Recently, after our Insurance Agency won the Asbury Park Press Newspaper (APP) Readers Choice award as the Best Insurance Agency of Ocean County, we received an influx of potential customers who were confused about their policies and sought out guidance and advice.
We we were surprised by the amount of questions, and impressed that The APP Award brought so many inquiries, but let me get back to the point of this blog, as Independent Insurance agents we don’t have an allegiance to any one company but rather represent our customers. We go out and get the best quotes for Our customers, So if an insurance company has issues with one customer, we'll do our best to find that customer a replacement policy with another company, as long as that company is highly rated, has great customer service, and offers a competitive quote.
Being that our agency is so close to the beach we provide a fair amount of polices for Coastal Homes, Vacation Homes, Rental Properties and multimillion dollar affluent homes on or near the beach and barrier islands. But the calls of the last week illustrated that most property owners do not understand that if you own a property that you used yourself and then you rent out that property, it is no longer a secondary vacation home and you have changed the designation of that property. Now, I believe there may be hundred of policies just like that up and down the coast, that exist like that, people changed their usage, rented out their property and never told the company or their agent. Most of them do not understand the differences, and then there are those who know, but refuse to pay the higher costs associated with Landlord policies. That may work in the short term, but then a catastrophe hits, a loss claim is presented, and then bad news or Insurance fraud may be unearth, thus claims can be denied.
For example, we had a customer who had homeowners insurance on a property in Lavallette. After Hurricane Sandy, the property had to be repaired. The customer filed a claim with her flood insurance and got a respectable settlement. She used the funds to elevate and repair the property. But unknown to us at the time, she changed the usage of the structure and created a two-family property. Therein lays the problem... She didn’t tell us that she changed the usage. After 17 years, she became a landlord and rented out both sides of the unit for over 8 weeks in 2013 and 12 weeks this year. My guess, she did it to help defray the out of pocket costs of elevating the home. The customer's brother was a builder and he repaired her home quickly. By late spring 2013 the house was done. We inquired about the property, asked for pictures of the building and she complied sending back pictures of the front of the house, the back door area and pictures of the interior.
It certainly didn't look like a two family. It was very similar to the old home, a bit bigger, nicer windows, but overall pretty much the same. However as we found out later, she had rented out the property and had multiple tenants who occupied the home for both 2013 and 2014. Actually she rented the two units a total of 7 times in 2013. We had sent her letters and notes in the early spring 2013 after all the repairs were completed, which she just signed and returned. All indications was that it was a normal secondary vacation home. But then in July of 2014, in the second year of renting the house, something went wrong...
In July 2014, one of the tenants children had a party at the house and underage drinking occurred. Two students became ill, a fight occurred at the home and Police were called... Apparently, the people who rented out the house, were out and their High School daughter had an unsupervised party. Needless to say after the cleanup-- paperwork start to fly, and then the lawsuits. Parties on all side face some serous issues, the landlord for lying about the property and its usage, and the renter for allowing under-aged drinking. In addition, the property itself was damaged, walls were broken, glass doors were shattered and the place was trashed. The homeowner filed a claim and misrepresented the situation behind the claim, Police reports and facts became evident showing the home owner had misrepresented themselves.
The point of telling you this story, is that the homeowner had to know she was changing the terms and conditions of her insurance. She claims that she thought a homeowner’s insurance policy covers tenants. Yet it was discovered that she owns several other rental properties both in NJ and Florida and has dwelling coverage for those properties, in addition, her husband is a high level executive in a NY Bank and has detailed education in contracts. Yet despite her claims of no knowledge, the woman and her husband had been smart enough to a mass more than $3 million in fully paid for properties, and they still claimed they did not know about different policies. To a reasonable person, it appears that she was trying to limit her expenses as the correct policy would cost about $1600 more per year than the older homeowner’s policy. The pending lawsuit will be the final say as the tenants, the property owner, the under aged guests are suing each other over the damages that occurred at the party.
So why bring this up, becasue there are multiple kinds of property insurance, and the property owner should be asking questions to make sure that he is properly covered. Its not enough for the agent to ask questions and they should. but in today's world all anyone ever thinks about is what will it cost. The familar refrain being : " I don't want to pay more than I have to" not considering the liability that can result from inadequate coverage. The biggest Insurance problem on the Jersey shore concerns the majority of Insurance companies who do not want to insure properties that are less than 5 miles to the beach for fear of serious wind damage. And when it comes to property owners who have rental properties, well the amount of companies available are even more limited. Allstate, Liberty Mutual, Farmers, Geico, Travelers, Hartford, Progressive, you name them --those recognized Insurance companies we all know, do not want to insure close to the water… And their limits are like 3-5 miles to the beach, river bay or coast. So if you have a rental property , vacant property or larger commercial property, more than likely you will have to get a Lloyds or surplus policy, make sure your agent reviews the differences.
In the majority of cases within 5 miles to water, the insurance companies that offer insurance are provided by surplus line companies like Lloyds or Scottsdale These are mufti-national billion dollar companies and are literally the insurers of last resort. These surplus Insurance like Lloyds and similar companies are classified as non-voluntary companies who do not have to contribute to the NJ Insurance fund. They are highly rated, but have different rules and do not have customer services departments. Surplus policies are offered through General and whole sale agencies then re-offered by agenies like I and E Insurance Agency
Surplus insurance companies should be the last choice for a homeowner. Personally I'd rather pay more for a voluntary company than use the surplus carriers, who offer typically less coverage, higher deductibles, and poor customer service... But if you have no other choice its the only game in town.