Publication Date: Wednesday, October 8,
Use it and lose it?
Talk of blacklisting has homeowners thinking twice about insurance
by Martin Nobida
the point of getting homeowner's insurance if you can't use it?
Homeowners, mortgage brokers and Realtors are beginning to
think that a home doesn't have to be sitting atop an ancient Indian
burial ground for it to be cursed. If their house had even one claim
taken out on its insurance policy, they say, it can be denied further
coverage, rendering the property un-sellable.
Realtor Keri Nicholas has dealt with potential homebuyers who
were stymied by their inability to get homeowner's insurance
because of previous claims on the property.
"The situation is pretty awful," said Keri Nicholas, a
Menlo Park-based Coldwell Banker agent. "It's almost like 'once
you've used it, you're dead.'"
Nicholas, who's been doing business on the Peninsula for 14 years,
said she had two cases in the last three years where buyers couldn't
find anyone to
insurance because of claims. Other local Realtors talk of similar experiences
in the last year. "Insurance is an issue with almost every deal we do," Nicholas
said. "Everyone's been affected by it."
According to figures from the California Department of Insurance, the number
of formal complaints by homeowners who were denied insurance, had their policies
canceled or could not renew their coverage has risen dramatically.
In 2001, it received only 318 complaints. In 2002 and 2003, the figures were
1,891 and 3,230, respectively.
There are even cases where a customer claims he'd simply phoned in a question
to inquire about insurance coverage, and found much later he'd been blacklisted
simply for asking the question.
Much of the criticism has been levied against loss-history databases such as
the Comprehensive Loss Underwriting Exchange, or CLUE. These databases track
the number of claims people make on their policies.
According to ChoicePoint, the company that runs CLUE, 90 percent of all insurers
in the United States use information in the CLUE database when considering someone
for new coverage.
Critics contend that the database often contains incorrect information, which
can unfairly hamper a person's chance of renewing an existing policy or getting
a new one.
"The information contained in them (the databases) may have no relationship
to future risk of loss," says a press release from the Department of Insurance.
consumers have had applications denied, policies canceled and premiums
skyrocket after just one claim."
Chuck Jones, director of external communications at ChoicePoint,
said the database isn't used, as many believe, for determining
whether or not a policy should be
Individual insurance companies have their own databases that keep
track of their clients' loss histories, he said. Because they know
full well the loss history
of their own clients, they don't need CLUE's services when considering
renewal, he added.
"CLUE is important when a house is to change hands," he explained. "If
Party A is selling to Party B, Party B doesn't know the seller's
loss history, so it goes to CLUE for that information."
As for the accuracy, Jones insists the information is 99.9 percent accurate.
"We get approximately six complaints a year for every 10,000 records," he
said."And only a very small fraction of those complaints
warrant any change."
Whatever information shows up on the CLUE reports, local Realtors
are finding the going rough.
"It is a problem," said Elyse Barca, a real estate agent
with Coldwell Banker in Menlo Park.
Her firm, like many other real estate agencies in the region,
recently adopted the practice of requiring sellers to fill out
form that details
all claims they've made in the past five years.
"We're particularly interested in water damage," she added.
Many Realtors say they need to know as early as possible in the selling process
if there's a chance a deal will go down the drain as a result
of an insurer not wanting to provide necessary coverage.
And water is a hot topic these days.
"A claim that involves water intrusion in the home can be a death sentence
for your ability to get insurance," said Peter Brewer,
a real estate attorney based in Palo Alto.
Usually with water damage comes mold. A spate of recent mold-related
lawsuits in Texas and California has served as a catalyst for
Johnny Carson's sidekick, Ed McMahon, was involved in one of
these suits. He made a claim under his home insurance policy
to fix the
damage caused by a burst
pipe that flooded his den.
In April 2002, McMahon filed a $20 million lawsuit against his
insurance company and other entities. The suit alleged the contractors
botched the repair, resulting
in the death of McMahon's dog through exposure to a deadly mold.
In July this year, he settled for $7 million.
The publicity surrounding cases like this engendered what has
been called mold hysteria.
"Water claims saw a 100 percent increase in four years," said
Jerry Davies, director of communications at the Personal Insurance
Federation of California, which represents the insurance industry to legislators.
Because of what they see as excessive financial risk, most major carriers
in California are now loath to insure homes that have any history of
as they fear a mold problem will arise.
"I understand the Realtors' frustration," said Bill Cohen, an agent
with State Farm Insurance in Menlo Park. "They're trying
to close on escrow, but their deals are all contingent upon
And that insurance is harder to come by.
Many insurance companies have pulled out of writing any new homeowner's
policies in California. Safeco, the state's 11th largest provider
of homeowner's insurance,
for example, exited the market for new policies in July, citing
low rates and a hostile political climate for providers.
State Farm did so in early 2002.
"We're not overjoyed we had to pull out of the homeowner's insurance market," said
Lonny Haskins, State Farm public affairs specialist. "It
was a move of responsibility."
He said his company determined that it had expanded to such a
point where it might be unable to pay for possible big contingencies
-- like, say, an earthquake
the size of Loma Prieta.
The problem, many in the industry say, may not be blacklisting
"When times are hard, the evaluation process becomes much more stringent," said
Omar Morales, communications specialist at the Insurance Information Network,
an industry association. "And there are companies
that look at people who have a claim or two on their report
"But that's not blacklisting," he continued. "The
correct term for that is 'non-renewal.' "
Blacklisting or not, if you are buying or selling a home, there
are a few things you can do to keep from seeing your sale fall
"As a seller," said Brewer, "you can consider obtaining
your own CLUE report."
CLUE reports are available upon request for a nominal fee.
"As a buyer," he said, "start shopping as soon as
the contract is signed, and make sure you contact more than one insurance
company. You might consider asking the seller to provide the CLUE report
as a condition
But most experts agree that the best policy to avoid negative marks
unnecessarily showing up on your record would be to hold off on
using homeowner's insurance
unless absolutely necessary.
"In a hard market, you want to save your insurance claim for a big loss," Morales
said, "one that you can't recover from financially if you paid for it yourself."
A claim that involves water intrusion in the home can be a death
sentence for your ability to get insurance," -- Peter Brewer,
Palo Alto-based real estate attorney