We are picking up the discussion from our Dec. 4, 2011 post. We were looking at a study of insurance policy language that is scheduled to be published this month. The author, a law school professor, compared homeowners insurance policies, focusing on policies at the top 10 insurance groups in six states. He found that changes from the standard forms are "systematically less generous" to consumers.
Florida was not included in the study. Homeowners here, though, certainly know the inconvenience, frustration and financial consequences of having a claim denied -- a claim that a reasonable person would expect to be covered.
We talked about subtle changes to language in our earlier posts. The study found that apparently minor changes made by insurance companies had a dramatic impact on the consumer's wallet. One example was a change from each loss to aggregate losses -- the result would be coverage for the first lightning strike, say, but not for the second, third or fourth during a policy year. The difference to the policyholder could be thousands of dollars.
The study notes another change that is less subtle but that could still be overlooked by consumers. Insurers are introducing the role of the policyholder into the coverage equation. That is, they are considering if the "policyholder's negligence contributed to the loss," as the study puts it.
The author uses the example of a dying tree in the homeowner's back yard. The tree falls on the house, and the homeowner calls the insurance company. The insurance company learns that a tree trimmer had told the homeowner months earlier that the tree was dead and should come down. The insurer concludes that the tree would not have fallen on the house if the homeowner had followed the tree company's advice -- in other words, the homeowner's negligence was a major contributing factor in the damage to the house. Claim denied.
The question is whether the money the insurance company saves will be spent in court, defending the policy language and the claim denial. It is hard to image a homeowner taking the decision about the tree, for example, sitting down. But the result there could be even more confusion from state to state and judicial district to judicial district as individual coverages are litigated.
As with so many things in the insurance market, only time will tell.
Source: Wall Street Journal, "A home-insurance trap?" Leslie Scism, Dec. 3, 2011