Almost everyone who owns a home purchases Homeowner Insurance. However, most insured’s do not know what their homeowner insurance policy will provide coverage for and what to expect if they suffer damage and must make a homeowner insurance claim.
The first part of this discussion comments on what most homeowner insurance policies provide. A note of caution, however: Whether there is coverage or not for every claim depends on the language that is set forth in the specific policy at issue. We can discuss coverage in general terms; however, each claim must be analyzed based on its own unique set of facts, and pursuant to the terms of the actual policy at issue.
The discussion then focuses on what insured’s can do if they suffer a loss and have to make a Homeowner Insurance Claim, to maximize the likelihood that their valid claim will be covered and paid by the insurance company. Dealing with a homeowner insurance company after an insured suffers a loss can be treacherous and difficult.
Homeowner Property Coverage
The most common understanding of Homeowner Insurance is that it provides coverage if the home is damaged in some way.
Direct Physical Loss or Damage
Homeowner Insurance typically covers “direct physical loss or damage” to the insured property. The word “physical” means having “material existence” – something tangible and capable of being perceived by the sense of touch.
Therefore, for example, loss of electronic data stored on a computer or disk without any damage to the computer or disk themselves ordinarily is not covered, because it is not a “direct physical loss or damage” to insured property. “Computer data, software and systems are incapable of perception by any of the senses and are therefore intangible.” Ward Gen. Ins. Svcs., Inc. v. Employers Fire Ins. Co. (2003) 114 Cal.App.4th 548.
By the same token, diminution in value (i.e., a loss in value) is not in and of itself a “direct physical loss.” The amount of the diminution in value may be a way to measure the cost of repair or replacement of actually damaged property; however, diminution in value on its own is not a “direct physical loss” – it is not capable of being perceived by the sense of touch.
Diminution in value… is not a ‘cause’ of loss; it is the measure of a loss caused by something else.” State Farm Fire & Cas. Co. v. Superior Court (1989) 215 Cal.App.3d 1435.
Perils Or Risks Insured
Once it is determined that there is an actual, tangible loss or damage, the insurance coverage outcome then depends on whether the cause of the damage is covered under the insurance policy.
The general terms “perils” or “risks” have long referred to “fortuitous, active, physical forces such as lightning, wind, and explosion, which bring about the loss.” Garvey v. State Farm Fire & Cas. Co. (1989) 48 Cal.3d 395.
There are two types of property insurance insuring provisions in Homeowner Policies: “All risk” (also called “open peril”) and “named peril.”
An “all risk” policy covers all risks of physical loss except those risks that are excluded. You have to look at the insuring agreement in your policy to determine whether you have an “all risk” policy. A typical “all risk” provision will read something like this:
“We insure against accidental direct physical loss to the property described in Paragraphs (this will be identified in your policy), unless such loss is excluded in Section II (Exclusions).”
The “all risk” policy will go on to list the excluded perils. Typical excluded perils are discussed further below. Under an “all risk” policy, the coverage analysis will focus on the exclusions. In other words, all physical loss is covered, unless it is excluded.
Under a “named peril” provision, only direct and accidental physical loss caused by the identified perils will be covered. A typical “named peril” provision will read something like this:
“We insure for direct physical loss to the property described in Paragraphs (this will be identified in your policy) caused by a peril listed below, unless the loss is excluded in Section II (Exclusions):
(1) fire or lightning;
(2) explosion;
(3) windstorm or hail….”
Based on the example above, if for example fire, lightning, explosion, etc. cause an accidental direct physical loss, the loss is covered.
Even under a “named peril” provision, however, the coverage analysis will also depend on whether any exclusion applies.
To explain the above, we offer the following hypothetical which was an actual case that went up to the California Supreme Court (Garvey v. State Farm Fire & Cas. Co. (1989) 48 Cal.3d 395):
Third party negligence (negligent construction by a contractor) causes damage to insured property (a home). The policy is an “all risk” policy. Therefore, the damage is covered under an “all risk” policy – unless there is a specific exclusion in the policy which provides that damage caused by third party negligence is not covered.
Under a “named peril” policy, however, the third party negligence will not be covered unless loss caused by third party negligence is one of the risks specifically identified in the policy.
You may wonder what practical effect the two different types of provisions (“all risk” versus “named peril”) have. In insurance coverage, the two different parties – the insurance company and the insured – each have a burden of proving or disproving whether the damage or loss is covered under the policy.
Under an “all risk” policy, the insurance company bears the burden of proving that the damage or loss was caused by an excluded peril.
Under a “named peril” policy, the insured bears the burden of proving that the damage or loss was caused by a specifically enumerated or listed peril. Strubble v. United Svcs. Auto. Ass’n (1973) 35 Cal.App.3d 498.
Standard Exclusions
California property insurance policies, including Homeowner Policies, have many exclusions. The facts of each claim must be analyzed under the provisions of the specific policy at issue to determine whether an exclusion applies. Proving that an exclusion applies is the responsibility of the insurance company.
The following are some standard exclusions:
- Earth movement exclusion:
The following is a sample earth movement exclusion:
“We do not cover losses caused by earth movement, including but not limited to earthquake, volcanic eruption, mudslide, mudflow, earth sinking, rising or shifting unless (a covered loss also occurs, in which case that loss is covered).”
The earth movement exclusion is intended to exclude natural, unpredictable earth movement – not settling and subsidence resulting from negligent grading and fill work (watch out! The policy may exclude third party negligence in any event – this is discussed next). Opsal v. United Svcs. Auto. Ass’n (1991) 2 Cal.App.4th 1197.
- Faulty workmanship or materials exclusion:
The following is an example faulty workmanship or materials exclusion:
“We will not cover… faulty, inadequate or defective planning, zoning, development, surveying, siting, design, specifications, workmanship, repair, construction, renovation, remodeling, grading, compaction, maintenance, materials, remodeling or maintenance of part or all of any property…”
The purpose of this exclusion is to prevent the Homeowner Policy from insuring the quality of contractual performance undertaken by the insured or some third party. For example, an unfinished renovation or remodeling project that leaves a home in disrepair is “inadequate” workmanship, construction, renovation, or remodeling. The loss in value to the home due to the unfinished project falls within the scope of this exclusion. Wilson v. Farmers Ins. Exchg. (2002) 102 Cal.App.4th 1171.
- Deterioration, inherent vice, latent defect, and wear and tear exclusions:
A standard exclusion in most Homeowner Policies do not cover:
“We will not cover… wear, tear, marring, deterioration, inherent vice, latent defect, and mechanical breakdown.”
“The plain meaning of the exclusion is that the insurer will not cover slow-moving disintegration…” Brodkin v.State Farm Fire & Cas. Co. (1989) 217 Cal.App.3d 210. The rationale is that the policy is not meant to be a property maintenance agreement.
Therefore, for example, corrosion of a concrete foundation due to soil problems falls within the deterioration exclusion.
Similarly, there is no coverage for breakdown of copper pipes due to acidic soil and resulting leakage compromising the concrete slab on which the home is built: “These facts lead inevitably to the conclusion that the copper pipe failed as a result of deterioration.” Murray v. State Farm Fire & Cas. Co. (1990) 219 Cal.App.3d 58.
Do not get discouraged! Even if your claim seems excluded based on the above – always have a professional review your insurance policy, apply the facts of your loss to your policy provisions. What you may think is an uncovered insurance claim may be covered based on other factors.
The inherent vice and latent defect exclusions are typically analyzed together. The concept here is that insurance policies were and are intended to cover only fortuitous (unexpected, unintended) events. Damage from an inherent cause or defect is, like wear and tear, a “certainty,” and therefore uninsurable.Scott v. Continental Ins. Co. (1996) 44 Cal.App.4th 24.
- Underground water exclusion:
Many homeowner insurance policies do not cover loss resulting from underground water.
These exclusions typically state as follows:
“We will not cover… loss resulting directly or indirectly from… natural water below the surface of the ground, including water which exerts pressure on, or seeps or leaks through a building, sidewalk driveway, foundation, swimming pool or other structure.”
This exclusion applies to natural water conditions, not underground water resulting from third party negligence. The exclusion does not apply to artificially high levels of groundwater that results from, for example, the construction of a housing development. “The fact that the earth movement may have resulted from rising groundwater levels caused by the development on the mesa does not preclude coverage… The policy’s groundwater exclusion applies to water damage caused by ‘natural water below the surface of the ground’ and not to the artificially high level of groundwater that followed the housing development.” State Farm Fire & Cas. Co. v. Von Der Lieth (1991) 54 Cal.3d 1123.
- Seepage or leakage exclusion:
The following is another common Homeowner Policy exclusion:
“We will not cover… seepage or leakage of water or steam unless sudden and accidental… from a home appliance or plumbing system….”
This exclusion applies to damage or loss caused by the gradual disintegration over a period of time. Ordinarily, the exclusion will not apply to a sudden and accidental plumbing rupture.
Note: merely because a pipe breaks or ruptures will not be determinative. A leaky pipe that gradually gives way is excluded. However, a sudden and accidental pipe break may be covered. Finn v. Continental Ins. Co. (1990) 218 Cal.App.3d 69.
Also, sudden and accidental leakage from a household appliance or a plumbing system is covered. Plumbing system refers to systems connected to and part of the insured’s property. For example, leaks from outside the property (e.g., a city water main in the middle of the street fronting the property) are not considered connected to and part of the insured’s property. Waldsmith v. State Farm Fire & Cas. Co. (1991) 232 Cal.App.3d 693.
- Storm damage exclusions:
Be aware! Many homeowner believe that their Homeowner Insurance Policies will cover damage to the interior of their home, and contents (e.g., personal belongings, carpets, etc.), if caused by rain. This may not be the case – many Homeowner Policies (with an “all risk” provision) contain the following language:
“COVERAGE C – PERSONAL PROPERTY
We insure for direct physical loss to the property described in Coverage C caused by a peril listed below unless the loss is excluded in SECTION I – EXCLUSIONS…
2. Windstorm or hail.
This peril does not include loss to the property contained in a building caused by rain, snow, sleet, sand or dust unless the direct force of wind or hail damages the building causing an opening in a roof or wall and the rain, snow, sleet, sand or dust enters through this opening….”
What this provision does is it limits coverage for damage to contents caused by rain – there will be coverage only if the direct force of wind or hail causes an opening in a roof or wall, and the rain actually enters through that opening. Many homeowners are unaware of this limitation.
This very provision has and will become the subject of extensive debate in the aftermath of the Katrina Hurricane. Many insurance companies denied coverage to the Florida homeowner on the basis of this limitation and exclusion.
- Mold, rot, corrosion, and smog exclusion:
This exclusion is gaining increasing importance because of the public’s awareness of and concern about toxic mold.
There is debate over this exclusion. Insured’s argue that the mold exclusion only applies if the mold occurs over time and results from natural conditions, such as excessively wet weather. Under this argument, the mold exclusion would not apply to mold resulting from a covered event, such as a burst water pipe.
Insurance companies argue that “mold is mold,” and any damage or loss resulting from mold is excluded. Indeed, to address this issue, many insurance policies now state that damage or loss due to mold is excluded, regardless of the cause, and regardless of whether it is an ensuing loss from covered water damage or any other covered peril.
- War and terrorism exclusion:
Particularly after the events of September 11, this exclusion has received a great deal of attention. The provision typically reads:
“We will not cover. . . any act of terrorism regardless of any other cause or event contributing concurrently or in any other sequence to the loss.”
Some insurance policies include in this exclusion “electronic terrorism” such as computer hacking or receiving a computer virus.
- Insured’s own neglect exclusion:
This exclusion only applies to an insured’s neglect or failure to protect property at the time of and after a loss. It does not apply to pre-loss or pre-claim neglect; otherwise, many claims would not be covered by virtue of such a provision alone!
This exclusion requires insured’s to save and preserve property at the time of and after a loss. It is based on public policy notions: Merely because an insured suffers partial damage or loss to their home, they cannot allow the home to be completely ruined and expect the insurance company to be responsible for the entire claim. This exclusion is important in cases involving damage to a home’s roof – an insured must take steps to protect the rest of the home and its contents.
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These are only some of the exclusions you may find in your Homeowner Insurance Policy. IT IS VITALLY IMPORTANT THAT YOU READ YOUR INSURANCE POLICY CAREFULLY! And, even then, the unique facts may present difficult coverage issues. If you suffer damage or loss to your home or personal contents and your insurance company delays, denies or under values your claim, you should contact an experienced homeowner insurance dispute lawyer.
Homeowner Liability Coverage
Many homeowners do not realize that the standard Homeowner Insurance Policy also contains Liability Insurance. Liability insurance refers to third party claims made against the homeowner. There are usually three coverage’s that apply to such third party claims:
- Medical payments to others.
- Workers’ compensation and employers’ liability coverage for “residential employees.”
- Comprehensive personal liability insurance.
We briefly discuss each type of coverage in turn:
Medical Payments
The standard Homeowner Insurance Policy covers medical expenses incurred by persons other than permanent residents of the insured residence, for injuries on the premises. The coverage also covers such other persons for injuries arising out of the non business activities of the insured. These medical payments are paid regardless of the fault of the claimant, or the liability of the insured.
Note the following standard, and important, conditions:
Limitations where the injury is sustained at the home include:
- If the injury is incurred by such non-permanent residents on the insured premises (i.e., at the insured home), the injured person must be at the home with the insured’s permission.
In other words, this coverage will not cover a burglar who is injured in the insured home.
Limitations where the injury is sustained away from the insured home include:
- The injury must arise out of a condition on the insured location, or
- The injury is caused by the activities of any insured, or
- The injury is caused by an animal owned by the insured.
Workers’ Compensation and Employers’ Liability Coverage’s for “Residential Employees”
By statute, any insurance policy that provides comprehensive personal liability insurance must also provide workers’ compensation coverage for injuries suffered by “residential employees” injured in the course of their employment by the homeowner.
Who is a “residential employee:”
- Persons whose duties are incidental to the ownership, maintenance, or use of the home (e.g., household domestics, part-time gardeners).
- Persons providing child care and supervision.
- Persons whose duties are personal, and do not pertain to the owner’ occupation, profession, business, or trade.
- This includes persons whom the homeowner hires to make repairs on the premises, such as a plumber or a carpenter. Furtado v. Schriefer (1991) 228 Cal.App.3d 1608.
- This may include a family member (who would otherwise be excluded) who is also an employee (e.g., older child providing babysitting services for a sibling, for pay).
Who is not a residential employee:
- Persons employed in the construction of a home before construction completion.
- A person providing solely adult care. While the statute expressly provides that care-givers for children are residential employees, persons providing care of an elderly or infirm household resident is not a residential employee. McCallister v. WCAB (1976) 61 Cal.App.3d 524.
- A “casual residence employee.” This is someone who:
- Was employed for less than 52 hours during the preceding 90 days or
- Earned less than $100 during the preceding 90 days.
The insurance only applies if the injury was suffered during the course of employment – this means that the injury was sustained while the employee was engaged in the work he or she had been hired to perform.
The Homeowner Policy workers’ compensation coverage does not apply to independent contractors. Whether a person is or will be considered a residential employee or an independent contractor heavily depends on a number of factors, and must be considered on a case-by-case basis.
Comprehensive Personal Liability Coverage
Personal liability insurance applies to third party claims for “bodily injury” or “property damage” made against the insured homeowner, and unrelated to any business activities by the insured.
This type of insurance is broadly construed, and is not limited to the ownership, maintenance, or use of the insured home or other premises.
Typically, under this insurance, the homeowner and spouse are named insured’s. There are “additional insured’s,” as well. Generally, this includes permanent resident relatives of the named insured’s living in the same household, and persons who are wards or in the custody of the named insured.
Short term guests ordinarily will not qualify as “additional insured’s.” A son who is merely house-sitting for his vacationing parents, and who does not otherwise live in the home, is not an additional insured. Calif. Cas. Indem. Exch. v. Frerichs (1999) 74 Cal.App.4th 1446.
So, this type of coverage protects homeowner and additional insured’s if they inadvertently cause “bodily injury” or “property damage” to a third party, and the damage or loss is unrelated to the insured’s’ business activities.
Standard Exclusions
As with first party property homeowner coverage’s, there are standard exclusions that apply to this liability coverage, as well.
- Business pursuits exclusion:
The term “business” is broadly construed in this exclusion.
For example, a homeowner allowed his employees to socialize at his home after work. His Homeowner Insurance Policy did not cover the bodily injuries that arose after a fistfight erupted during one of these parties. Rather, the injuries were logically related to the insured’s business; hence coverage was precluded. West American Ins. Co. v. Calif. Mut. Ins. Co. (1987) 195 Cal.App.3d 314.
- Resident relative exclusion:
This standard exclusion precludes coverage under the policy when one relative sues another relative who also lives in the insured home. The purpose of this exclusion is to prevent inter-family legal actions which may not be truly adversary.
- Communicable disease exclusion:
This is a relatively new exclusion adopted in 1987, which prevents persons from obtaining insurance protection when they transmit a communicable disease to a third party, even if unknowingly.
- Sexual molestation exclusion:
The personal liability standard policy was amended to provide an exclusion for claims arising out of sexual molestation, corporal punishment, or physical or mental abuse.
- Illegal drugs exclusion:
The standard personal liability policy was recently amended to preclude coverage for claims arising out of the sale, manufacture, delivery, transfer, or possession by any person of any Controlled Substance (as defined by the Federal Food and Drug Law at 21 USCA sections 811 and 812).
This exclusion does not apply to the legitimate use of prescription drugs by a person following the orders of a licensed physician.
- Automobile, aircraft, and watercraft exclusion:
Most Homeowner Insurance Policies will not cover damage or loss arising out of the ownership, maintenance, use, loading, or unloading of motor vehicles.
There has been significant litigation over what constitutes an “automobile.” For example:
- An unregistered, inoperative van stored on an insured’s property was covered under the Homeowner Policy – it was not considered an excluded automobile. Meraz v. Farmers Ins. Exchg. (2001) 92 Cal.App.4th 321.
- A pickup truck with a modified bed containing a hydraulic lift to raise roofing supplies was not excluded from coverage under the Homeowner Policy – it was not considered an automobile because its primary purpose was not transportation on public roads. Alpine Ins. Co. v. Planchon (1999) 72 Cal.App.4th 1316.
- Criminal acts exclusion:
This exclusion typically precludes coverage for damage or loss “caused by violation of a penal law or ordinance committed by or with knowledge or consent of the insured.”
Note: Regardless of this exclusion, it is against public policy for anyone, including an insurance company, to indemnify another (hold a person harmless) for intentional or criminal acts.
Another issue is raised where there is an innocent co-insured. The policy language here – as always – is vitally important. For example, if the policy precludes coverage based on the criminal acts of “an insured” or “any insured,” even innocent co-insured’s will not be covered.
- Example: Son (who was insured) killed third party in a gang style shooting. Mother (also insured) was sued for negligent supervision. There was a “joint obligations” provision in the policy precluding coverage for the intentional conduct of any insured. Despite the fact that mother did not know of her son’s propensity to cause this type of harm, she was not covered. Castro v. Allstate Ins. Co. (S.D. Cal. 1994) 855 F.Supp. 1152.
On the other hand, if the policy only precludes coverage for criminal acts of “the insured,” an innocent co-insured may be covered.
ALERT! These coverage issues always turn on the precise insurance provisions involved, and the unique nature of the facts. Never make assumptions about insurance coverage.
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What To Do If You Suffer A Homeowner Insurance Claim In California
First, before you suffer a first party property loss claim:
- Take as complete an inventory as you can of all of your personal property valuables (e.g., jewelry, cameras, computers, furniture, crystal, fine china, etc.), and estimate the value of each item. That way, if you do suffer a catastrophic loss, you will not have to recreate such a list from memory.
- Take photographs of these personal property items; take photographs of each room in your home.
- Notify the insurance company of any valuables, such as expensive jewelry, and provide the company with a reliable estimate of such items’ replacement cost or value.
- Notify the insurance company of any unusual or unique characteristics of your home (French doors, expensive flooring, unique woodwork). This increases the value of your home. If you later need to replace or rebuild, you want to be sure the cost of such items will be included in any replacement structure.
Then, after you suffer a first party property loss claim:
- Immediately notify your insurance company regarding your loss by:
- Calling the insurance company or your agent. ALWAYS keep notes of all conversations regarding your loss; ALWAYS record the date of all conversations; ALWAYS get the name of the insurance person you are communicating with, and their telephone number. ALWAYS keep a record of ALL communications with your insurance company regarding your claim.
- After you have called your insurance company or your insurance agent, FOLLOW-UP with a letter. It does not have to be fancy or even typed. Just be sure you have written proof of your telephonic contact. Many insurance claims involve a dispute as to when the insurance company was notified regarding a loss, and the information the insurance company was provided.
- Provide your insurance company or agent with written information regarding your loss. Provide as complete a description as you can. HOWEVER, do not provide an opinion regarding the cause of the loss – you may have suffered a sudden and accidental burst pipe (which is covered) – but if you describe the cause of loss as a leaky pipe, your claim may be denied. BE VERY CAREFUL regarding your description of cause of loss
If your insurance company: (a) delays; (b) undervalues your loss; or (c) denies your claim, contact an experienced insurance dispute lawyer to explore your legal options.
Insurance coverage and insurance bad faith cases should be analyzed by and litigated by insurance bad faith attorneys who are thoroughly familiar with this type of litigation, and who have extensive experience in Insurance Coverage Analysis. Many times, in difficult insurance coverage cases, the experience of the insurance Litigation Attorneys makes all the difference.
For more information on California insurance law and insurance dispute lawyers in California, visit our Resources page.
Jeanette L. Viau and Gary Kwasniewski are experienced California bad faith insurance lawyers. They are the founders of the Viau & Kwasniewski law firm in Los Angeles serving Southern California. If you have had a homeowner insurance claim denied, be sure to consult with California insurance lawyers who have the expertise to properly analyze your homeowner insurance claim. You can contact the California homeowner insurance lawyers for more information at Viau & Kwasniewski by calling us at (213) 842-8164, or by e-mail at gkk@vklawyers.com.
All of our contact information is at www.vklawyers.com
