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Saturday, October 01, 2005

Law- Homeowner's insurance: "Use it and lose it."

"The Peace of Mind of Home Insurance, Unless You Use It" is the headline to a story on the front-page of today's NY Times business section. Some quotes:

THERE is a saying among consumer advocates regarding homeowner's insurance: "Use it and lose it."

It is not a phrase that insurance companies are particularly fond of. But it sums up how all too many people feel about their homeowner's insurance: if you decide to make a claim, you are in danger of being dropped. * * *

A number of factors have combined to create the current atmosphere. * * *

Then there was the mold panic, which was a turning point in the insurance industry. It made headlines in 2001 when a jury awarded $32 million (later reduced to $4 million on appeal) to a Texas family - aptly from Dripping Springs - that sued its insurance company. The family asserted that the insurance company delayed making payments to repair a plumbing leak, which led to mold infestation. That, in turn, caused respiratory and neurological damage, they said, and made their 22-room house uninhabitable.

Mold claims started pouring in - one New Yorker sued for $400 million - shaking up the insurance industry and, although the Baigels could not have known this, making insurers particularly leery of water damage claims. * * *

Consumer advocates say that another factor that led to the "use it and lose it" mentality is the greater use of databases that, much like a credit report, list a customer's claims history and how many claims have been made for a property.

These databases are known as CLUE (Comprehensive Loss Underwriting Exchange) and A-PLUS (Automated Property Loss Underwriting System). Insurance companies use the databases all the time; consumer advocates say homeowners can - and should - obtain their reports to make sure their claims record is accurate.

Simply inquiring about filing a claim can be noted on your record. The Insurance Information Institute notes that "generally questions about coverage are not recorded in the database" but that if a policyholder reports damage, even if no payment is made - for whatever reason - it will show up in the file.

Posted by Marcia Oddi on October 1, 2005 07:33 PM
Posted to General Law Related