It is probable that, at the time it was built, your older building met all the building code requirements at the time it was originally constructed. In the absence of any recent renovations requiring upgrades to current building standards, it is also probable that your older building does not meet modern building standards and will not be required to meet them until such time that major restoration or renovation are made or become necessary.
Unknown to many commercial building insurance policyholders is an exclusion in their property insurance policy that allows the insurance company to refuse to pay the additional costs associated with performing required building code upgrade requirements at the time of loss.
For example, should lightning strike the older building and cause damage to a small part of the original electrical system, local building code ordinances and regulations may demand that a repair to that damage requires complete electrical re-wiring of the entire building to bring it up to the current standard. The exclusion in the business property insurance policy that denies coverage for complying with local ordinances and building codes would allow the insurance company to pay only for the repair of the damaged wiring and leave the more expensive code upgrade expenses to the policyholder.
If you own a commercial building that is twenty or more years old, I strongly suggest that you consult with your insurance agent or broker to determine if you have (or need to purchase) an endorsement to your policy that provides for the additional expense of enforced code upgrades to protect yourself from this added and significant expense to your loss.
There are two kinds of roofs on Missouri homes and business structures. There are those that have storm damage and those that will have storm damage. Understandably, the various insurance companies from all over the country that sell policies in our state will offer a wide variety of coverage options that are not always fully understood by the property owners before disaster strikes.
Learning after the roof has been damaged that you have been saving pennies per year by NOT including coverage to match replacement shingles or siding, or learning that hail dents that destroy the appearance of your metal roof is not considered “damage” by your insurance company, can result in costly out of pocket expenses that you thought were covered by insurance.
The Missouri Department of Insurance has created an informational and interactive website that helps you to understand your roofing coverage for each insurance carrier. While I recommend that you visit their site, I urge you to take the time to read and understand your insurance policy, as well. Have your agent clearly explain to you, when necessary, what it does and does not provide and ask lots of questions.
Considering that when an insurance company’s claims department is on its absolute best behavior, its job is the same as any corporation that is run by a board of directors. That job is to put the monetary interests of their shareholders (not their policyholders) at the top of their priority list. Their duty to you, as a policyholder, is not fiduciary (as it is with their shareholders) but contractual. Thus, even when you are dealing with a fair and reasonable adjuster, you need to know what your contract with them says. That contract is your insurance policy.
Your insurance company is prepared and well-practiced to fight and defend their rights under that contract. How prepared are you? Don’t let the first large claim be the first time you read it. Caveat emptor.
As a very busy summer draws to a close, here are some of the highlights from the season’s most interesting claims.
1. The insurance company had delayed a response to a fire claim for six months. The home owner called me and soon after received an initial payment of $111,000.00 which, upon further review, was underpaid. We recovered an additional $14,000.00 a few weeks later.
2. The insurance company denied the church’s claim for storm damage to its steeple and interior. Their roofing contractor referred them to me and we soon recovered the full amount to repair the steeple, repair the damage to the interior of the church and to replace a section of the roof.
Damaged by 100 mph wind, this steeple was allowing water to flow into the church.
3. The insurance company denied a claim for damages to a home caused by a dishonest contractor. His financial advisor referred his client to me and we turned that “no” into a check for $10,000.00 and a waived $5,000 deductible (total value, $15,000.00).
4. The insurance company denied a claim for hail damage to his roof and my client’s roofing contractor referred him to me. We turned that “no” into a new roof.
5. The insurance company had refused to address the storm damage to her home and my client was referred to me by a friend. In a matter of weeks, we turned that “no” into a several thousands of dollars and a new roof.
6. The insurance company had said “no” and denied coverage to a storm damaged deck. My client was referred to me by a real estate agent. We turned that “no” into $16,400 for a rebuilt second story deck.
7. The insurance company had denied his roof claim stating that the storm with golf ball sized hail did not damage his roof. My client called me after finding me on the internet. We turned that “no” into over $21,000.00 for a new roof and gutter.
We did well on many other storm, theft and fire claims, as well. I’m looking forward to Autumn.
Many insured Missouri home owners are caught off-guard, at the time they file a claim and can afford it the least, when they discover that their “deductible” has increased to several thousands of dollars. (The policy’s “deductible” is a dollar amount that is automatically subtracted by the insurance company from any amount that is owed, per occurrence, to the insured as a result of damage or loss to the home.)
When many home owners first insured their homes, their policies originally had a $500.00 deductible that eventually changed to $1,000. Now, with recent renewals, insurance companies have begun to assign a deductible amount that represents a percentage of the total value of the policy. By this, if a home is insured for $300,000, a 1% deductible allows for each claim to carry a deductible amount of $3,000. This means that a claim against the policy for a $7,000 to repair will result in a payment of $4,000.
A recent Missouri client was surprised and upset to learn that his deductible had increased from its original $1000 to over $5,000 when he filed what was his very first claim after decades of coverage. While we were able to successfully negotiate an agreement with his insurer to waive this deductible amount for his claim, this was an exception to the rule that is not always available – as was the case of another client who discovered too late that she had a significant $2,300 amount to be deducted from her settlement of $6,400.
These increases in the deductible amounts are reported to the home owner at policy renewal on the “Declarations” page that is sent at the time of each renewal. Unfortunately, many home owners will simply file this important page with their policies without reading and noting the change.
Take the time, today, to read your most recent declarations page to see if your deductible has changed. It is possible to negotiate a lower deductible with your insurance company, in some cases, with a slight increase in your premium … but this must be done and in effect PRIOR to the date of any loss or damage.
Most insurance policies will define the terms by which the insurer will calculate ACV (“actual cash value”) in determining how much to pay and, usually, the factor of “age” is not one of those conditions. Still, the age of the property is often used as the primary determining factor when depreciating or subtracting from the replacement costs of an item of property that is being adjusted for settlement.
While it is true that an object’s age can correspond closely to its extent of physical wear and tear – it is not true in every circumstance. Age alone should not cause an object to lose a large percentage of its value and if the object is functionally sound, it should retain most of its value.
I have helped clients recover higher settlements from insurers who had initially calculated depreciation as high as 75% for perfectly working and maintained fireplaces that happened to be original to older homes. Plaster on the wall that was lost to fire was depreciated by more than 65% even though it was fully intact and functional prior to the fire and the insured home owner was entitled to a higher adjusted settlement. Countless other items and systems in the home have been grossly over-depreciated – at a great expense to the insured – for no other reason than their age.
In some cases, the age of the item may be incorrectly calculated and higher rates of depreciation can be mistakenly applied. One recent case highlighted certain items as being subject to excessive depreciation due to what the adjuster determined to be advanced age when, in fact, the same insurance company had actually paid for their replacement less than a year prior when vandals had damaged the home.
Property owners should know and understand that an object’s amount of depreciation is identical to the amount of how much better, or more valuable, a new object is compared to the older object. This is what is actually being determined. Age is not always an appropriate measure of this and arbitrary deductions from replacement values that are simply based on age should be challenged by the insured. The adjuster must carefully listen to the insured’s arguments and negotiate in good faith.
If you feel that your property was unfairly depreciated and that your insurance company’s offer of settlement is unreasonable and unfair, contact me (if you live in Missouri) or a public adjuster licensed to represent you in your state.
[Update – 3/12/13 – My client had a home damaged by a fire that needed extensive repair, as mentioned above. The insurance company underpaid him … claiming a depreciation of 67% on the interior walls based totally upon their age. After reopening the claim and further discussion with me, they issued him an additional check for $11,438.00.]
Some people will carry insurance with the same company for years without ever having the need to file a claim … and then only at their greatest time of need, following a serious property loss, find that their insurer is NOT the “safety net” that they had expected.
Low rates, teddy bears, lizards with British accents, good hands and good neighbors … they all mean very little when disaster strikes your home and you experience improper claim denials and delays that add to your burden and interfere with your recovery.
First, what is a “soft” home inspection report – and how can it do harm?
Many home inspectors that inspect homes for real estate transactions will build their businesses upon the hope of referrals from real estate salesmen to stay in business. Since real estate salesmen make no money until a home sells, some inspectors feel compelled to assist them in selling the house they inspect with the hope of gaining future referrals. To do this, they ensure that their inspection reports do not “alarm” the prospective home buyer or interfere with the sale of the home – with the expectation of gaining favor with the sales agent.
The result is a “soft” report that is of no value to the home buyer, and potentially harmful. A “soft” report could result in a buyer being deprived of essential information and a decision to buy a house that can lead to a serious economic loss.
The following are a few common methods used by some home inspectors to “soften” their home inspection reports:
“Balancing” the Report
The most common method used to “soften” a home inspection report is to add “positive” things about the home that would be attractive to the buyer. Some inspectors have told me that they strive to include one positive feature of the home for every material defect that they find in order to “balance” the information.
Most experienced and professional home inspectors, however, already take into account the fact that their client has found features of the home that attract them, or they would not have agreed to purchase it. Professional inspectors know that they are hired to describe the home’s true condition and report material defects that could affect the health or safety of its occupants as well as the sustainability of the structure.
They will perform this service by providing a home inspection report that is complete, accurate, and unbiased.
Sandwiching information about hazardous or defective conditions between flowery comments is not the proper way to write a home inspection report.
“It Wasn’t in the Code Book, BackThen “
Another common technique used to minimize a material defect in the mind of a potential buyer is for the inspector or real estate salesperson to point out a serious material defect in the home but then infer or suggest that it is somehow more acceptable since the correct installation was not required by the code or building standards at the time the home was built.
Any defect that could result in physical harm to the structure or its occupants is serious – no matter when it became part of the house – and should be addressed. A home inspector’s job is to bring to his clients’ attention every such issue he observes and to recommend that it be corrected. It is not his job to make excuses for its presence.
Understanding that building codes are simply basic minimum standards of which anything less is illegal … the fact that something harmful may or may not have met code at the time it was built has no relevance to the owner, today.
Another way that an inspector can take the “sting” out of a material defect to “soften” a report is to include an estimate of repair to help the prospective buyer apply what is called “context” to the defect. This is not common to most home inspection reports, but it happens in some cases.
It is dangerous for the inspector as well as the homebuyer to make purchasing decisions based upon an inspector’s estimates. Many state laws and all standards of practice discourage inspectors from providing repair or replacement estimates.
Estimates can only be accurately provided by a person or business who is currently doing the work and aware of the present costs of materials and labor associated with the project and will often find undiscovered issues that affect the cost of the project once work has begun. Many contracting companies employ professional estimators who are trained and current in the practice of providing them.
“I am not an Alarmist.”
Watch for these code words that home inspectors use to alert interested real estate salesmen that they will write a “soft” home inspection report in exchange for future referrals … something that one court referred to in one recent lawsuit as “consumer fraud”.
Among some home inspectors and the real estate agents they work with is an “understanding” that first-time home buyers are sometimes easy to frighten or “alarm” when they learn of imperfections with a house they intend to buy. Some home inspectors address this as they solicit referrals from real estate agents by advertising themselves as friendly to first-time home buyers and provide an assurance that they do not “alarm” them in the manner that they describe defects in their reports.
Learn more about the bad results that come from this act of “consumer fraud” … from this lawsuit (click here) … that resulted from a soft home inspection report given to a first-time homebuyer who got burned.
“Free” Warranties and ”Guaranteed Buy Back” Offers
It makes sense for a real estate salesman to want to take some of the worries out of taking a chance on a new home. Many will encourage or enhance the sale by providing “home warranty services” that may or may not cover items that stop working when the new homeowner takes over the property. Some will offer to buy the house if they can’t sell it … or “buy the house back” if you don’t like it, with (of course) a long list of certain disqualifying conditions.
While most home inspectors are careful to inform their clients that they are not providing or implying a guarantee or warranty through their inspection reports, many will want to impress real estate salesmen with the appearance of assisting them in providing an incentive to buy. Accordingly, they will purchase “90 Day Home Warranties” or provide “Guarantees” that are supposed to cover selected systems within the home against defects for a very low cost ($5 to $15) and will provide them to their clients with paid home inspections.
These low-cost service contracts promising high-end payouts are a common source of complaints with state-level consumer advocacy offices (attorney general, BBB, etc.) and should be carefully scrutinized. Even when they appear to be provided “free of charge”, reliance upon them when deciding to buy a home can be extremely costly.
In addition to the exclusion-laden free “warranty” is the recent promotion where some home inspectors offer to “buy back your house” if they miss a defect in their report. If you really … really … believe that your home inspector can afford to “buy back” every house that he inspects charging his $300-ish inspection fee, then go ahead and take comfort in his offer when deciding to buy a home. If, however, you are suspicious as to why he will NOT promise to pay to replace the broken water heater he failed to detect for $500 but is willing to “guarantee” to buy back the house for $300,000.00, instead … look carefully at the hundreds of exclusions that assure that no such transaction can ever take place.
When the home inspector, hired to report things that might be wrong with the house, begins providing “free” incentives to help the potential buyer decide to purchase the home (by addressing future recalls of appliances or “free warranties” should things break), this could indicate that someone other than the home buyers’ interests is being considered.
The use of these so-called “warranties” along with other gimmicks (such as ongoing updates on the recall status of appliances, alarm system evaluations, etc.) assist home inspectors who wish to solicit additional referrals from real estate salespeople to help the sales agent advance a presumption that the prospective buyer will decide to buy the house. They also create an illusion that future breakdowns will be covered at someone else’s expense. Carefully read these “warranties” and “guarantees” to see that they actually provide the intended coverage. Many don’t.
While these gimmicks have little to do with reporting the present condition of the home … they can go a long way in helping a sales agent create a mindset of “ownership” that advances the sale of the home. This is why some inspectors, according to their conversations in private sections of professional forums, promote their use as “marketing tools” to solicit more real estate agent referrals. “Agents love them” is a mantra for those who promote them. One vendor who sells the “We will buy back your house if we miss something” goes as far as to promise participating home inspectors that “every” real estate agent he solicits will provide him with “every” client they serve as a referral. Some home inspectors believe this and are willing to take a shot.
Homebuyers should ensure that the company that is representing these service contracts is properly registered with their state and should not hesitate to hold the inspector that provided it to them responsible for the provider’s failure to perform under the contract – since it is being provided as a part of the home inspection service that they paid for. Here is a lawsuit where the home buying victims of a “soft” home inspection report with a 90-day warranty did exactly that … (click here). A “We will buy your house back” guarantee would also exclude the conditions described by the duped homeowners in this suit.
What Should You Do (and NOT Do)?
Do your best to seek an experienced, full-time and certified inspector, but be aware that even highly experienced and “credentialed” home inspectors can still be found to participate in writing soft reports or using gimmicks in return for future referrals.
While I personally know some excellent home inspectors who have scaled down their businesses for distinct reasons and continue to do quality inspections on a part-time basis … I know many others who have yet to reach a level of skill and expertise upon which they are able to confidently rely upon or fully commit themselves to be a home inspector on a full-time basis — yet these inspectors somehow expect others to place confidence in that level of skill and expertise to such a degree as to rely upon them to make the largest single purchase that many are likely to ever make in their entire life.
Use the internet to do your research and if you prefer to have someone refer an inspector to you, seek advice from friends or family who have had firsthand experiences with professional home inspectors.
Be skeptical of referrals for home inspectors from real estate agents or anyone else who has a financial interest or stands to gain from the sale of the home. Often, home inspector referrals come in the form of lists that will contain the names of inspectors known to the list provider to write soft reports or will be simply a list of inspectors who were willing to pay the real estate broker or agent a fee to appear on their referral list. If one chooses to rely upon the recommendation of a real estate salesman for a home inspector and they provide a list of inspectors that they prefer to have a home buyer work with, it is not a good idea to go through the list simply searching for the inspector with the lowest fee.
Instead, homebuyers should seek information about the inspector’s qualifications, length of experience, certifications, and whether or not the inspector is committed to business on a full-time basis since some only perform inspections sporadically “on the side” from their other full-time job. When a home inspector adds a “free” gimmick to an inspection report such as a 90-day “warranty”, he should be asked how he has come to the conclusion that the buyer has decided to go forward with the purchase prior to having read his inspection report.
He should also be asked why he would be involved in matters regarding future performance or recalls of appliances in a home, that he alleges his report to be exempt from. Using these selection criteria, the best inspectors will stand out quite readily. Still, one should remember the “code words” when reviewing his advertising and his reports.