A 2,000-pound boulder rolled down a hill in New Castle, Colorado, crashing into a home and causing extensive damage. The homeowner’s insurer refused to cover the losses, arguing that a rolling bolder constitutes “earth movement,” which is not covered by the policy, even though the phrase “earth movement” has always been understood to mean large-scale movement, such as earthquakes and landslides.

A home in Granby, Colorado, was destroyed by a wildfire. Half a year later, not only had the homeowner’s insurer not covered his losses, it hadn’t even provided an initial estimate of the amount it believed he was due.

Meanwhile in Florida, hundreds of homeowners hit by Hurricane Ian in 2022 still are battling insurance companies that insist the damage to their homes was caused by hurricane flooding, which is not covered by ­homeowners insurance, rather than by hurricane wind, which usually is. It’s difficult to prove otherwise when all that remains of a home is the slab.

Policyholders in conflict with their insurance providers is nothing new, but it’s becoming increasingly common as insurers go further than ever to reduce or even refuse claims.

Bottom Line Personal asked Chip Merlin, founder and president of ­Merlin Law Group, which helps policyholders fight disputes with their ­insurers, what you can do to reduce the odds that you’ll end up battling your insurance provider—and what to do if you do encounter problems when you make a claim…

Choose the Right Insurer

Homeowners often select insurance based largely on annual premiums and name recognition—they pick the cheapest policy from an insurer they’ve heard of. But cheap homeowners’ coverage is cheap for a reason—the insurer inevitably intends to do everything it can to pay out as little as possible, and that greatly increases the odds that you will encounter problems when you make a claim. Most homeowners insurance providers grade their adjusters—the people who investigate the claims and determine the insurer’s liability—based on “leakage.” Leakage is the industry term for paying policyholders more than the minimum amount necessary to make repairs or replace damaged property. When adjusters receive poor grades for paying out more than what the insurer deems necessary, they inevitably do everything possible to pay policyholders less than what they’re due.

On the other hand, not every insurer that quotes a steep rate is more likely to pay claims.

But: A few large insurers that don’t offer the lowest rates are almost never sued by their policyholders—a great indication that they treat policyholders fairly. Those insurers are Amica Mutual Insurance (Amica.com)…Chubb Insurance (Chubb.com)…and Lexington Insurance Company (LexingtonInsurance.com). These companies have fewer lawsuits than other insurers because their policies offer better benefits and their claims departments make real efforts to issue payments under the policies.

Also: Selecting the right insurance agent can help you avoid unpleasant surprises. An agent will help you select appropriate coverage amounts and riders for your needs. One sign that you’re working with a good agent: He/she takes at least a half-hour to get to know you and how you use the property before recommending policies. Details such as whether you take long vacations or your kids still live at home can affect your coverage needs. To find a good insurance agent: Go to a website that lists members and leaders of insurance agent trade associations in your state, and look for agents with credentials that show their knowledge and passion for the insurance industry.

How to Evaluate a Homeowners Policy

Before settling on a policy, ask the agent or insurer if that policy includes the following four features, each of which reduces the odds that a homeowner will find himself in conflict with the insurer. If these are not included, ask what it would cost to add an endorsement that provides these things…

True replacement cost coverage. You might already know that “replacement cost” coverage is preferable to “actual cash value” coverage. The former covers the cost of buying a new item to replace the damaged one, while the latter pays only the depreciated value of that item. Less well-known is that not all replacement-cost coverage is created equal. Many policies labeled replacement cost pay a portion of the replacement cost at first, with the remainder paid only after the repairs are complete. True replacement cost coverage pays the full replacement cost up front, which can significantly reduce friction between the policyholder and insurer. It is a sign of a good policy if this is standard in the policy you are considering.

Ordinance or law coverage. If your home is destroyed or substantially damaged, it will have to be rebuilt according to current building codes—and those codes might be more exacting than ones that were in place when the home was originally built. Many policies pay only the cost of restoring the home to its previous state, but some include ordinance or law coverage, also known as code upgrade coverage, that pays for legally required upgrades as well. This coverage is especially important for homes that are more than 20 years old and/or that are located where building codes have changed, most commonly where wildfires or strong winds are major risks.

Matching coverage. If there’s damage to a home’s siding, roofing, flooring, ceiling or interior walls, some policies pay only the cost of repairing or replacing the damaged sections—potentially creating an ugly mismatch between the replaced/repaired sections and the surrounding areas. It’s worth choosing a policy that will replace enough so that everything matches and the repairs aren’t glaringly obvious. Do not purchase any policy that states it will not pay for matching—in fact, some states prohibit insurers from selling such policies.

Your choice of contractors. Some insurers insert clauses in policies stating that the insurer gets to select the contractors to do the repairs, which may very well lead to sub-par work.

When You Have a Claim

When homeowners make claims, they face a decision—to hire a public insurance adjuster or an attorney who specializes in insurance matters to help them through the process…or to go it alone.

Hiring a pro often makes sense for major claims, such as when a home is completely destroyed. A public claims adjuster generally is a better choice than an attorney here—representing policyholders is what public adjusters do every day. Choose one who has been in business at least 10 years, preferably longer. It’s a great sign if he/she has a Chartered Property Casualty Underwriter (CPCU) designation—the gold standard professional designation in the sector—and/or if he has served as an officer in a state or national insurance adjusters association and/or has taught college courses on insurance adjusting. Policyholders should always ask the adjuster what credentials he has and then check the public adjuster websites to confirm the credentials. Fees are negotiable but should not exceed 10% of the amount eventually received from the insurer. Public adjusters hired on a contingent retainer get paid a percentage of the money they recover from the insurer.

Going it alone could be a reasonable decision if you have a relatively small claim…or if you’re covered by one of the customer-friendly insurers listed above…or you’d rather invest your own time and effort to handle this yourself.

If you go it alone, read your policy and read up on the relevant laws. Potentially useful online resources: Your state insurance commissioner’s website…the website of the nonprofit United PolicyHolders (UPHelp.org)…and my Property Insurance Coverage Law Blog at PropertyInsurance
CoverageLaw.com. You also can enter your state and the terms “property insurance” and “rights” into a search engine.

If your insurer’s adjuster isn’t getting back to you promptly or you don’t believe he/she is dealing with you fairly, voice your concerns to the adjuster. If you don’t get satisfaction, ask to speak with his manager and repeat your concerns. If that fails, file a complaint with your state’s insurance ombudsman. Each state insurance department has a website that allows consumers to seek help or file a complaint—follow the instructions on the site. There’s a reasonable chance that this will spur action from the insurer—most states track stats related to insurance complaints, and many companies care about this.

If you still don’t get results, it might be time to hire a lawyer or public adjuster. If the issue is the insurer’s valuation of your property and damage, call an adjuster…if the insurer is making a legal argument that something is not covered under the terms of your policy, call an attorney.

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