Paul Meloan – Vested Interest

by Paul Meloan

Hurricane Irene paid a visit to the eastern U.S. two weeks ago.  Maybe you saw something about it on TV?  The storm caused much damage up the eastern seaboard, including disrupting electric service to millions of people.

One of those persons is chronicled in today's Washington PostIn their story, the woman filed a claim under her homeowners policy for damages done by the storm.

Read the story if you want the details, but the salient point of this is that she believed her normal deductible of $500 would apply.  The insurance company (which inexplicably and disgracefully is not named in the Post story) said that because the damage was due to a "tropical cyclone" (almost makes it sound romantic) that her deductible would be 20 times higher, or over $10,000.  A clause in her policy permits the escalation in deductible for hurricanes.

The woman, presumably after picking her jaw up off the floor, complained to the Maryland Insurance Commission.  The Commission ruled that the hurricane deductible did not apply, because the county in which she resided was not under a hurricane warning.  Under Maryland law, hurricane deductibles only apply in counties that were under an actual hurricane warning, and hers was not.

The anonymous (Thanks Post!) insurance company, of course knows in which county she resides, and knows which counties were under hurricane warnings.  They also, presumably, know the laws of the states in which they write policies.  Homeowners insurance is a creature of state law, so insurance companies have to know the laws of every state in which they do business.   Every policy of insurance you own was tailored to the laws of the state in which you reside.

This means that either the insurance company didn't know what it was doing, or willfully violated state law.  In either case, the outcome is bad for the policy holder.  Thankfully this woman either knew what to do, or got some help to take her case to the Insurance Commission.

If you were lucky enough to avoid serious damage from Irene, or the current rains pelting metro DC, now is the time to realize what your insurance policy says, and what it doesn't.  If you don't understand it, get someone to help you.

Someone who presumably isn't paid by an insurance company.

Paul Meloan is the co-founder and co-managing member of Aegis Wealth Management, LLC, in Bethesda, Maryland USA. Before Aegis Paul was a practicing attorney as well as working in the tax practice of Ernst & Young, LLP.

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