Let me explain with an example of a claim that came across my desk that should be instructive laying out the steps policyholders should take when the dreaded denial letter comes in the mail from your insurance company. First, don’t panic. You may be able to turn things around provided you have requested all the information you need to convince your insurance company of the errors of their ways. So let’s get started. It will require a little work on your part, but you can do it.

First you need to have a certified copy of your property insurance policy or ask for one. It is not the one they mailed to you when you took out the policy, but a policy certified by the underwriters for the time period that covers your loss. If you have been with a company for a number of years, it’s likely they have sent you new endorsements each year at your renewal date. So it’s critical you ask for a true and correct policy with all forms and endorsements that is up to date for your loss date.

It’s a simple process to get a certified policy. Just send a certified letter with a return receipt request to the claim manager requesting all forms and endorsements of your insurance policy be sent to you with a stamped declaration page signed by the underwriter swearing that it is a true and correct copy of your policy. Insurance companies are required to provide this so don’t be intimidated. The underwriter has to get this right since he has made a sworn statement that the policy you have received is accurate, true and correct. If it is not, the penalty can be severe depending on the laws in the jurisdiction where the insurance contract was consummated.

Next ask for any and all reports from experts (outside vendors) such as engineers and others that made up the investigation that your insurance company relied on to arrive at a no coverage position. They have to have had some experts that provided input and need to share the information with you.

Now comes the hard part, particularly for lay folks not trained in the wonky world of insurance policy speak. But give it try because there is gold in the terms and conditions section of your insurance policy. Remember the facts of your loss must fit the terms and conditions of your policy or to put it another way, the facts must fit the reason for denial.  As the case study below illustrates, it can mean the difference between coverage and no coverage.

An Insurance Claim Case Study

The insured policyholder undertook a major remodeling project on his home. This included gutting the interior, putting a new roof system in place, weight-bearing walls were reconfigured and finally, all old interior walls, flooring and cabinets were removed and replaced with new top of the line products.

The results were a stunning makeover of a 1950’s era home, one the insured was very proud of. Of course, once the home was complete the insured switched his insurance coverage from a builders risk policy to a homeowners HO3 or an all risk form.  But unbeknownst to the homeowner, under the surface of the new wood floors trouble was brewing and approximately a year after the certificate of occupancy was issued by the local building official, the wood floors started showing signs of cupping, tenting and delamination from the concrete slab. This was not a minor issue, since after an investigation it was determined that all the wood floors had to be removed.  This required removal of custom baseboards, wood cabinets, all furnishings etc. which made the home unlivable for this family.

The insured’s first reaction was to contact the subcontractor who installed the wood floors. Not surprisingly, he accepted no responsibility. In fact he said he followed the wood floor manufacture and the bonding agent’s protocols in his installation process. Next, the insured found the subcontractor’s certificate of insurance and filed a claim. This carrier promptly denied the claim as they claimed to have no coverage for faulty workmanship in their liability policy.

So what to do? Faced with a significant five-figure loss, our firm was asked to look at the issues to see if there was coverage under this homeowners policy.

First, we went through the insurance company’s expert’s report from a respected forensic engineering firm. Now remember they were not hired to look for insurance coverage but instead determine the cause of the loss.  They subsequently concluded that the reason the wood floors were cupping and delaminating was due to moisture migration up through the on grade concrete slab. They go on to say they “eliminated building leaks, poor drainage or grade conditions, plumbing leaks or overflow, leaks from dishwashers or refrigerator ice making units and poor or no ventilation “Greenhouse Effect” as the souse of moisture causing the damage to the bamboo flooring.

Our next step was to look at the denial letter line by line and finally read the certified copy of the insurance policy. After an initial review and a little brain noodling, our first impression was that this was a covered loss and a mistake was made because the carrier failed to connect the dots that would have lead to a clear path of coverage.

First, let’s look at the insurance companies interpretation of the facts as they relate to the insurance company’s policy terms and conditions, which unfortunately were subsequently memorialized in the form of a denial letter. Here is how their letter starts out to their policyholder;

“We reviewed the photos and other related documents from our inspection of the property and believe that the damages to your dwelling are the result of repeated leaking and seepage. The cause of loss by repeated leakage and seepage is excluded in your policy as being covered. As a result, we cannot pay for this claim under this policy at this time and must respectfully deny your claim.”

They then go on to quote the following from their policy; 

SECTION I-PERILS INSURED AGAINST

COVERAGE A - DWELLING and COVERAGE B - OTHER STRUCTURES

We insure against risk of direct loss to property described in Coverages A and B only if that loss is a

physical loss to property. We do not insure, however, for loss:

 2. Caused by:

 e. Any of the following:

 (1) Wear and tear, marring, deterioration;

 …

9) Constant or repeated seepage or leakage of water or the presence or condensation of

humidity,moisture or vapor, over a period of weeks, months or years; unless:

 (a) Such seepage or leakage of water or the presence or condensate of humidity,

moisture or vapor and the resulting damage is unknown to all “insureds”; and

 (b) is hidden within the walls or ceilings or beneath the floors or above the

ceilings of a structure.

Page 2 of 3

Re: Claim Number:

 SECTION I – EXCLUSIONS

1. We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded

regardless of any other cause or event contributing concurrently or in any sequence to the loss.

 c. Water Damage, meaning:

(3) Water below the surface of the ground, including water which exerts pressure on or

seeps or leaks through a building, sidewalk, driveway, foundation, swimming pool or

other structure.

Direct loss by fire, explosion or theft resulting from water damage is covered.

 j. "Fungi," Wet Or Dry Rot, Yeast Or Bacteria meaning:

The presence, growth, proliferation, spread or any activity of "fungi," wet or dry rot, yeast or bacteria.

k. Existing Damage

(1) Damages which occurred prior to policy inception regardless of whether such

damages were apparent at the time of the inception of this policy or discovered at a later

date; or

 (2) Claims or damages arising out of workmanship, repairs or lack of repairs arising from

damage which occurred prior to policy inception.

This exclusion does not apply in the event of a total loss caused by a Peril Insured Against.

2. We do not insure for loss to property described in Coverages A and B caused by any of the following.

However, any ensuing loss to property described in Coverages A and B not excluded or excepted in this policy is covered.

 c. Faulty, inadequate or defective:

(2) Design, specifications, workmanship, repair, construction, renovation, remodeling, grading,

compaction; of a part or all of any property whether on or off the residence premises”

So here we have it. Sure looks like they have covered their bases. But wait! Let’s look at the expert’s report, the facts, and more thoroughly examine the policy language.

First the insurance company got the date of loss wrong. They used the date the claim was reported. The actual date of loss was back when the floors first came up and was noticed by the policyholder. That was the manifestation date when the loss happened. So their date of loss in the denial letter was way off the mark. The insured had called the contractor when they saw the cupping, tenting, and delamination. This was important as it ruled out long-term exposure and as we see later played a key part in finding coverage for this loss. Clearly, there was never any notice to the insured of water damage, seepage etc. In fact, the contractor advised that the floors just needed to go through an annual climate cycle to get acclimated to the environment. The insurance company’s expert confirmed in their investigation that there had been no floods or other water damage, repeated leakage or seepage that had occurred to the property. This was the insurance company’s own expert’s opinion.

Thus to address the first concern raised in the denial letter under Section 1-Perils Insured Against… we do not insure, however, for loss: 9) Constant or repeated seepage or leakage of water or the present or condensation of humidity, moisture, or vapor, over a period of weeks months or years : UNLESS

SUCH SEEPAGE OR LEAKAGE OF WATER OR THE PRESENCE OR CONDEDENSATE OF HUMMIDITY, MOISTURE OR VAPOR, AND THE RESULTING DAMAGE IS UNKNOWN TO ALL INSURED AND (B) IS HIDDEN WITHIN WALLS OR CEILINGS OR BENEATH THE FLOORS OR ABOVE THE CEILINGS OF A STRUCTURE. 

So the argument for coverage is “how could an insured or a member of the household have known about moisture under the floors, hidden from view.” The first notice of the loss was when the floors came up. The insurance company’s own engineers found no evidence of water damage. So clearly, anything happening under the wood floors was hidden from the insured and thus unknown. 

SO THANK YOU! In this case, the insurance company’s expert supports the position that there was no known water, humidity or moisture that would have been known to the insured. Thus there is coverage on this point.

The next issue is the cited in Section I Exclusion for water damage. The policy says that the meaning for water damage is “Water below the surface of the ground, including water which exerts pressure on or seeps or leaks through a building sidewalk, driveway, foundation, swimming pool or other structures.

Again the insurance company’s own expert ruled out water damage (but remember that little pesky (UNLESS) word? And for us folks in the insurance adjusting world we know that this water damage exclusion is all about not providing coverage for a flood loss, a peril covered by a flood policy through the NFIP. So this exclusion does not apply to the facts of this loss.

Regarding J. Fungi, WET OR DRY ROT, YEAST OR BACTERIA, this exclusion does not apply as the insurance company’s own expert did not contribute any of these items as being a cause of this loss.

Regarding the exclusion for EXISTING DAMAGE, this language is for damages that predate the inception of the policy. In this case, the insured took out the policy with their insurance company at the time the home was completed. The loss occurred after the insured paid the premium and the insurance company made an inspection and agreed to take the risk. Thus, the existing damage exclusion did not apply to this loss.

Finally, the policy condition citied c. faulty, inadequate, or defective:

(2) Design, specifications, workmanship, re-pair, construction, renovation, remodeling, grading, compaction; of part or all of any property whether on or off the “residence premises” follows the policy language that precedes c. which states, “However, ANY ENSUING LOSS TO PROPERTY DESCRIBED IN COVERAGE A and B NOT EXCLUDED OR EXCEPTED IN THIS POLICY IS COVERED.

The insured had an all risk policy. The ensuing loss in this case cupped, tinted and delaminated wood floors were not excluded and as such were covered under Coverage A in this all risk policy.

Conclusion

Due to this insured pressing the issue and after a Civil Remedy Notice was filed, the insurance company reversed course and extended coverage. The lesson here is to gather the facts, read your policy and if warranted fight back. You may be surprised at the outcome just like this policyholder who elected to connect all the dots.

In closing we often quote a famous quip from the finical world: “The big print gives, and the little print takes away” In this case the little print gave back what was taken away.

If you have questions regarding any property insurance claim related issues please call 800.321.4488 or contact us to submit a question to one of our public adjuster or insurance claim experts.