Hello Everybody,
With Hurricane season here combined with normal home issues it is important for you to understand your Homeowners Insurance Policy.
Let’s talk about policy endorsements, what is an endorsement?
Answer: An endorsement is an amendment to the insurance contract that changes the terms of the policy. Endorsements are included at the time of purchase; they can also be added mid-term with notification.
Example from a Citizens Insurance Policy:
Forms and Endorsements applicable to this policy:
CIT 05 86 02 21, IL P 001 01 04, CIT 25 07 08, CIT 25 94 02 20, CIT DP-3 02 22, CIT 05 85 02 21
As you can see these endorsements can be very difficult to understand and they change the conditions of the policy and coverage limits in all kinds of situations.
Most are not optional; They are designed to limit your risk to the insurance company, but some are optional and offer a policy discount if selected. In my experience if a premium discount is offered to accept a policy endorsement it is not a good deal for the homeowner.
Some endorsements take away coverage while others can return coverage but will usually change the conditions of coverage and can apply coverage limitations.
Endorsement Alerts:
This first endorsement to watch out for was introduced under the Florida Legislation Senate Bill 2A that went into effect in December of 2022. Watch out for the Optional Arbitration Endorsement:
Note: Insurance companies are mandated under Senate Bill 2A to provide a Policyholder notice with this endorsement and a premium discount if you select this optional endorsement.
Understanding The Arbitration Endorsement:
This will take away your right to file a lawsuit against the insurance company in a claim coverage dispute. In my experience, you will need to retain an attorney to be successful in arbitration, it is really a mini trial, and your legal fees will be at your expense per the arbitration endorsement conditions.
Example: There is an insurance company settlement dispute of 20K. Your insurance company could assume you will not risk incurring the expense of arbitration, you are a paper tiger and will probably just accept their coverage decision and settlement amount provided rather than incur the expense of an attorney to resolve this smaller disputed amount.
Another example: There is a settlement dispute of 100K. By accepting the arbitration discount, you waived your right to file a lawsuit and have the option of a jury trial to resolve the dispute.
Insurance companies will always try to avoid the liability of a jury trial, they would much rather limit their possible liability and have the dispute resolved by an arbitrator that can only address the coverage shortages and will not spank them for their bad claim handling practices or the expense of your attorney in a bad faith judgement.
In all fairness, and in respect to the claim process, and the many insurance claim staff doing a great job. In my experience most insurance claim disputes are a result of misunderstandings about the covered damages and / or the cost of the actual damage repairs.
Most of the time claim settlement disputes can be resolved by providing a level of experience and professionalism enabling the resolution of most claim disputes without the need to escalate the process.
But unfortunately, sometimes you can be a victim of poor claim handling and some insurance companies dispute protocol. The only way to resolve this situation is to retain an attorney to whack them with a big stick to get them to honor their policy. Do not limit your options by accepting the arbitration endorsement discount!
Other endorsements to be on the alert for are coverage limitation endorsements.
Limited Water Damage Endorsement:
In my experience and statistically, most insurance claims are a result of water leaks.
Example: Refrigerator, sink, toilet, dish washer, washing machine water supply line leaks. Sink P-trap, shower pan, water heater tank, AC air handler leak, or just a plumbing line leaking from wear, or a toilet clogged and overflowing.
These are the most common claims that happen all the time, the limited water damage endorsement reduces this policy’s coverage to usually 10K.
This endorsement limit is usually insufficient to cover the expense for water mitigation that may be required combined with the expense of repairing the water damaged walls, flooring, cabinets etc.
Note: If you have an older home the insurance company may insist on this endorsement to manage their risk. I would recommend trying to obtain a policy without this limited water coverage endorsement that you probably do not realize may be within your current policy.
Things that will help in removing this coverage limitation: If you have a newer home this endorsement should not be applied. The added risk to you is not worth the minimal premium discount applied.
If you have an older home: Talk with your agent and request what the insurance company’s underwriting department will require to remove this coverage limitation endorsement. Sometimes a four-point inspection is acceptable to confirm the water appliances are newer and the home is in good condition.
Maybe, a copy of the plumbing permit if your home was renovated and the plumbing lines were replaced. Anything you can do to reinstate your coverage -A- Dwelling policy limits will be a big benefit in protecting your investment and limiting your risk.
I have also experienced this endorsement changing the policy language with other water source damage not included in this coverage limitation. This endorsement can eliminate coverage for wind forced rain leakage causing interior ceiling damage.
Example: During a severe thunderstorm rain is forced uphill with leakage occurring around flashings and / or roof vents, causing ceiling or wall water damage, happens all the time. This limited water damage endorsement will revise the policy wording eliminating any coverage unless the windstorm creates a storm related opening.
Maybe your home or rental dwelling is older with a higher insurable risk and the agent cannot obtain coverage without this limited water damage endorsement included.
Know your coverage so you can mitigate the possibility of water damage. Turn the water service off when you take trips. Plumbing line leaks usually occur when you are not home. You should have a shut off valve where the water enters your home and if not have a plumbing contractor install one for easy access.
There are valves plumbing contractors can install that will detect a leak and terminate the water to high-risk areas like the refrigerator. Have them inspect and replace any of your toilets, sinks, washing machine, water supply lines, replace aged stop valves, etc. These are the inexpensive items that fail all the time that can cause thousands of dollars in damage to your home or rental property.
Make sure everybody in the household understands how to turn off the water quickly, make sure they understand how to turn off your refrigerator water supply line, etc.
Also, understand your policy will not cover wear, unfortunately everything wears out including us. So, if a pipe leaks from wear, there is no coverage to repair / replace the leaking pipe.
But it is important to understand there is coverage for the leak discovery expense, to access the pipe, repair that accessed area, and the ensuing water damage associated with the wear related leak up to your water damage coverage limitations.
Example: Kitchen sink supply line is leaking within the foundation. The expense for a plumber or leak detection company to confirm the source is covered. Removing the related flooring and concrete to access the pipe is covered. Removing and replacing the worn leaking plumbing line section is not covered and is usually an inexpensive expense.
Repairing the concrete and the removed floor covering to include all the damage the water leak caused would be covered per the policy structure coverage or the endorsement 10K limitation amount. No, replumbing the entire home is not covered, only the expense related to this leak.
There also could be other applicable coverages like fungi, or loss of use expenses that would not be included in the water damage limit.
Additionally, if water leaks are considered long term coverage could be denied. Long-term is usually defined as 14-days or more, this wording is in most policies.
Some companies will enforce this condition, and others are usually more reasonable depending on the loss circumstances. Sometimes your insurance company may need me to provide additional information to help them to become more reasonable, so let’s not limit your options by accepting that arbitration endorsement
Limited Fungi Coverage Endorsement: This is associated with water leaks; this endorsement provides mold coverage limitations. In my experience this endorsement is usually limited to 10K and is in addition to the water damage limits.
Mold testing and mold protocol re-mediation is very expensive, so it is important to recognize and repair water leaks and correctly dry-out the areas quickly to eliminate this expense.
ACV Roof Endorsement:
This endorsement will limit the coverage to replace your roof to the Actual Cost Value amount. Example: The cost to replace your 30-year shingle roof is 25K, and your roof is 15 years in age.
Per your ACV Roof Endorsement, the roof replacement cost will be depreciated per the age verse the roofing materials life expectancy. Per this example: Your roof replacement policy coverage will be limited to $12,500.00 plus the deduction of your policy deductible, consider that large hurricane deductible.
Things that will help in removing this coverage limitation: Talk with your agent to see what can be provided to help eliminate this endorsement. Maybe a contractor’s life expectancy roof material inspection report, or a four points inspection would help.
Perhaps the insurance company underwriting review did not account for your new roof, and this limited roof coverage endorsement is in your policy without your knowledge. Understand your policy coverages before you become a victim of weather events.
Per my previous explanation: Insurance companies are good at managing their risk so if your shingle roof is over 10-years of age this ACV roof endorsement may be mandatory.
This Actual Cost Value coverage is something that will become standard in all policies soon. Understanding your exposure and preparing for this possible expense will eliminate future unforeseen surprises.
Law and Ordinance:
This coverage endorsement is optional and provides coverage for code compliance items. Example: When your roof is replaced, based on the increased roof wind load requirements mandated after your home-built date the roof sheathing may need to be nailed closer with longer nails per the upgraded building codes.
With the roof ACV replacement example, the cost to re-nail the sheathing would also be deducted from the roof replacement expense further reducing the roof replacement coverage.
Another example: Fire with major damage, any required code upgrades such as electrical, windows, insulation, etc., would not be covered, these code compliance expenses could be devastating without the law and ordinance coverage endorsement.
This coverage is important to have, the expense is minimal to manage your code compliance risk. In my experience when this coverage is not afforded most homeowners are completely surprised this optional ordinance and law coverage was not included in their policy.
BUSD Endorsement:
This is optional for backup sewer and drain coverage and usually has limitations of coverage. Without this endorsement you will have no coverage for back up sewer and drain damage.
I see this included in policies where the coverage is not needed and not in other policies where the coverage should be provided. This is more common up north with basements with sump pump failures.
I would recommend if your home is connected to an municipal sewer system (City Sewer) you should have this coverage.
Example: City sewer system pump station fails and causes sewer to back up through your drains and floods your home with your neighbor’s septic. Yes, back up valves fail, and it happens, and without the BUSD endorsement you will have no coverage for this expensive and disgusting mess. You will not be successful in getting the city to provide any help.
If your home has its own septic system, then there is no need to pay for this extra coverage. Example: Your septic system line gets clogged and overflows the toilet, shower drains, etc. the policy would provide coverage without this endorsement.
Another example: The sewer line collapses from wear or gets clogged from tree root maintenance. The damage is covered but the actual line collapse or tree root removal is excluded from coverage per the wear plumbing line failure example.
The adjusting rule: If it’s your septic its covered, if it’s your neighbor’s septic no coverage without this BUSD endorsement.
Sink Hole coverage: Something to consider if you are in any sink hole risk areas. Without this endorsement providing sink hole limited coverage this expense could be devastating.
Note: Many policy endorsements are not optional, they are automatically included in policies to manage the risk of common issues. The fact is we are paying more money for less coverage every year.
Insurance companies will say this is to keep insurance obtainable and premiums affordable. They lobby our legislators enabling new insurance legislation allowing them to increase pricing and reduce coverage.
Example: The Florida Legislation Senate Bill 2A that went into effect in December of 2022. You can research these changes online; I can assure you most of these new insurance changes will not help you with a future insurance claim.
Another example: There is a new non-optional endorsement I discovered that is within most insurance policies with the remaining to follow that will limit Matching of Undamaged Property to 1% of the coverage limit.
Now matching per my experience is something that is never covered in HO policies. Insurance companies have been excluding matching to limit their risk for decades.
Although, matching of flooring, paint finishing, cabinets, roofing materials, etc. is considered reasonable established by prior court cases and enforced by some state statues but not with this new endorsement limiting matching coverage of the undamaged property.
Example: Your kitchen cabinets and flooring are damaged from a covered peril. Usually, the replacement or refacing of the cabinets to match the replaced cabinets would be covered.
This would also include the replacement of the damaged continuous flooring and related items such as countertops etc. within the policy coverage A dwelling limits.
With this new matching endorsement, limiting matching coverage to 1% of the applicable policy coverage limits would significantly reduce the insurance companies’ exposure and increase ours even more, on top of our premium increases.
By example, if your coverage A Dwelling limit is 400K the insurance company would limit that matching coverage per the endorsement of a 1% limit equaling 4K.
This new 1% limit will not cover the expense of matching most kitchen cabinets and related countertops, and certainly will not provide the expense to match the damaged flooring, wall, etc.
Hurricane non-optional deductibles and coverage endorsement exemptions:
All my friends in S. W. FL discovered after Hurricane Ian many items that are normally covered are eliminated from coverage in most HO policies during a hurricane.
Not to mention the non-optional 2% hurricane deductible incurred or the optional 5% or more coverage A dwelling percentage hurricane deductibles to help manage the increasing insurance cost.
Example: Fences, antenna’s, awnings, screen enclosures, sheds, tiki huts, gazebos, aluminum roofs, etc., are not covered during a hurricane.
I have discovered some companies like Citizens for example are excluding these items under normal peril coverages, another example of less for more.
Hurricane optional coverage endorsements:
There are endorsements that can bring back coverage for some items excluded from coverage during a hurricane. Example: Screen Enclosures Coverage. This endorsement will usually have a limit and with most companies does not cover the screen material, only the framing.
There are also endorsements that will eliminate coverage for exterior finishing’s within a specified distance to the coast. Example, you live within a policy specified distance from the coast and the exterior finish of your home is damaged from all the wind driven debris during a hurricane not associated with any surge flood damage.
No coverage will be afforded for that repair expense if this paint finish exclusion endorsement is in place.
Some Insurance companies have a Right to Repair Endorsement. This endorsement gives the insurance company the option to have one of their preferred contractors provide the repair service. You will be responsible for providing your policy deductible amount to their contractor of choice and they will provide the balance payment directly to the contractor.
They will usually exercise this option with roof repairs or replacements. They will give you the option to use your contractor but would only provide the settlement amount based on their contractors’ estimate minus the policy deductible.
This sometimes can be a good option and usually comes with some type of warranty, but you will be subjected to their contractors’ scheduling and quality of work.
Another unfair scenario I have experienced by example: if their contractor determines they need more money to complete the repair or replacement after the job is completed the insurance company will usually provide a supplemental payment for the additional amount to their selected contractor.
Not the case if you use your own contractor, the settlement would be based on their contractor’s original estimate amount.
Example: Citizens Insurance has this endorsement listed as CIT 04 86 02 23 or CIT 05 06 Managed Repair Contractor Network Program. Unlike other insurance companies Right To Repair Option the advantage of this Citizens Policy endorsement is that if you choose to participate in their Managed Repair Contractor Network Program their limited water coverage endorsement would be waived and Citizens would provide the full payment amount to the network contractor, you would only be responsible for your policy deductible per this endorsement conditions.
Although, this endorsement states this repair program is at Citizens option, prior court rulings have confirmed Citizens needs to be consistent and cannot discriminately apply the conditions of this endorsement if requested by the policyholder.
Example: You have a plumbing related water leak (the most common claim) and you also have the Citizens $10,000 limit on Coverage for covered losses caused by accidental discharge of water.
By understanding your policy endorsements, you could request the CIT 04 86 02 23 or CIT 05 06 Managed Repair Contractor Network Program eliminating the $10,000 water damage limit.
Note: Your Citizens adjuster may not realize you have these endorsements within your policy and never extend the invitation to participate in the Managed Repair Contractor Network Program. This is probably why they listed this program as a Citizens option.
Your policy may also offer a Free Emergency Water Removal Services Program, otherwise water mitigation dry-out could be capped at 3K, it is important to know your policy.
I would recommend you review your policy with your agent and / or an insurance company representive. Have them review your coverages, endorsement limitations, in detail, understand your policy, your options, and all the forms and endorsements listed in your policy declaration that look something like this: Forms and Endorsements applicable to this policy:
CIT 04 85 02 23, IL P 001 01 04, CIT 04 86 02 23, CIT HO 03 15 03 23, CIT 04 96 02 23, CIT 24 02 23, CIT 04 90 02 23, CIT HO-3 06 23, CIT HO 01 09 03 23
Please be on the lookout for part #3, Know Your Policy Deductible and Options.
How can I use my policy deductible to my advantage? Part 3 is pending.
Your personal Insurance Adjuster Rick Klein with Klein Claim Service is always looking out for your interest.