The National Hurricane Center is currently forecasting Hurricane Joaquin to hit New Jersey on Sunday/Monday, October 4-5, 2015. With memories of Storm Sandy fresh in everyone’s mind, home, car and business owners should ensure their insurance coverage is in place and that they know what is covered. I mediated dozens of Storm Sandy insurance claims and many home, car and business owners did not understand how their insurance works.
Notice I didn’t call Sandy a hurricane, but a storm. That’s because when it made landfall in NJ, its sustained winds were below the 74 mph threshold for a hurricane. Why does this distinction matter? Most insurance policies have higher deductibles or exclusions for hurricanes. Check your policy to see what it says. The NJ Department of Banking and Insurance declared Sandy not to be a hurricane and hurricane deductibles not to apply. (A deductible is the amount of money the policyholder must pay first before the claim will start paying for damages.)
Another big area of misunderstanding are the flooding exclusions contained in almost every homeowners policy. The basic rule of thumb is that if the water comes from the top down, say from rain via a broken window or damaged roof, it is covered. If the water comes from the ground up, say from the ocean, a bay/inlet, a river or groundwater, you are not covered. You need special insurance, generally available via the federal flood insurance program. Flood insurance limits generally top out around $350,000. Look into supplemental flood insurance if you think you will need more to repair any potential damage and replace lost items (the limits are split $250,000 for the structure and $100,000 for contents, but will cover nothing other than your utilities in a basement). Umbrella policies do not cover flooding. There is usually a 30-day waiting period for flood insurance to come into effect, so getting flood insurance today will not help you for Joaquin but could help with future storms. Joaquin will be the 3rd major tropical storm for NJ in 5 years.
Heard of the anti-concurrency clause? Most policies contain one of these. The anti-concurrency clause means that if a covered event (such as wind damage) and a excluded event (such as flooding) happen in the same event, the damages are not covered. So if the wind blows in your ground floor windows around the same time the river floods your ground floor, you are not covered for the damages. Many policyholders would try to argue that the wind caused the damage before the waters came. Since no one was around to prove that, the insurance company would apply the anti-concurrency clause to deny the assertion.
Beyond the hurricane deductible, make sure you understand what your deductible is. One policyholder in mediation did not understand that their “5% deductible” meant 5% of the policy limit, not 5% of the claimed damages. Their policy limit was $1 million, meaning their deductible was $50,000. Deductibles are typically in the range of $500-5,000 (the higher your deductible, the lower your premiums). The unexpected deductible meant this homeowner did not have enough money to rebuild their home.
If you own a car, make sure that you have comprehensive coverage if your car is anything more than a beater. Flooding or a tree falling on your car would be covered under the comprehensive portion of your policy, less your deductible.
If you own a business, beyond your normal liability insurance, you may want to consider a business interruption policy. If your business cannot operate, you could file a claim for lost income. Make sure you understand what is covered. One client didn’t realize that a power outage that did not start on his business’ property was not covered under his policy.
Now, pre-storm, would be a good time to document your home contents, especially if it is a unique item. Cellphone and digital cameras are ubiquitous, so photograph your belongings. That will help with making a claim later on. Also, move your records to the upper levels of your home to minimize the odds of their loss.
The best insurance you can have is to heed evacuation warnings. Life insurance pays money…unlike with your homeowners policy, it does not restore your life. You will not save your house or belongings by staying in your home during the storm. You will get washed/blown away at the same time. Pennsylvania has some very nice hotels.
Be safe if NJ does get hit by Joaquin.