This is something that no one wants to go through unless absolutely necessary. Having gone through an insurance claim once, I’ve learned so much about insurance, about rental properties, and anything in between and I want to share my experience so anyone reading will hopefully learn and benefit from my pain. Warning this is a long post.
First, here is a bit of background information on the home and where we were before the insurance claim. My husband and I bought a 2-story property and we work with a property management company that operates it as a vacation rental. The PM found a water leak in the kitchen area (upstairs) and water stain on the outside of downstairs bedroom. The plumber stopped the leak as soon as they could, and we started talking with water remediation company to assess the damage. Our idea at this time was that if the damage is not super expensive, we will not go through an insurance claim to reduce hassle, and keep a good reputation with the insurance company because we have heard of not so good stories related to home insurance claims.
The first remediation company went to assess the damage and told us an overwhelming amount of work that they will have to do in order to repair the water damage, including demo the kitchen cabinets from the walls, potentially destroying the counter top, opening up downstairs bedroom drywall, ceiling and some carpeting, and that they will not be able to put anything back due to liability concerns (the fact that they are not licensed contractors to perform such types of work). We were so stressed out that we might have to re-do most of the kitchen and we were concerned with difficulty finding our own contractors and materials due to the COVID shortage. If all this work will have to be done, we will definitely need to go through with a claim because of the potential cost. So we got in touch with our insurance claim department. Conveniently enough (for the insurance), no one can tell me whether or not our damage would be covered unless we file a claim, so we did.
Here is where the almost heart attack comes in, the insurance adjuster (who has the final determination to interpret our policy language to assess our coverage) told us that our policy was written as a Dwelling Fire 1 (AKA “name perils”) instead of a Dwelling Fire 3 (AKA “All Inclusive”). In English, it means that policy does not cover the water damage! But the adjuster advised us to possibly talk with the coverage department because it is likely that our insurance agent made a mistake while writing our policy especially considering the home is of somewhat high value. Luckily, all of my communication with this agent was via email so I had evidence of asking “is our home covered for water damage” and agent response was “yes”. After days of communication (and waiting time) with the coverage department, they finally determined that it was an agent error and would reverse our policy to DF3 for the previous time, and we would pay up the difference in premium, and then the water damage as well as loss of rent would be covered through the claim!
While waiting to hear back from the insurance coverage department, we contacted a second remediation company who said they would put everything back together after the drying work if need be, so we send out the second group to assess the damage. Luckily, they gave us a different opinion of only needing to remediate the downstairs room. So we decided to go with this company who did a great job. The end result of this water damage issue could not be better - the claim covered the remediation as well as loss of rent; our PM were able to work with the poor guests to move to a different home. It was extremely stressful to go through this so please take the following lessons to heart:
- Get an experienced insurance agent/broker who is familiar with landlord’s policy and is familiar with the type and the price range of your rental. Just like a lot of real estate agents, many insurance agents aren’t familiar with landlord’s policy. Always have at least a DF3 coverage for any property that is valuable to you.
- If there’s any clause in the policy that you don’t understand, ask the question in writing and insist on getting responses in writing. Just in case you need to provide some sort of communication log or evidence in the future. I’m sure it would have been much more difficult for me to argue that my agent made a mistake if I did not have his response in email.
- Have the best coverage you can possibly afford. We were lucky that we “picked” an expected rent amount that actually covered our loss of rent due to the damage. Moving forward, I will always adjust the loss of rent coverage amount for the upcoming year instead of the previous year.
- Evaluate your deductible amount carefully and have that amount set aside with your capital expenditure. It was a big chunk for us.
- If you use a property manager, make sure you understand your contract with them very well. We were not expecting having to share our loss of rent reimbursement but it was written in our agreement. Granted, they helped coordinating with the guests that were staying there who ended up having to move out halfway through their stay. They also coordinated with the remediation company throughout this mess.
