Homeowners are often surprised by what their insurance doesn't cover

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Exceptions to the rule

Homeowners are often surprised by what their insurance doesn't cover

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Coombes, MarketWatch

Last Update: 5:19 PM ET Oct 22, 2006

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SAN FRANCISCO (MarketWatch) -- After Hurricanes Katrina and Rita

struck last year, homeowners in Louisiana and Mississippi learned

what disaster victims elsewhere already know: Homeowners' insurance

policies are not all-encompassing. But consumers all too often buy

those policies without fully understanding the product.

" You get a homeowners' policy. You bought it from your brother-in-

law. You think it covers everything. It's 26 pages of fine print.

You put it in a drawer and forget about it until it's time to make a

claim, " says Bland, chief executive of Insure.com, an online

insurance broker and information Web site.

Only after disaster strikes do you become aware of the policy's

exclusions. The most well-known of those is for flood -- homeowners

must purchase this insurance separately -- but there are plenty of

other limitations to consider.

Limitations

The best homeowners can do is know whether such clauses are in their

policies and understand which types of events those exclusions apply

to. In some cases, it may be possible to buy more-comprehensive

coverage that will offset the limitations or exclusions.

For instance, the typical homeowners' policy has a $1,000 coverage

limit for stolen jewelry, a $1,000 limit for damage to boats and a

$200 limit for the loss of cash on hand. You can buy higher coverage

or buy separate rider policies for high-value items.

Standard exclusions include earth movement, water damage, neglect,

war and nuclear action, says Don , a vice president at

Property Casualty Insurers Association of America, a trade group.

You can buy additional coverage for some of those exclusions. For

instance, " earth movement " includes earthquakes and some areas offer

this coverage, and " water damage " includes backed-up sewers, for

which you can purchase coverage, says.

Faced with large claims for mold damage in Texas and elsewhere, some

insurers have moved away from covering mold unless a peril that is

covered, such as fire (and the resulting water to put the fire out)

causes the mold.

Even if you've got mold coverage, there is usually a coverage limit,

says. " It may be $5,000 or $10,000. You may be able to buy

it up or down, but that depends on the state. "

Homeowners should regularly check their house for mold, Bland

says. " If you find mold, eradicate it on your own. Don't rely on

your homeowners' insurance policy to cover mold. "

Then there's flood. Homeowners must purchase a flood policy

separately (the National Flood Insurance Program provides the

coverage but you can often buy through your insurer). The federal

coverage has a limit of $250,000 for property damage, but some

insurers offer upgrades.

Other possible exclusions: wind and hail. After two years of major

storms, insurers are re-evaluating their exposure to claims related

to wind and hail, says Chad Brown, chief of staff at the Louisiana

Department of Insurance.

That means homeowners seeking insurance in areas where severe storms

have hit recently may have to buy wind and hail policies through

state-run programs, " because the voluntary market is taking a

cautionary approach, " Mr. Brown says. States often create programs

to provide supplemental coverage when insurance companies won't,

similar to the federal flood insurance program and California's

earthquake insurance program.

Insurers are saying " after the storms of the last two years, they

have to look at their exposure. They're doing it countrywide, " Brown

said.

Another thing to check: Deductibles for different events. Often,

policies charge a separate deductible for wind or hurricane damage,

as much as 1% to 5% of the coverage limit (that's a $4,000 to

$20,000 deductible if you've got $400,000 in coverage).

Consumers usually don't have many options out of these deductibles,

but they should ask their insurer about discounts for safety

features, such as hurricane shutters, or roofs that better withstand

hail.

The cause clause

Meanwhile, some homeowners hit by hurricanes last year were

surprised to find " anti-concurrent causation " clauses in their

policies, aimed at limiting an insurer's payout when two events,

such as wind and water, cause damage, says Rhonda Orin, a partner at

Kill & Olick, a law firm representing homeowners in

insurance cases.

While homeowners might say wind caused the damage first, insurers

will often point to water as the culprit. Water damage is usually

excluded from coverage.

" If 1% of the damage is caused by an excluded problem [insurers] can

avoid coverage for the other 99% under their interpretation of this

language, " Orin says. " The anti-concurrent language kicks in as

relevant because insurance companies say, even if it was something

else first we don't care, because if it's water from flooding at

all, it doesn't matter which came first. "

For their part, insurers say those clauses are rare. Some states,

including Washington and West Virginia, don't allow such provisions,

though Utah does, Orin says.

What to do

For the major exclusions, homeowners often don't have much recourse,

other than seeking coverage through another insurer or a state-run

plan, if available.

But be sure to talk to your insurer about coverage. " When you get a

credit card bill in at the end of the month, you look it over to

make sure all the charges are yours, " said.

" This is one of your most important assets. You might want to spend

at least that long or perhaps a few hours once a year going over

what you have and don't have and what you need and might need to

purchase with your agent or your company to protect your home. "

Also, visit your state insurance department's Web site to find out

what's available. Some departments offer consumers toll-free numbers

to call with questions. Some also offer online rate comparisons.

Find a good agent, says Bland. " A good agent is one that calls you

once a year to review your coverage. "

Coombes is a reporter for MarketWatch in San Francisco.