Chip Merlin & Guy Cohen

Public adjuster Guy Cohen and I discussed various issues of property insurance and adjustment at a recent lunch. He raised a very serious topic of coverage gaps being created in the small print of property insurance policies which Florida insurance regulators are allowing to be sold. He thinks that these coverage gaps are the most serious issues facing insurance consumers. He is not alone.

He provided me a number of samples. Here is one from Tower Hill:

This policy provides up to $10,000 of coverage due to Water Damage caused by accidental discharge of water from plumbing or appliance. All other Water Damage is excluded except Water Damage caused by water penetration into the house when the water penetration is a direct result of damage caused by wind or hail.

What are restoration contractors supposed to do when a significant water loss happens? A $10,000 limit does not do much for a policyholder when a major water loss occurs. While infrequent, I have seen homes completely destroyed from appliances which break, and water then pours throughout.

I remembered that the American Association of Public Insurance Adjusters (AAPIA) has made the issue of vanishing coverage and coverage gaps a major legislative and regulatory issue. So, I called AAPIA’s Holly Soffer about their agenda on this issue. I got an earful of information. She confirmed that there are many examples of insurance companies adding endorsements which remove standard coverages and limitations. She told me that AAPIA is supporting the efforts of Untied Policyholders in this arena.

I then discussed the issue with Amy Bach of United Policyholders. She told me that they are working with academics and the NAIC about the issue. Many of the insurers are filing forms which the various departments of insurance are not catching. These forms contain significant changes to standard policies. She told me that one endorsement excluded “wildfire” from the fire peril.

Propagandist insurers, especially the surplus and excess liens insurers, are using free market terms such as “consumer choice” and “custom coverage” to sell and justify these crazy policies. The surplus lines industry is even selling policies which make policyholders arbitrate claims far away from where the property is insured and include language that switches the applicable law to another state. Many of the endorsements effectively make the insurance being sold illegally less than what is required by federal mortgage regulations—both residential and commercial.

This has to stop. State legislatures, the NAIC, regulators and even federal banking regulators need to have a comprehensive plan to prevent this wholesale attack on what used to be standard and required property insurance coverages. I will write more about this burgeoning issue. I applaud Guy Cohen, AAPIA, and United Policyholders for raising the issue. I would suggest that like-minded contractors and public adjusters join us in this fight against coverage gaps caused by unfair endorsements with non-standard limitations and exclusions to traditional coverage.

Thought For The Day

Protest actions and propaganda are two slightly different things
—Vladimir Putin

  • Bruce Holmes

    A drop of water per second produces about 5 gallons per day. A broken hose to a washing machine will flood your house in a few hours. AC air handler leaks produce some 3-5 gallons a day. Only solution I see is to have a solenoid valve on your main water service and turn it off when you are gone, even for a short while.

    Our insurance companies keep excluding legitimate loss items. On a similar front, I am seeing rejections for water damage as it is said there is no wind created opening. Hey, they don’t have to be visible. A drop of water contains 1.67 times 10 to the 24 molecules of water…microscopic. They say if they don’t see the opening it doesn’t exist. Not so. Even latest hvz NOAs for Dade and Broward had water breach through openings from Irma. The combo of wind and rain exceed what the windows and sliders were rated for. Once again ins. adjusters say they didn’t see any wind created opening. :-)

    • Chip Merlin


      Thanks for your comment.

      Water can do a lot of damage. Allowing such a coverage gap because of stupidly low lints is something we should not allow insurers to market.

  • I have written and spoken for many years about the issue of whether there should be minimum coverage standards, at least for personal auto insurance. There is something to say for a “bureau” state like North Carolina that says, even if you sell nonstandard auto insurance, THIS is the coverage form you must use.

    Good article. I did a seminar pointing out similar deficiencies not always readily apparent in policies. I called it “Raiders of the Lost Coverage: Insurance Jones and the Temple of Exclusions.” I also published a blog post a couple of years ago of “100 Insurance Maxims,” many of them dealing with coverage issues.

    I’m doing a webinar for regulators in October that will address some of these issues and why, given that the insurance industry is vested with the public interest, regulators must be vigilant in reviewing policy form filings.

    There is an insurance agent in New York who is on a mission to address industry advertising which focuses predominantly on price without any coverage caveats. Consumers almost universally believe that insurance is a commodity. It’s not.

  • Scott deLuise, CCIM, SPPA

    You asked for help, and I’m here to help. What can I do in Colorado, which is a “file and write” state, where the Standard NY Fire Policy has not been adopted as minimum coverage, and “agents” have no responsibility whatsoever for writing illusive coverage?