Rough Notes • May 2024 • MIND THE GAP

Earlier this year, I asked a claims adjuster which personal insurance coverages or concepts are most often misunderstood by claimants. My thought process was that, if a handful of claims-related situations and/or coverages are confused on a regular basis, then veteran agents—along with agents who are new to the industry—may not be doing a proper job explaining things.

Due to his insurance company’s media/publications policy, the adjuster asked that I not use his real name. However, I’ll refer to him as Ryan throughout our exploration of misunderstandings.

Ryan provided me with several examples, some of which were rather surprising. Let’s start with the most surprising of them all.

Deductibles
Ryan advised me that many individuals don’t realize they owe a deductible for auto or property losses, and the same can be said for separate occurrences or losses. He mentioned that some insureds think they can combine a roof claim from a recent storm with siding damage that was caused by a fallen tree the year before. As he correctly noted, these would be separate claims, each subject to the applicable deductibles.

A recent conversation I had with a fellow agent named Greg reaffirmed common misunderstandings about deductibles—when percentage deductibles are in place. He informed me that he almost lost an account because the client took it upon himself to get quotes from carriers that Greg didn’t represent. The client then informed Greg that he found a better deal elsewhere.

Greg asked if he could look the quote over to confirm that this was an “apples to apples” situation and fortunately the client allowed him to take a look.

The first thing Greg noticed was that a 2% wind or hail deductible was quoted. He asked the client if he understood what that meant, and the client responded he was fine with it. Greg followed up by asking if the client was okay with a $6,000- plus deductible for wind or hail losses compared with the $1,000 deductible he currently had in place. The client became confused, and Greg had to inform him that the deductible applied to the dwelling limit—which was just over $300,000 in this case—and not the amount of the loss.

As noted in the following language from the Windstorm or Hail Percentage Deductible endorsement (HO 03 12 03 22), the concept is clear, but this is not the first time I have heard of individuals not understanding how a percentage deductible works.

The dollar amount of the windstorm or hail deductible is determined by multiplying the Coverage A Limit Of Liability shown in the Declarations by the deductible percentage amount shown in the Schedule above.

With an increased number of carriers moving to percentage deductibles for wind or hail losses, it is important that all of us do a proper job explaining this concept to our clients and prospects.

We explored this issue in the May 2023 Mind the Gap column titled “Avoiding Policy Language Assumptions” and how exclusionary language can vary by carrier. As we found out after reviewing policy language from several carriers, we found that not only is the duration of the leakage important, but so is the time frame in which the insured takes action to remedy the situation.

Ryan noted that “some insureds are not aware that time and their own due diligence to mitigate damage are large factors in coverage decisions.”

The policy language that gave back coverage for constant/repeated leakage and seepage only did so when the issue could not be observed and was unknown. Once clients realize there is an issue, they need to act promptly.

Water damage
Speaking of water issues, Ryan mentioned that he still has claims where insureds believe their broken pipes will be replaced as part of a water damage claim. He reiterated that the cause of loss will dictate if the pipe or plumbing system will be covered.

For instance, frozen pipes are covered, provided the insured follows the reasonable care steps noted in the policy form (maintaining heat in the building or shutting off the water supply and drain all systems of water). However, pipes that simply burst due to wear and tear will not be covered, but the resulting damage will be, of course.

It’s easy to understand how disconnects occur if we tell our clients we are offering them “all-risk” coverage but then gloss over applicable exclusions such as wear and tear or deterioration.

Finally, Ryan brought up yet another topic that we reviewed in the “Avoiding Policy Language Assumptions” column last year: utility service line coverage. While we previously explored the nuances in those forms regarding septic systems, Ryan mentioned another variance that can be found in different utility service line coverage forms.

He stated that many insureds assumed that coverage extended to pipes that were not only underground, but underneath the home. However, his company’s endorsement excluded this.

I can understand how insureds may assume such a thing if coverage forms aren’t properly examined. For example, the ISO Utility Line Expense Coverage form (HO 06 69 03 22) defines “utility line” as follows:

a. Means that portion of a pipe, wire, conduit, cable, or related equipment, located:
(1) On the “residence premises”;
(2) Outside of a building; and
(3) Below the surface of the ground; which connects, directly or indirectly, a building or structure on the “residence premises” to a source for municipal or commercial utility service.

There is no additional language in the form—exclusionary or otherwise— pertaining to “utility lines” that are located directly underneath the insured residence premises.

However, his carrier’s coverage endorsement specifically excludes utility lines underneath a home:

c. “Covered service line” does not include:
(1) That part of piping or wiring that runs through or under a body of water, including but not limited to a swimming pool, pond or lake; (2) That part of piping or wiring that runs through or under the dwelling or other structure; or
(3) Piping or wiring that is not connected and ready for use.

While some of Ryan’s feedback was surprising, his comments reiterated that we as agents need to do a better job of understanding the nuances of company-specific coverage forms and properly conveying those differences to our clients. We also need to do a better job of explaining the basics—such as how deductibles apply.

Too often we focus on price and assume that quotes are comparable when similar coverage endorsements are included on multiple sets of quotes from different carriers. While the cost of coverage is certainly important— especially in today’s difficult personal lines environment—we need to also focus on coverage specifics and ensure that our clients are making properly informed decisions on the protection of their property.

Marc McNulty, CIC, CRM, is a principal at The Uhl Agency in Dayton, Ohio, and has been with the agency since 2001. He divides his time among sales, marketing, technology and operational duties. You can reach Marc at marcmcnulty@uhlagency.com.