By now you have noticed a didactic pattern in these articles: I try to leave you with a little something that will add to your day if your day has anything to do with real estate. This article is no different.
The way I get property insurance is by calling my insurance agent and saying something like… “this is the property, give me your best price…(after a pause) please.” I might then hint that I’ll check around and compare prices, even though I know I probably can’t (for reasons best known in the industry). Then we might talk briefly about deductible amounts, and how I hate to pay that much for insurance. He may be bold enough to point out that insurance wouldn’t cost so much if insureds – aided by their lawyers – didn’t abuse the system. He’ll be right, of course. And I’ll still get the insurance, and he’ll still hate lawyers, and if we ever play golf he’ll win because he gets to play so much more than I. Then I will put the policy in a drawer a hope never to look at it again.
But, some buyers want to do more than just grump about insurance – and so should you. There are two broad types of property insurance. One is called “named-peril insurance.” It will list everything for which you are covered. And if that event isn’t listed, it isn’t covered. Simple. At least until something weird happens and you pull out the policy you stuck in a drawer and start trying to fit your weird incident into that list. Maybe you can.
The other type of policy is an “all-risk” policy. That policy may cost a bit more, and it will also have a list. That list will be comprised of all the exclusions, and the policy will cover everything – except the list of exclusions. Again, in the event of a loss, you will pull out this forgotten policy – if it hasn’t been burned up in the fire or washed away in the flood – and hope your event is not on this list of exclusions.
But wait. Your examination of this policy is not done.
What happens, regardless of the type of policy, if your loss happens because of two separate events, one covered, the other not? For instance, a fire is covered – an explosion is not. You have a fire, as a result of which your gun closet explodes. One is covered, the other not. Are you 100% covered, partially covered, or not at all? Some policies contain what the industry calls “anti-concurrent cause” language. That language says that if two or more causes operate together, one of which is covered, and the other not – then you aren’t covered at all. Sometimes you can negotiate for the type of policy you get, and sometimes you can negotiate out this concurrent cause language, as long as you negotiate before a loss, not after.
The industry will have names for these policies. The all-risk policy may be called a “special form,” and others will be called a “limited,” “broad,” or “basic” form policy. The point is that there is a difference. You would not buy a car without understanding that there are many different kinds. For insurance, your agent is an expert on the differences among policies. The bigger the policy, the more consequential those differences will be.
So you see, you thought you’d read this article quickly and get on to really important things in the rest of the paper. Not so fast. If you are a CAM, or a condo director, look at the list of items in your declaration for which common areas must be insured. You have a legal duty to provide that insurance, even if the association thinks they can’t afford it. If a policy is obtained that does not provide the required coverage, then your malpractice coverage may be tested.
If you’re an insurance agent, expect some Monday morning phone calls from people asking questions about their policy.
See, you’ve done it again. You’ve once again wasted an entirely good five minutes learning about something that now may keep you up at night.
Thanks for reading.
President, Chesser & Barr, P.A.
President, Old South Land Title, Inc.
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