct and defective workmanship whenever they interact with an excluded peril…Corrosion and continuous or repeated seepage or leakage of water are excluded perils under the Freedmans' policy…Thus, the Freedmans' policy excludes contractor-negligence-induced corrosion and contractor-negligence-induced continuous or repeated seepage or leakage of water…The Freedmans have introduced no evidence that contractor negligence caused their loss in any way apart from the nail's role in triggering corrosion and a water leak…Accordingly, the Freedmans' loss is not covered…
…
…the Freedmans contend that the exclusion is “ambiguous” because it does not say how long a leak must last in order to be “continuous” or how many times the leak must stop and start in order to be “repeated.” The argument fails because it does not purport to show that the application of the exclusion to the stipulated facts of this case is in any way unclear. The parties stipulated that the water that damaged the Freedmans' home leaked “through [the] area of corrosion” around the nail through the pipe. Given the small size of the hole(s) through which the water leaked, and given the extensive amount of water damage (“One wall was discolored and wet. The drywall fell apart on touch and mold was seen on pieces of the wall. The tile floor was wet and the ceiling immediately downstairs was wet and soft.”), the leak must have lasted a sufficiently long time, or stopped and started sufficiently many times, to count as “continuous” or “repeated” under any reasonable construction of those terms…
…the Freedmans argue that the exclusion applies only to “normal deterioration of the plumbing system,” not to leaks “caused by some force other than deterioration.” We disagree because the policy language is inconsistent with the Freedmans' interpretation. The policy excludes “coverage for any loss which is caused by [continuous or repeated seepage or leakage of water from a plumbing system], regardless of whether the event occurs suddenly or gradually, involves isolated or widespread damage, [or] arises from natural or external forces.” …The policy thus expressly provides that leaks are excluded regardless of whether they are caused by natural forces such as normal deterioration or external forces such as a nail driven through a pipe.
…the Freedmans argue that application of the exclusion here would violate the efficient proximate cause doctrine, because contractor negligence is a covered peril and was the efficient proximate cause of their loss. We have already discussed and rejected that argument…
III. The Mold Coverage
The Freedmans argue that because their policy includes an endorsement relating to mold, the damage caused by mold is covered. We disagree.
The mold endorsement provides limited coverage for losses caused by “fungus,” which is defined to include “any type or form of fungi, including mold or mildew.” Within the specified limitations, such losses to the Freedmans' dwelling are covered if they were “caused by or directly result[ed] from” either a specified peril under the personal property coverage or a peril not otherwise excluded.
…the mold damage to the Freedmans' dwelling was caused by the water leak, which was caused by corrosion, which was caused by the nail through the pipe. As we have explained…ante, contractor-negligence-induced corrosion and contractor-negligence-induced continuous or repeated seepage or leakage of water are excluded perils…” (emphasis added)
The Freedman result is exactly the type of denial I referred to in a speech I gave fifteen years ago. At an American Bar Association National Institute on Coverage, I delivered a paper entitled "Does this Insurance Policy Cover Anything? An Insured's Perspective of the Late Twentieth Century All-Risk Policy.” I suggested that the anti-concurrent causation language and re-writing of exclusions rendered the all-risk coverage illusionary. Many scoffed at my suggestion that the exclusionary causation language adopted by many insurance companies invited creative findings of excluded causes "directly, indirectly, in any sequence, or as part of or a result of a loss," so that a loss would be denied or threatened to be denied. This is exactly what is happening and is the result I feared.
I am delivering a presentation at the Annual Convention of the National Association of Public Insurance Adjusters this week. In preparation, I spoke with a colleague, Jonathon Wilkofsky who will be part of a panel in the educational discussion. Jonathon was the NAPIA Co-Person of the year with me in 2007. In our discussion, Jonathon complained that he was being forced to request the New York Department of Insurance to decertify newly written exclusions as against public policy in a number of instances. His perception is the same as mine-insurers are significantly limiting the amount of coverage with small, but significant, changes in policy language that most, including regulators, would not appreciate until after a loss occurs.
Are there insurers that offer better protection? Yes. Policyholders should ask their agents that question and should seek alternatives from truly independent agents. After all, if you have a great rate from your insurer, but you collect less or not at all, how truly affordable is that type of insurance? Can you say it has the value that provides peace of mind or a sense of security? I suggest reading Chubb Calls Competitors Cheap And Unfair to obtain one example of a company that generally offers more coverage to commercial and residential policyholders.
I suggest that you contact the law firm that represented the Insured in the appellate case and mount an appeal to the California Supreme Court.
Eric,
Thanks for your suggestion of giving me some pro bono work in California.
Chip:
While I try to resist responding to all your posts, and it sometimes takes quite a bit of restraint to hold myself back, once again I find you have crossed the proverbial line.
Your opening sentence questioning "what is the value of insurance if it doesn't cover an insured loss" is beyond misleading, it is simply untrue. By definition, an "insured loss" is covered. Suggesting that "insured losses" are not covered by insurance companies is an oxymoron. (Yes, claims are often wrongfully denied. But we have courtrooms to make sure that is corrected.)
It makes for sensational reading when you write those things and it creates a platform for you to once again rail at insurance companies, but unfortunately it just isn't true. This post is nothing more than an expression of the belief that anything bad that happens to somebody "ought" to be covered by their insurance policy.
Why? Do you seriously believe everything should be covered and nothing should be excluded? Try that with the warranty on your car or the warranty on your refrigerator or the warranty on anything else you own. That tired old line you use about the "fine print" of a policy is not even true--there is no "fine print" in an insurance policy, as you well know. The insurance regulators make sure of that. But saying that certainly stirs up the anti-insurance hordes and supports your platform against insurance companies, never mind that it just isn't true.
By the way, the exclusion in the California case you reference has been around for about 75 years, Chip. It is not a part of some new conspiratorial plot to sneak in language to exclude losses which were previously covered. There is nothing vague or ambiguous about it, either, as the court noted in its opinion. How could it be more clear? Your call for insurance companies to "advertise their exclusions" or "warn" prospective insureds that there are actually things in their policy which are not covered is the classic "not my fault" excuse whenever somebody is surprised to find out that a loss they had is not covered.
How about the notion of actually reading the policy before you buy it? How about the idea that people should take responsibility for their own failure to read over their policy to find out what is covered and what is not? You made no mention of that in your post.
Look, anybody who has ever had a loss which was not fully covered has been disappointed. I know what that is like first-hand and I suspect you do, too. But blaming the insurance company when something which is clearly excluded and properly denied--and upheld by a court--is just wrong. All Risk is not "All Loss", as the courts have often noted.
As you said, there are policies which provide more coverage than others. Tell your clients to go buy them. They are usually far more expensive for reasons which are self-evident; otherwise, those companies would have a virtual monopoly on the homeowner's market.
But if you want to promote the notion that homeowner's policies should cover everything, then at least start there. There really is "no free lunch", Chip. A more complete "peace of mind" is available, it just costs a lot more. But don't complain when you buy a product which says what it covers and says what it doesn't cover, after you find out that what is not covered really isn't covered, just as it says.
I promote the idea that people should read their policies. You should do the same. This post should have started--and stopped-- right there.
Nope, the policies are not even worth the paper they are written on.
I recently found a leak from a busted pipe below my foundation. Apparently, it had been leaking awahile but how was I to know? I have Hardi Board siding which it rot free and had no signs internally of a leak. State Farm denied me.
So, I hired a contractor. Well, the leak came from a shower pipe. When the contractor went to fix my drywall inside they discovered they entire shower area was wet and affected with black mold. So, the entire shower area will have to be demolished and rebuilt.
I again called State Farm, and they again denied me. So, I have paid their high Florida premiums for 9 years totalling $20K and they refuse to cover an $8K claim which was a low bid from a really nice and honest contractor. Again, if they can prove a homeowner neglected a leak that would be one thing, but I had no indication of any problems until that one day when the leak was found. Not my fault.
What good were my premiums when State Farm always seems to find a loophole to get out of covering things?
Good Riddance State Farm....will be switching to another company and suing you as soon as my damage is repaired!
I have a question . . .
I live in a small townhome community in Floida in which each building contains 7 individual units that attach to each other. The owner of a unit died last summer, and the unit has been unoccupied since that time.
We learned that as a result of standing water being found on part of the floor (some tiled/some carpeted) on the ground floor, a mold problem has developed.
Since the mortgage company has not yet taken any action yet to rectify the situation, the other occupants of that bulding are concerned about the mold spreading through the building.
Should the mold spread to adjacent units and "damaged" them, would this damage be covered if the unit owner has a State Farm mold/fungus endorsement?
TO SANDY BURNETT!!
You are obviously a "State Farm" employee, MAYBE YOU CAN GET ME A COPY OF MY ACTUAL POLICY,SINCE NOW THAT I HAVE A CLAIM, STATE FARM DOESN'T SEEM TO WANT ME TO KNOW WHAT'S IN MY POLICY!!!!!!!!!!!!!!!!!
It's now been 6 months since I made my online request, large envelopes that I assumed were my policy, were just simple forms. So, I drove to my local office in person to make a request, I was told "it would take several weeks, since it could only be sent from company headquarters".
PLEASE, Cut the B#@@$87t.
Not having a policy to read, or online access to my account, which was removed when I notified them I had a claim, just gives me time to read what a horrific company State Farm is, and braces me for an upcoming battle.
And maybe you should check out the new law in Washington state, the Insurance Fair Conduct Act!!
Another thing I've discovered while WAITING for my policy to arrive.
For information about other mold cases involving State Farm, go to http://truthaboutmold.info.
Gail Reed,
In many states, insurance companies cannot assert their exclusions before they provide a physical copy of the policy to their insureds.
After all, it is too late if the first time you are given notice of a policy exclusion is after you have already had a loss.
Citizens Property & Casualty has a similar exclusionary endorsement. It states losses are not covered if it is the result of seepage or repeated leaking which occurs over a period of 14 days or more.
They use the exclusion to deny water damage which is hidden or otherwise not discovered by the PH for 14 days or more. The problem is that the carrier has no way of knowing how long the seepage lasted or that it lasted for more than 14 days. It could have started and ended at any time. What proof are they offering to support the denial? Nothing other than the inexpert opinion of an adjuster.
This would require PH's to inspect their property every 14 days. Including whatever they are able to inspect inside the walls, in the attic, in the basement. Because if they fail to discover it within 14 days, the carrier will not pay for the ensuing damage. What about homeowner's who rent the property, homeowner's who go on a 3 week vacation? This is putting an unreasonable onus on the HO to discover the loss.
As the carriers continue to shrink their coverages with additional exclusions, they continue to raise their premiums.
Sending policies to PH which contain ambiguous language that even lawyers don't clearly understand is simply unfair. The PH is looking for assurance and the carrier is looking to make money. These goals are not compatible.
My name is Wendell Slater I was isured with state farm for over ten years and when I really needed them they were not reliable. We must evaluate who we are paying our isurance premiums to in the future because of the so many dishonest companies that surface when a claim is filled. I am a victim of these circumstances in January 17, 2007 I was a victim of a fire that distroyed my home and my claim was denied in November 20,2009 state farm caused me to be homeless with a family of 11. There were clauses on the insuarance policy that were in fine print and I never read them. Laws need to be passed, so that customers will understand all of the print on a policy for full understanding before singning anything or paying any money.
Seattle, Wash. - The Washington State Access to Safe Drinking Water Council (WSASDWC) has recently published a report which is highly critical of municipalities in Washington State for not providing residents options to purchase water or sewer line insurance. The WSASDWC report gave several communities an “F” for failing to carry any insurance products that would help residents insure their water and sewer lines for breaks or leaks. Specifically in the study, Seattle, Tacoma, Yakima, Spokane, Pasco, Bellevue, Vancouver, Everett, Wenatchee and Kennewick received the worst scores.
The WSASDWC was particularly critical of the City of Kennewick after a local news station aired the following reports which detailed how the Benton County Public Utility District and other municipal entities (i.e…City of Kennewick) would not fix a broken water pipe despite the fact Benton PUD broke the pipe. The residents in Kennewick were left without adequate drinking water supplies for several days.
• http://www.keprtv.com/news/local/91664144.html;
• http://www.keprtv.com/news/91001969.html.
According to data in the study collected from public works departments, about 50,000 property owners a year in Washington state face repair or replacement bills for busted or broken water and/or sewer lines that range from $1,500 to $6,000. Additionally, most water and/or sewer lines were installed between 1900 to 1970 in Washington state and are over 40 years old.
As cities and communities age across Washington State and the United States the probability of leaks from older water pipes and related infrastructure will increase dramatically, which will put additional financial pressure on homeowners to fix and replace water pipes.
• http://environmentalism.suite101.com/article.cfm/fragile-water-infrastructure-in-the-us;
• http://www.buffalonews.com/2009/11/30/877764/aging-water-lines-put-pressure.html.
“If cities in Washington state are not going to repair or take responsibility for water and sewer lines from the street or meter to the residence, then they need to provide residents private sector insurance options so situations like the one in Kennewick do not occur in the future," said Dan Miller, Director of Advocacy of the WSASDWC. “It is inexcusable that so many Washington state cities are not offering insurance or warranty products to help homeowners fix leaks in private water or sewer lines, and to minimize disruptions in access to clean drinking water.”