Claim Stories: Missing Existing Structure Coverage on Home Remodel

Claim Stories: Existing Structure Coverage Error

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5 min

What are we discussing today, Rachele?

You know, one little mistake can be a minor to a large loss if the application is not answered properly, then you might have an issue, because now the risk exposure hasn't even looked at properly. Because based on your answers. But if you forgot coverages, it can be dramatic from a minor loss or a large loss. Your agency does not need to be in the middle of either one of those.

I'm hoping that you'll come out of this understanding: "I've selected the right policy, and I've answered the questions and selected coverages that I need today."

Tell us about this claim example.

So we had a remodeling policy that was written and it was on a two story building. The Remodeler policy was selected. It was remodeling. excluding existing structure, the limit was provided at 600,000. So far, so good.

What went wrong?

Fire occurred and the claims adjuster started ticking up when they got the estimate on the damage. Most of the damage was done to the existing structure, while the limit was 600,000. The 600,000 was made up of 200,000 was renovations and 400,000 was supposed to be for the existing structure. They had the limit, right? But they didn't select the coverage right.

So, what we wrote was only renovations. So when they saw the deck, page zero was shown for coverage for existing structure, and the 600,000 was shown for the renovations. That's because they selected the policy of a remodeling excluding existing structure. So now we have a gap in coverage. Claims adjuster had to deny the coverage on the existing structure.

What should have been done differently?

When they selected the option and found out they didn't have all these additional questions should have gone back to step one. They needed to select include existing structure. They would have been answering a lot more questions because when this policy was written, they were given the proper rate for renovations. Only when you're including existing structure. The rate is much higher.

We've got the age and the condition of the structure. When you're doing remodeling only and renovations, it's not based on that condition of the building. We just underwrite it on that. But we now if we're going to insure it, we got to take that into consideration. When you're going to replace that, if we have a covered cause, a loss.

We know we want to know what our condition is and get the proper pricing. What's our likelihood of the building collapsing while they're doing these renovations? What's the likelihood of a fire being sparked? Why they replace that electrical? Because it's so old. what's the likelihood of the deterioration causing a collapse? So the building is what cost more because we're having to underwrite at what the stage it is today.

So, there's a lot more work that has to go into play and then increase in the rate. that didn't get done after the agent would have done the right policy. There would have been an ibis 37 form that would have been attached. That's what gives you the existing structure coverage. Also, do not be afraid to review that form with the insured, because when you add existing structure, you have ongoing construction activity, a clause that can remove major perils or penalize an insured by 50% if they're not consecutively doing construction activity for 60 consecutive days.

How can agents avoid a policy issuance mistake like this?

Pause and make sure that we have done the proper policy before you deliver in that policy before you get a signed application. Let's just make sure it's accurate. Do the review of the FBI's 37 form. If you've added the existing structure and get that signed app. That signed app is your best friend.

What can be done if an existing policy was already issued?

Go ahead, submit an application to call the underwriter. Talk, call the underwriters and see if they'll agree to do it. Do the percentage complete because that project's already started. So you need to calculate the proper percentage completed. Take what's been spent to date divided in your total, compare your value, and then go ahead and turn that percentage amount in. Let's see if underwriting can rewrite that policy to get you a proper policy before a claim occurs.

Should agents fear remodeling insurance?

Well, remodeler policies you shouldn't fear. They're easy to do. The questions are simple. It's just making sure that you select the right policy type. Don't be afraid of doing remodelers.

Just remember: we're here to help you. We have service reps. We have underwriters here to take your call. If you have question, concerns, just give us a call and we'll assist you.

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