Among the many effects of COVID-19 is an uptick in house fires. People are staying home more, firing up long-dormant fireplaces, cooking and baking, and generally using more power. These facts contribute to an identifiable increase in the number of catastrophic homeowner property loss claims due to fire that we’ve been seeing. In the course of managing these claims, we’re also seeing something else: limitations in the “loss of use” coverage in certain policies.
You’ll recall from our earlier post that loss of use coverage is designed to “maintain your normal standard of living” after a loss. It provides coverage for the home (or condo unit) owner to rent or stay at a temporary location while the property is being repaired. It can also provide the owner with coverage for lost rental income if the property is held for rental.
What’s unfortunate is that certain carriers – particularly Liberty Mutual and USAA – have been imposing stringent time limits on their loss of use coverage. If you’re insured with either Liberty Mutual or USAA – or with another carrier whose policies contain these limitations — be aware. You may need to call them and ask for additional coverage.
Other insurance companies provide loss of use coverage for the “shortest time required to repair or replace the damaged property or, if you permanently relocated, the shortest time required for your household to settle elsewhere.” Compare this to the typical homeowner insurance policy issued by, for example, Liberty Mutual. The Liberty policy has a 12-month limit of coverage for loss of use. It’s important to note the absence of any dollar limit – Liberty only provides the time limit of 12 months.
You have up to 12 months of loss of use coverage with no dollar limit – great, right? Wrong. 12 months represents the most you can get. If you suffer a loss and you’re out of your home for 4 months, you get 4 months of loss of use coverage. But what happens if you have a major house fire – like the ones we’re seeing a lot of right now – and it’s going to take 15-18 months to rebuild and move back into your home?
The fires we’ve been working on amidst the COVID pandemic have been BAD. 12 months may seem like a long time, but it could easily take longer than one year to rebuild a home. This is especially true if there is an insurance investigation to determine the cause of the loss, and if there is subrogation involving multiple manufacturers. Then there’s the actual rebuilding, requiring code compliance, permits from the town/city, and procurement of building materials – which are incredibly expensive and hard to find right now, as are contractors. This should underscore the problem with a 12-month limit on loss of use coverage. In most policies, there is a dollar limit, not a time limit – except for Liberty Mutual and USAA policies. So, if you have one of these policies, make sure the dollar limit is sufficient. And if you don’t have one of these carriers, it’s still a good idea to look and see what you do have for coverage.
One more issue to watch that we’ve seen recently in policies issued by Liberty Mutual — a $5K limit on electronic “data processing” equipment. The risk to consumers is that $5k will quickly run out if you have a loss and have to replace anything that processes data. Think about it: “data processing” can include laptops and computers. Liberty even interprets it to include iPads and Apple watches. If you’re a family of four, you each might have a laptop, iPad, etc. — $5K adds up pretty fast, meaning you might not have enough coverage. You might need additional coverage for these items, as well as for smart phones and other electronics. It’s really a ‘Buyer Beware’ moment, so talk to your agent and make sure you have the coverage you need.