Claim Stories: Hailstorm Damage with No Existing Structure Coverage

Each quarter, US Assure Chief Underwriting Officer Rachele Holden joins us in the studio to share real builders risk claim stories and provides guidance to help you and your clients prevent similar mishaps.

Read the Video Transcript:

Tell us about this project.

This is a new construction home being built for $850,000.

What happened to result in a claim?

As Mother Nature brings, a hailstorm occurs. The roof is damaged. A report is sent in and now claim has been received. An adjuster starts their investigations.

What did the adjuster discover?

The adjuster starts looking at it, finds out from the insured and from pictures from the damage. This is not a new construction. 

This is a remodeling project.

So, what was going on is they had a 1968 home that was being renovated. Now the roof, the insured has confirmed, had no intent for the roof to be replaced. It was only eight years old. It didn't need to be replaced. Now they have hail and water penetrating from the rain coming in from the hail damage.

How did Zurich respond to the claim?

So, the policy that was written was a new construction policy. The only thing we can cover is new construction work. No new construction activity was going on. It was being demoed at the time this hail loss occurred.

Therefore, the claims adjuster had no choice but to deny coverage. The agent did come to underwriting and requested us to include the existing structure coverage and rewrite the policy so we can cover the claim.

We were unable to do that. We can't reform a policy after a loss. So, we did offer if they want to look at rewriting the policy to resubmit the application, and we would take a look at it.

What did the agent get right?

The policy that was written, the agent was informed by the insured it was new construction. So the agent wrote a new construction policy. The agent can only go by what they're being told. So the policy, according to the information they had, was accurately written.

What should have been done differently?

First, I would Google the address, pull up and see if there's an existing home there, because that's going to prompt you for another question.

"Oh, I see there's a home already there. Are you tearing this down and rebuilding a brand new home?"

And then they're going to go, "well, no, I'm renovating it now."

You went from a new construction that they first started off with when they met with you, and now it's actually a remodel.

Who's insuring the existing structure while this remodeling is going on?

So now you know you should be writing a remodel including an existing structure, right? 

That's a common issue we see: the lingo is misunderstood between the insured and an agent.

Because they look at as the remodeling is being done. "That's new work going into my home. That's new construction." So just probe a little bit more.

Final thoughts?

I suggest possibly just getting the signed app before you issue the policy. That's proof that here is the signed app with all the answers: the policy type, the limits are shown, clarification on new construction versus a remodeling project by those limits, and have them sign it before you issue the policy.

That protects your agency, that you wrote the policy that the insured signed the app on and agreed to. This is your protection.

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