I drove out to meet with new clients at their home last week and, I have to say, it was a very heartbreaking situation. They are a very nice senior couple in Litchfield Park, Arizona who had a pipe break suddenly, causing water to flow into every room of their home. They purchased their homeowners insurance 14 years ago (a named peril policy) and had faithfully made their premium payments. It wasn’t a cheap policy (by any stretch), so they had no reason to believe it wouldn’t be there for them if they ever needed to file a claim.
However, we quickly learned that their policy didn’t provide the coverage they desperately needed – and thought they had purchased. It is the worst part of my job when I have to tell people that I can’t help them because their loss is not covered.
The caveat to their claim was that they had purchased a basic “named peril” policy (also referred to as a “stated peril” policy. A named peril policy only covers specific perils (causes of loss) that are stated or named in the policy.
In a basic policy, these perils are typically: (1) fire or lightening, (2) windstorm or hail, (3) explosion, (4) riot or civil commotion, (5) damage caused by aircraft, (6) damage caused by vehicles, (7) smoke, (8) vandalism or malicious mischief, (9) theft, and (10) volcanic eruption.
As you can see, there are quite a few perils that are not covered under this type of policy – namely, one of the most common causes of loss that I see almost daily: water. If you have a basic “named peril” policy and you have a burst pipe which floods your home with water, you will not be indemnified by your insurance company for the loss. Water is not a covered peril in a named peril policy!
For this unfortunate couple, they did not have coverage for this water loss which, after an estimate was prepared, looks to be approximately $25,000 in damages. Water wicked up the drywall throughout the bottom portion of every wall in their home. It will need to be cut 2′ up from the floor and replaced. All the flooring is destroyed, as well as all the lower cabinets in the kitchen and bathrooms. All the baseboards throughout the home swelled and will need to be replaced. The home’s interior will need to be repainted once the drywall is replaced. In order to do all the reconstruction, all of their contents need to be packed up, stored, and packed back in once the restoration is complete. All of these things (plus many more) are the costs which make up a typical residential water claim.
Let me encourage you to rummage through that drawer that contains the homeowners policy you’ve never read. Find the section entitled “PERILS INSURED AGAINST” and make sure that you’ve got an all risk policy. It will say something like:
“SECTION I – PERILS INSURED AGAINST
See page 8 of this sample HO3 policy (a standard all risk homeowners policy).
An all risk policy will cover for any peril that’s not specifically excluded in the policy. So, you’ll need to read through the list of exclusions (which generally include things like earth movement, war, flooding, power failure, etc.) Of course, even an all risk policy has limitations and it won’t cover everything, but it’s the most broad form of protection a homeowner can have. There are also additional endorsements you can purchase that will cover you for additional perils.
Don’t let yourself become a victim of a water loss that’s not going to be covered under a named peril policy. Talk to your agent to make sure you’re covered in the event you suffer a water loss.
Resources:
A Consumer Guide to Homeowner’s Insurance, by the Arizona Department of Insurance.
Home Insurance Basics by Insure.com.
