What's New


Contractors and Workers at Odds Over Scaffold Law

They argue that the impact is as high on government projects as it is on private ones, and that the soaring cost of liability insurance is forestalling the repair and construction of public works projects, such as schools, bridges and roads. The New York City School Construction Authority said in a statement on Monday that its liability insurance costs for 2014 would be nearly as much as those for the three-year period from 2011 to 2013.


Prognosticating about products and services of the future is always a dicey proposition. But when it comes to the development of "safe" houses in the coming years and decades, perhaps the "future" is already here! This topic is particularly important to consider in the aftermath of Superstorm Sandy and a profusion of wildfires this past year. Demand by consumers and forward-thinking builders is focusing more effort on advanced loss-prevention techniques when it comes to most people's highest-value asset. There are now "tornado-resistant" houses, "hurricane-resistant" houses, "fire-resistant" houses, and even "all perils-resistant" houses.

A Missouri mansion, located in the heart of tornado alley, is being built to withstand even the most powerful twister. It will feature 12-inch walls composed of high-performance concrete and Helix steel fiber. Its windows have been tested to withstand a two-by-four traveling at 40 miles per hour. Another house in Missouri, built in the wake of the Joplin tornados in May 2011, has walls built of pre-stressed concrete, reinforced with rebar and high-tensile steel cables pulled with a hydraulic jack to thousands of pounds of pressure permanently bonded with the concrete.

A house in New Orleans has windows imported from Germany that are designed to resist 150 mile-per-hour winds, with important spaces elevated to protect against flooding. A 40,000-square-foot waterfront mansion in South Florida has 12-inch-thick reinforced walls wrapped in a rubberized material for extra waterproofing and covered in two-inch stone.

"Fire-resistant" homes are becoming more prevalent in wildfire-exposed locales. The Insurance Institute for Business & Home Safety reports that combustible roof coverings are the greatest threat to a structure during a wildfire. It recommends metal, clay, or concrete tiles to mitigate the chance of loss. An 8,000-square-foot home (with an exterior of concrete and steel) in Southern California withstood a major wildfire a few years ago. Flames of 40 feet in height devastated neighbor homes. The reinforced home, however, survived the fire with minimal damage.

Some wealthy home owners are trying to protect themselves from virtually any peril with "all perils-resistant" homes. A house near Malibu, California, was built to withstand both earthquakes and burglars. It incorporates a complex concrete-and-steel bolting system to keep the retaining walls anchored to a concrete base. A state-of-the-art security system includes a facial-recognition program, which can emit a disorienting fog to stop intruders dead in their tracks.

Although the law of diminishing returns applies to many of these measures, a fair number are rather economical and can be utilized on more modest homes. For example, spending several hundred dollars on an extra 3/4-inch layer of plywood before adding the drywall can improve the storm and intruder resistance of walls.

The safe homes of the future are already here; insurers would be wise to grant generous homeowners insurance credits for these homes to encourage more of these proactive, forward-thinking, and innovative risk control measures.


HO Claim Costs on the Rise 

The cost of homeowners insurance claims (even prior to Hurricane Sandy) has been rising rapidly because of the combined effects of rising claim severity and increases in claim frequency, an Insurance Research Council (IRC) study of homeowners insurance claim trends found. From 1997 to 2011, the average claim payment per insured home countrywide rose 173 percent, from $229 to $626. In 2011 alone, homeowners insurance claim costs per insured home increased 27 percent. Over the entire study period, the annualized rate of increase was 7.4 percent.

In the study Trends in Homeowners Insurance Claims, IRC examined separately claim trends for claims that were not related to catastrophic events and those that were related to catastrophic events. Trends in average claim severity (the average claim payment per paid claim) for both groups were similar in some respects. For both groups of claims, countrywide claim severity increased almost 200 percent and ended the 15-year period in 2011 with similar values -- $8,077 for non-catastrophe-related claims, and $7,553 for catastrophe-related claims. Significantly, however, the trend in catastrophe-related claim severity was much more volatile from year to year, with dramatic increases and decreases over the study period.

Trends in homeowners insurance claim frequency (the number of paid claims per 100 insured homes) were very different for the two groups of claims over the 15-year study period. The frequency of claims unrelated to catastrophic events fell substantially from 1997 to 2005 because of a variety of factors. Since 2005, however, non-catastrophe-related claim frequency has increased at an annualized rate of 2.9 percent. Catastrophe-related claim frequency, while much more volatile, remained fairly flat through much of the period.


Verify Your "Other Structures" Are Properly Covered

Your homeowners policy covers "other structures" that are either (a) separated by a clear and distinct space from your dwelling or (b) connected to the dwelling by a fence, wall, wire, or similar type of connection. The limit of insurance for other structures is typically 10 percent of your dwelling limit. Sometimes, however, this limit may be quite inadequate, creating unwanted coverage gaps. For example, residences with detached guest houses, storage units, swimming pools, expensive fences, and gazebos may be vastly underinsured for these other structures. Thus, consider the following tips if you find yourself in that situation.

  • An other structures on the residence premises (HO 04 48) or similar endorsement can be selected to increase the limits for these structures.
  • A replacement cost loss settlement for certain non-building structures on the resident premises (HO 04 43) or similar endorsement can provide replacement cost protection for items such as reinforced-masonry walls, metal or fiberglass fences, patios and walks, and driveways. The attachment of this endorsement can often add 30 percent or more to your settlement for your damaged property.
  • If you own, rent, or lease "other structures" located away from your main premises, consider an endorsement adding property coverage to these off-site structures such as the coverage B—other structures away from the residence premises (HO 04 91) endorsement or the specific structures away from the residence premises (HO 04 92) endorsement.
  • Sometimes it is not readily apparent whether certain "other structures" are on or off premises. For example, if your "other structure" is a boat dock on a lake, be aware that it may actually be "off premises" since most lakeshores are technically owned by the Army Corp of Engineers.

Get more personal lines insurance and risk management tips and ideas from IRMI. Copyright 2012
International Risk Management Institute, Inc.


HO Policy Only Covers Building Located at Address on Declarations

The U.S. District Court for the Southern District of Illinois recently granted State Auto Property and Casualty Insurance Company (SAPCIC)'s motion for summary judgment dismissing an insured's lawsuit, which alleged SAPCIC had wrongfully denied a claim for coverage to an insured dwelling (the "House") that was damaged by fire. The case is Schuchman v. State Auto Prop. & Cas. Ins. Co., 2012 U.S. Dist. LEXIS 91569 (U.S. Dist. July 3, 2012).

The plaintiffs had purchased a homeowners insurance policy on the House from the SAPCIC in 2000. At some point between 2000 and 2005, however, the plaintiffs relocated to two mobile homes located on a contiguous portion of the insured premises but with different mailing addresses than the House. After fire damaged the House in 2010, the plaintiffs submitted a claim to SAPCIC. The insurer denied the claim on the basis that the plaintiffs had not been using the House as their "residen[tial] premises," a clear violation of the insurance agreement ("the residence premises is the only premises where you maintain a residence other than business or farm properties"). After filing suit, the plaintiffs sought a declaration that they were entitled to coverage for repair of the House.

The plaintiffs did not dispute that they did not live in the House at the time of the fire. Instead, they asserted their belief that the term "residence premises" included other structures and grounds at the insured location -- that is, the mobiles homes where they had been living a mere 200 feet away. The court disagreed with this interpretation of the policy, finding instead that the plaintiffs were attempting to expand the meaning of the term "residence premises" to include an address not explicitly listed in the declarations of the insurance policy. The court explained that, as a general rule, "when an insurance policy describes property by a specific description, as in an address, it should not be construed as encompassing other addresses not specifically stated in the policy." Accordingly, the court held that the policy unambiguously covered the stated address and that address alone. As a result, the plaintiffs had been maintaining a residence outside of the "residence premises" in violation of the agreement.

The plaintiffs argued that coverage did not depend on whether the insured physically resided in the "residence premises," noting the close proximity of their mobile home residence to the House. However, the court rejected this argument, finding strong support in caselaw from other jurisdictions that the language "where you reside" necessarily requires residency in the insured dwelling. The court was unwilling to construe the term "residence premises" as encompassing other unattached dwellings that might exist at the same property location, particularly when the two dwellings each had their own separate mailing address. Accordingly, the court granted summary judgment for the insurer, dismissing the plaintiffs' suit entirely.

The court was strongly guided by the declarations section of the insurance policy itself and showed a reluctance to expand coverage to property not explicitly listed/described under the agreement. The case illustrates the importance that policy declarations play in delineating the scope of a policy's coverage.

Patrick B. Omilian of Goldberg Segalla LLP, Buffalo, New York, wrote the case of the month summary.


Protect Your Older Home

Older homes (i.e., greater than 40 years old) present extra risks for home owners; thus, special insurance needs may arise. The following are some factors and tips for you to consider when purchasing insurance for your older home.

  • Increased construction costs. In some cases, building ordinances can increase rebuilding costs by 30 percent or more. Thus, an ordinance or law increased limit (HO 04 77) or similar endorsement is worthy of consideration. This endorsement provides higher limits for rebuilding an older home when an ordinance will increase the cost.
  • Difficulty in estimating replacement cost. Older homes are often constructed with materials and using techniques that are either no longer available or extremely expensive to duplicate, making it quite difficult to accurately forecast what the cost would be to rebuild following a loss. As a result, there is a risk that the value for which your home is insured is too low. Sometimes a guaranteed replacement cost endorsement is available to protect against this contingency. With it, the insurer will pay the actual replacement cost to entirely rebuild your home after a total loss, even if it is much higher than your dwelling limit. If guaranteed replacement cost coverage is unavailable, consider extended replacement cost coverage, which might allow an additional 20 percent or 30 percent of the dwelling limit in the event of a total loss to your home.

Historic homes pose even more challenges for home owners as they are typically subject to historical renovation regulations. Here are some recommendations worthy of consideration for your historic home.

  • You should avoid any type of functional replacement cost endorsement because this allows less costly construction materials and methods to be used to repair your home. These materials and methods may reduce the value of your home.
  • If you want to replicate custom or historical features of your home, such as stained-glass windows, antique wood floors, ceiling moldings, or hand-carved banisters, ask us about a restoration cost homeowners policy or about adding an endorsement onto your policy providing this coverage.
  • If you are planning any type of restoration to your home, make sure you hire contractors and architects that specialize or have experience in restoring historic homes. Note that the local historical commission typically has to approve any renovation plans.

Get more personal lines insurance and risk management tips and ideas from IRMI. Copyright 2012 International Risk Management Institute, Inc.


Exercise Caution with Bug Bombs

With the summer months upon us, many people are dealing with insect problems inside their home. Some people use total release foggers, aka "bug bombs," to eliminate these pests. Bug bombs are pesticide sprays that discharge all of their contents at once. The contents are released upward, filling the air with pesticide. Spray droplets remain suspended in the air for a short time before gradually settling onto floors, countertops, and other surfaces in the home.

The California Department of Pesticide Regulation (DPR) advises that many people misuse this product. A 2008 study of pesticide illness reports in 8 states found 466 illnesses related to fogger use in a 5-year time frame. For example, some people set off multiple foggers, often in smaller homes. In one case, this negligent act resulted in the water heater's pilot light igniting the flammable gas, resulting in a major explosion and the destruction of the home owner's property.

The California DPR has reported that every year bug bombs explode and catch fire when people ignore simple precautions. There have also been numerous incidents of respiratory, eye, and skin irritation from overexposure to these fumes. The following are some California DPR safety tips for the summer.

  • Avoid chemicals whenever possible. Effective use of window and door screens and maintaining a clean home are good precautions against pests. Proper caulking of your home can also help.
  • To choose the best control strategy, you should correctly identify the pest. Always read labels before using the pesticide, and follow all instructions closely.
  • Use no more pesticide than necessary. You should read and follow directions for the recommended number of fogger aerosol cans to use. Generally, you should use no more than one 6 or 8 ounce fogger for apartments or small residences.
  • When using bug bombs, you should turn off ignition sources, such as gas pilot lights and electrical appliances. Appliances like refrigerators and air conditioners may produce a spark when they cycle on and off.
  • Hire a professional exterminator for major bug infestations.

Get more personal lines insurance and risk management tips and ideas from IRMI.

Copyright 2012 International Risk Management Institute, Inc.


Check Your Suability Factor

Some individuals, particularly wealthier ones, have a higher than normal loss exposure to lawsuits. This tendency is often referred to as a suability factor. How suable you are can be determined by examining the following:

  • Size of your savings account and stock portfolio
  • Size of your real estate holdings
  • Family income
  • Profile in the community and media
  • Leadership activities on not-for-profit boards
  • Leadership activities in home owners' associations
  • Future income

People with a low suability factor should still strongly consider procuring a personal umbrella policy with at least $1 million in liability limits. People with a high suability factor nearly always need a personal umbrella policy with at least a $2 million limit. Remember that this is a relatively inexpensive policy that provides excess liability coverage over your homeowners and personal auto insurance policies. In some cases, it provides broader liability coverage than that found in the underlying policies.

Get more personal lines insurance and risk management tips and ideas from IRMI.

Copyright 2012  International Risk Management Institute, Inc.