Crack Houses! – What’s Up With My Property Insurance?

First of all, I am not an insurer, lawyer, insurance expert, home inspector, structural engineer, sinkhole expert or any other professional that might take exception to this blog post.  I am a professional painter contractor just trying to help my community understand what’s going on in today’s market. We all know there is a growing crisis of obtaining and maintaining insurance on our property in Florida.  My goal here is not to attack the industry but to educate a few property owners on how to potentially avoid stepping into this muck.

Due to excessive and frequent bogus claims for sinkhole damage, water intrusion, mold remediation and other hazards, insurance companies have been more aggressive and are conducting record numbers of onsite insurance inspections.   These inspections are occurring for both new and existing policy holders.

Insurance is risk management. Insurance companies are mostly for profit.  They are umbrella peddlers.  They lend you an umbrella for a rainy day. The premiums you pay are invested in other securities and they hope their returns exceed your claims.  There is a fiduciary role for both parties.  They agree to pay reasonable claims.  You are required to maintain your property’s condition at an acceptable level.  If not, then insurance companies can deny your claims.  Overall, the industry has done a poor job at defining your responsibilities for maintaining the property.  Policy language is legalize and nebulous.  Recent and growing trends for completing onsite inspections are creating a lot of additional stress.

Loopy Language

You have to love the language used in our world.  It seems we have to make up with terms that have different meanings depending on who interprets the term.  In the case of new polices, insurance companies like the term “denied.”  They issue a policy only to turn around and deny coverage for certain aspects after inspection (underwriting).  These inspections rarely, if ever, are completed before issuing the initial policy.  Agents, realtors and consumers involved in this process don’t seem to be very informed about what can happen. The most common denial is for sinkhole coverage.  Appears
that any visible cracks on the building will result in loss of this coverage.  The immediate reaction of the owner is panic and frustration.  But, there may be ongoing concerns as well.

For existing policy holders, the favorite term is “non-renewal.”  Seems the there are ramifications of cancelling a policy.  So the industry just does not renew.  Ok people, maybe I am not so smart, but isn’t the outcome is the same? Call it whatever you want, the property owner still has to find new insurance. A difficult, confusing and time consuming process.

If your property loses sinkhole or other coverage due to cracks, I would also expect denial of payment for any water intrusion or mold claims arising down the road.  The insurance company is likely to pull out the pictures from the inspection and show the cracks. I can almost hear it …. “Sorry, but evidence in our database shows you failed to maintain your property at an acceptable level.”  Policies seem to include the term “regular and routine maintenance.”  This is very open-ended and subject to broad interpretation.

Not sure what goes into the industry’s collective “Comprehensive Loss Underwriting Exchange (CLUE)” records database.  But seems to figure these non coverage, non renewal, otherwise cancelled properties and denied claims would show up here.  I would bet this makes finding new coverage and getting claims paid a bit more difficult.

What Are Crack Houses?

Virtually every stucco home in our area has some cracks.  Cracks are caused by the continuous heating and cooling of the masonry, water intrusion through failing paint, settling from living on the Florida sandbar, and sinkholes.  In my opinion, the vast majority of the cracks we see are caused by the first two items.  The issue here is failure to maintain the home is a regular and routine manner.
The risk to the insurer is pretty high.  Water intrusion causes mold and other damage to the dwelling.  Insurers don’t want to pay these claims or deal subsequent health issues which might come later down the road.

Settling cracks are fairly common.  (Funny, the sinkhole litigation attorney web sites all seem to say cracks are not common.)  What’s not common is sudden shifting and major new cracks in the building.  These may be indicative of structural problems or sinkholes.  Regardless, there have been tons of cases litigated in this area.  It’s messy and insurers are trying to avoid this arena.  Seems any cracks on your home will result in cancellation, non-renewal or denial for sinkhole coverage.  Even if you have coverage you will likely have to fight to get a claim paid.

PS – I see a lot of roadside billboards for sinkhole issues.  Some are for litigation attorneys and others are for companies which inspect and fix sinkholes.  You have to make a lot of money to afford these billboards (just saying….).

Insurance Inspections

Insurance inspectors are the eyes and ears of the insurer. They complete physical inspections of the property, diagram the dwelling, complete a checklist of hazards & conditions, and photograph the home along with any noted hazards or conditions.  Inspections are generally completed on the exterior of the home (no appointment necessary – the insurance company typically has the right to do these at any time).  In some cases, interior info is needed as well regarding the condition of electrical wiring, plumbing, heating, etc.  This may require an inspector to make direct contact with the homeowner.  My guess is we will see the interior inspections expanded as more insurance industry resources are pushed into this area.

The insurance inspector is not there to give you advice.  Their only role is to help the insurer define, manage and mitigate risk.  Better in most cases to just let them run the checklist and take some pictures.  Any discussions you have will likely involve questions you may not be able to answer.  Not trying to be shady here.  Just don’t give them additional reasons to give the insurer an issue.

Note: I have seen a few of the crack pictures taken on these inspections.  They are often close up shots making the crack look like the Grand Canyon.  The underwriter back in office has to rely on these for making a risk decision.

What Are Your Options?

I certainly don’t have all the answers or claim to have all the solutions.  Here are a few of our observations:

1. There is a high level of need for additional education and disclosure.  Let your local and state politicians know you are concerned about this emerging trend.
2. Real estate agents, home inspectors and insurance agents need to take a much more proactive role in this issue for property buyers.  They vast majority either don’t know this is occurring or leave it up the consumer.  Proactive is always better than reactive.
3. Some insurers will provide the property owner with time to address the cracks.  Others will not.  In some cases, once sinkhole coverage is denied, it cannot be reinstated.  Claims denial for water intrusion and mold issues are still emerging but we expect this to be a substantive issue for homes which had prior non-renewals or denied coverage.
4. Insurers need to better define regular and routine maintenance for the property. Responsibilities are far from clear. Most policies are mute on what this means.  Recent actions by the insurance industry are focused on claims avoidance only.  This is not acceptable and needs to change immediately.
5. Home and property owners have neglected maintenance of buildings due to economic concerns and declining values.  Protecting the property (the insured asset) is a requirement not a luxury.  Cracks must be fixed, masonry needs to be sealed and areas of potential water intrusion need to be addressed.  Patching just the cracks is not sufficient.  You must deal with the causes not just the results.
6. If you have structural or sinkhole concerns, then hire a professional engineer with credentials in this area.  Home and insurance inspectors are not typically certified in these areas of
   expertise.  They can only speculate on potential problems.   These issues are serious and require more than just a casual observation.
7. If your home or property insurance is coming up for renewal soon, get in front of this trend.  There is a pretty strong probability your home will be inspected.  Make sure your property can stand up to the inspection.  If not, get appropriate licensed contractors to complete the work prior to an inspection.
8. Just because you have insurance don’t assume you are fine.  Insurers can still deny claims.  Getting payment on your claim is not guaranteed.  It can take a lot of time, energy and even legal expenses.  If you have been avoiding maintenance due to financial concerns, this could be disastrous.
9. Patching, sealing, painting and protecting your asset does guarantee you will never have a water
   intrusion issue or other issues with your insurer.  No one can make that warranty.  However, insurance companies are more likely to be responsive to owners which maintain their property.
10. Expect changes in the way insurers evaluate individual properties as this inspection trend matures.  As the industry collects and analyzes more data, I would expect to see more defined underwriting criteria like those found in auto insurance and lending business.  Well maintained properties should be able to command lower premiums.

Insurance Denied, Not Renewed or Concerned About Upcoming Renewal?

If your insurance has been denied or not renewed, don’t panic. There are solutions but it is going to take some time to pull these together.  ProTect Painters of Oviedo ~ Winter Springs receives multiple calls each week from home owners or their advisors.  We have developed relationships with local insurance, construction, engineering and other professionals who can assist you. If you have a renewal within the next few months, now is the time to find out the condition of your home.  Proactive is always better than reactive.

In either case, just give us a call at 407-542-9036 and set up a time to come out and look at your home or business property.  Our evaluations are free.  We’ll meet with you to discuss the situation, examine issues we believe can be addressed by professional paint services and introduce you to other professional who can help take the stress out of the problem.