Douglas Barkee, Certified Inspector

Barkee Inspection Services logoYou've discovered a House:

We'll confirm it's Your Home.

 

Homeowners Insurance

Home
Up

Past owner's claims haunt home buyers

By Vicki Lankarge
Insure.com

Last updated June 13, 2002

Just picture it: You're days away from closing on a new home, you've secured your financing, packed up your belongings, and now all that's left is a phone call to your insurance agent to take out a home insurance policy. Then the nightmare begins.

You find out your dream home is uninsurable because your insurance company says there is a history of home insurance claims by the previous owner.

Despite home inspections and real estate disclosures required by law, the unthinkable does happen. Texas real estate broker Karen Wilson says it happens all too often in her state, where the home insurance market has been in shambles ever since several major insurers stopped selling new policies. Insurers claim they have suffered heavy financial losses as the result of a sharp increase in mold and water-related claims.

"It's a crisis for both buyers and sellers," says Wilson. "There are properties with a past history of claims that are virtually uninsurable." And the really scary part, she says, is that the buyers are often the last to know.

Past claims can haunt you

How do previous claims on a house you don't yet own wind up haunting you? A typical example goes like this: The homeowner discovers a leaky bathroom faucet and calls his insurance agent to discuss whether he should file a claim on his home insurance policy. Since the policy has a $500 deductible, he decides to repair it himself and skips filing a claim.

During the sale of the house, the homeowner discloses to you a previous claim for a burst water pipe in his basement for which his insurer paid, but he doesn't bother to mention the leaky faucet. After all, it is repaired and he spent his own money to fix it. But when you go to purchase a policy for this home, you're denied based on the fact that the home has had two claims in the past three years: the burst pipe and the leaky faucet.

What has happened, according to Wilson, is that the homeowner's insurer opened a claim file on the leaky faucet as soon as he called and then later marked it "closed, with no payment" when he decided to fix the leak himself. Insurers say it is standard procedure to record such telephone inquiries in this manner.

Who has a CLUE?

They know about you

CLUE's database tracks 27 "causes of loss" showing why a claim was submitted to a property/casualty insurer for payment, including:

bulletContamination
bulletDamage to property of others
bulletDog bite
bulletEarthquake
bulletFire
bulletFlood
bulletFreezing water
bulletHail
bulletLiability
bulletLightning
bulletMedical payment
bulletSlip/fall
bulletSmoke
bulletTheft/Burgulary
bulletVandalism
bulletWater damage
bulletWind
bulletWorkers compensation

 

While you may not have a clue about a home's past insurance claims, your insurer certainly does. Ninety percent of home insurers subscribe to CLUE, which stands for Comprehensive Loss Underwriting Exchange, a database of homeowners' claims histories. When you apply for home insurance, your insurer will request a CLUE report to determine whether you, the buyer, or the home seller have filed any claims during the past five years. The CLUE database also includes damage reports that were later closed when the owner made the repairs himself.

You can get a free copy of your CLUE report if you are denied insurance due to information contained in your CLUE report you will be notified in this case. Additionally, if you have a dispute with an insurer about the information in the report, you can ask that your account of the events be included in the report. If you are simply curious about your home's history, you can order a copy from ChoicePoint, the company that owns the CLUE database.

Unfortunately, you can't order a CLUE report if you are not the homeowner. Prospective buyers aren't allowed to request a CLUE report for a home they want to purchase. "But there's nothing stopping you from asking the homeowner to provide you with a copy as a condition of the sale," says Wilson. She believes such requests will become commonplace in the very near future.

Get a CLUE

You can order a copy of your CLUE report for $8 by calling (866) 527-2600. This fall ChoicePoint will make it possible for you to access your CLUE report via the Internet at its Web site.

 

CLUE reports are not just about "buyer beware," says ChoicePoint Vice President Richard Collier. Buyers can also learn about positive attributes of their potential new home. "If you're buying an older home and the roof was replaced because of storm damage, you may be very happy knowing you are getting a newer roof," he says.

Home insurers have relied on information from CLUE's property and casualty database (there is also one for auto claims) since its launch in 1992. Originally, insurers used it as a background check on applicants to ferret out a pattern of fraudulent claims, says Jeanne Salvatore, vice president of consumer affairs at the Insurance Information Institute. "What's new is that insurers are now taking a look at individual structures to see if there have been a lot of claims made on the property itself."

Counting past claims

Just like previous claims on your auto insurance policy will hike your rates or perhaps cause an insurer to refuse to renew your policy, previous claims on your home insurance policy can affect your ability to obtain coverage on your new home, or at least cause the premiums to double, even triple.

Texas real estate broker Karen Wilson, who had an expensive mold claim on a previous Texas home, was aghast to learn that her policy on a brand new home was going to skyrocket from $1,100 annually to $2,900 all because her insurer learned of her prior water-damage claim on a house she didn't even own anymore.

Not only does CLUE alert insurers to properties that carry potentially more risk than they are willing to assume, but it also gives consumers another tool to make good purchasing decisions. "By having a home's claims history, the buyers have the information they need to confirm if all the necessary repairs were done properly," says Salvatore. Or if the home has been burglarized in the past, the buyers can check to see if the house is now secure. Do the alarms work? Have new locks been installed? If the answer is no, the buyer can rethink his or her decision to proceed with the purchase, or negotiate a lower price."

The use of CLUE by insurers shouldn't be construed as negative, says Collier. "People fall in love with certain houses and they're upset when they can't get them insured. But it's better to find out before they sign the dotted line that there are problems rather than to wind up with a nightmare later on."

Make sure you can insure your home

It pays to educate yourself about home insurance when you're seeking affordable coverage for your home. Here are some ways you can help yourself:

bullet

Find out the rules regarding home insurance renewals in your state. Some states exercise control over when an insurer can refuse to renew your policy. In Texas, for example, an insurer can't refuse to renew your home insurance policy unless you've made three nonweather-related claims within the past three years. To find the contact information for your state department of insurance, use Insure.com's State Gateway.

bullet

Consider paying for small losses out of your own pocket. Insurers take notice of customers who submit too many small claims. If someone breaks into your house and steals your new stereo that you bought for $400, it might just be better to go out and buy a new one at your own expense, particularly if you've had a claim or two within the past three years.

bullet

Think twice before you call your agent or insurance company. If you are considering filing a claim but aren't sure, wait to make that call. The minute your insurer's customer service representative types in your name in order to log your call, the insurer has opened up a file on you that will be tracked through its computer system.

bullet

Shop around for coverage. If your insurer denies you a policy based on previous claims or the rates are simply unaffordable, don't get discouraged. You should obtain quotes from at least three other insurers so you can compare premiums and coverage options. If you can't get a policy from a standard insurer, try a "Lloyd's company," an insurance company based on Lloyd's of London, an insurer composed of many different "syndicates," each specializing in insuring a particular risk.

Or check to see if your state offers Fair Access to Insurance Requirements (FAIR) Plans. FAIR plans were created in the late 1960s to make property insurance more readily available to people who can't obtain it from private insurers because their property is considered "high risk." Read Which states have a FAIR plan?

bullet

Raise your deductible and consolidate insurers. In order to save 10 to 20 percent on your home insurance premium, consider raising your deductible from $250 to $500 or even a $1,000 if you can afford it. Also, some insurers will extend you a discount if you insure both your auto and home with them.

bullet

Check your credit record. In addition to using your past claims history, insurers will use your credit score to help them decide whether to issue you an auto or home insurance policy, where allowed by state law. In Texas, for example, Allstate Insurance Co. has stopped selling new home insurance policies to Texas consumers who rank in the bottom three tiers of the insurer's five-tier credit-scoring system. Additionally, Allstate is not selling home insurance in Texas to any of its existing customers who have low credit scores if they have also filed any claims within the past three years.

You should order a copy of your credit record periodically to ensure it doesn't contain mistakes that could prevent you from obtaining a home insurance policy or that will cause your insurer to raise your premiums. See How your credit history affects your auto and home insurance premiums.

For questions or comments about this Web site, use the Contact Us Page or send e-mail to webmaster@BarkeeInspect.com.
Copyright 2002-2013  Updated 3/6/13  Barkee Inspection Services, Inc.  All rights reserved.   Vancouver (360) 574-5600 or Portland (971) 409-5800.