Paying the Price

After the flood, many homeowners discovered that recouping losses from their insurance was frustrating and often futile. Their experiences may help you with future claims.

By Kate Jonuska

In an ideal world, a successful resolution to a disaster would be when what was damaged is either repaired or replaced by the homeowner’s duly paid, rightly trusted insurance company.

    After the flood of September 2013, though, affected Boulder County homeowners who paid and trusted their insurance are defining success much differently: Victory is when you get back even a fraction of your out-of-pocket expenses, and don’t lose your mind in the process.

    “I have a $500,000 flood policy,” says Boulder resident Barbee James of her flooded investment property. “I thought we would get the entire policy, because we had to rip out the bottom 4 feet of every wall due to water damage and sewage contamination. That meant drywall, phone lines, doors, cabinets, bathrooms; everything but the art hanging on the wall is below 4 feet.”

    James’s fire-insurance policy is worth $2.4 million, so she thought $500,000 was still rather low, but the insurance adjustor first came back with a much lower reimbursement amount of $177,000. “We were told it would be $70 per foot to rip out and repair,” James says. “The insurance sent us $177,000, and that was $11.64 per foot for a 15,200-square-foot building, so there was no way that amount would cover our damage.”

    “Insurers are great at their ‘peace-of-mind’ advertising. They’re very good at selling the idea that insurance is a security blanket that will be there for you when you need it,” says Amy Bach, executive director of United Policyholders (UP), a nonprofit that educates and advocates for insurance consumers. “The reality is that an insurance policy is a legal contract written by lawyers. Particularly with large claims, such as people are dealing with now in Colorado, it’s much more a business negotiation than a security blanket.”

 Education, Bach says, is the key to engaging in those negotiations. To that end, UP has conducted several public workshops for flood victims in Colorado and plans several more. The first lesson they teach: Flood insurance is not the same as other types of homeowner’s insurance.

    “The difference between homeowner’s insurance and flood insurance is that there’s very little choice with flood insurance. Most people only have one place they can buy it,” Bach says. That’s through the National Flood Insurance Program, a partnership between the federal government and private insurance companies.

    “Also, flood-insurance policies only cover ACV, or actual cash value, on your personal property,” Bach says. “They will only give you the depreciated value of your stuff at the time of the loss, so you’ll collect a lot less for your damaged or destroyed property.”

Persistence Is Key

“I wound up having to do a lot of stuff in order to ‘present my case’ to the insurance company,” says Boulder resident Judy Amabile, who did carry flood insurance on her property. Her damage included a flooded basement, a damaged sewer-line system and a large sinkhole beneath the driveway. “I was looking at $50,000 worth of work needed, and the insurance company was going to pay some. They cut a check for about $7,500,” she says, or about 15 percent of her losses.

    Such underestimation is extremely common, says Bach, who calls some flood-insurance adjustors “road warriors” who travel the country from flood to flood, often under pressure to err on the low side when estimating loss. “A lot of our focus in our program is to make sure people get a second opinion on the damage and the cost to repair. It’s up to the homeowner to see that the damage has been investigated and fully priced.”

    Thanks to her persistence—and a trusted insurance agent who went to bat on her behalf—Amabile eventually saw her remuneration shoot up to $37,000, or 74 percent of the $50,000.

    Unfortunately, other homeowners discovered their agent was not similarly dedicated.

    On the night of Sept. 11, “I talked to a national-branch insurance representative,” says Stacey (who preferred not to give her last name). “The woman I spoke with was rude, snotty and uncaring. She outright told me we were not covered for flooding and that ‘I should have read my policy more closely.’”

    Only after Stacey’s Small Business Administration disaster-loan officer called her insurance agent to verify her homeowner’s coverage did she procure $1,500 for sewage backup and $5,000 for mold mitigation. “The loan officer is the the one who told me I was entitled to this under my policy—not my agent, although I’d called her and left several messages after the flood, none of which she returned.” The $6,500 didn’t cover her $50,000 in damage, “but at least it was something,” Stacey says.

    “At least it was something”—that’s the conclusion for many affected by the flood. After months of phone calls, second opinions and retaining a lawyer, James was promised several different amounts above the original $177,000. She thinks the total will now be closer to $300,000, but after so many broken promises she can’t be certain.

    Still, “that’s a big difference,” James says, though the revised payout is nowhere near what she’s spent in savings and charged on credit cards to get her building back to making money instead of costing it—and the work is not yet complete six months into it. James eventually asked the adjustor if she could tape-record their conversations, but he refused. So she asked her lawyer to listen in on their conversations via conference call. “If another disaster ever happens,” she says, “I’ll  never let a national adjustor survey any damage without an attorney present.”

   She also says “appeal, appeal, appeal” an offer until it’s in line with your policy’s coverage, and be sure to document all damage before, during and after any repairs, “because the adjustor will tell you they need proof of the work you did in order to reimburse you.” Her best advice: “You’ll need patience, perseverance and drive to not let corporate America screw you over.”

    Getting as much as you can, rather than all that you need, is sadly the best-case scenario in a lot of flood situations, says UP’s Bach. However, she adds, “One of the few silver linings about disasters is they certainly make people aware of the risks they face, and the importance of tailoring your insurance to your needs.”

    And, Bach adds, don’t count on FEMA to swoop in and save you. FEMA assistance tops out at $32,000, no matter the damage or the property’s value.

    “The message is to pull out your insurance policy and look at it closely. Have a conversation with your agent or broker, and if you don’t like them, get a new one,” Bach says. “Anyone who has been through something like this will tell you that insurance is anything but boring after you’ve had a loss.”

Disaster Smart

These tips from the National Association of Insurance Commissioners can help you recover losses incurred from disasters. 

    Find out if your possessions are insured for the actual cash value or the replacement cost. Actual cash value is the amount it would take to repair or replace damage to your home and its contents after depreciation. Replacement cost is the amount it would take to rebuild the home or repair damage with materials of similar kind and quality, without deducting for depreciation. “Many consumers are not able to recover after a disaster because they don’t realize how depreciation can impact their assets,” says Sandy Praeger, president of the National Association of Insurance Commissioners and the Kansas Insurance Commissioner. “It’s important that consumers understand the implications of purchasing an actual-cash-value policy, versus replacement-cost insurance. In the event of a disaster, the difference could mean thousands of dollars in payout.”

    Inventory valuables and belongings by photographing and making a video of each room in your home. This documentation will provide your insurance company with proof of your belongings and help to process claims more quickly in the event of disaster. Remember to inventory items you rarely use, e.g., holiday decorations, sports equipment, tools, etc. Keep sales receipts and/or canceled checks. Note the model and serial numbers of the items listed in your home inventory.

    As you acquire more valuables—jewelry, family heirlooms, antiques, art—consider adding a “floater” or “rider” to your policy to cover these special items. These types of items typically are not covered by a basic homeowner’s insurance policy.

    Store copies of all insurance policies in a safe location away from your home, like a safe-deposit box. Leave a copy of your inventory with relatives, friends or your insurance provider, and store digital pictures where you can easily retrieve them.

    Know what is and isn’t covered by your insurance policy. You might need additional protection depending on where you live.

    Make sure your policies are up to date. Contact your insurance provider annually to review and update your insurance policy, and keep a readily available list of 24-hour contact information for each of your insurance providers.

    Find out if your policy covers additional living expenses for a temporary residence if you are unable to stay in your home due to damage.

    Appraise your home periodically to make sure your insurance policy reflects home improvements or renovations. Contact your insurance provider to update your policy accordingly.

    For more tips and information, visit www.insureuonline.org.

—Source: National Association of Insurance Commissioners