The Dallas Fire Department arrived at a home in east Dallas about 10 days ago. The home was on fire, yet they were able to put the fire out within 30 minutes. The good news is no one was hurt as the family wasn’t home when it started. It turns out the fire started in the attic. Some overloaded older wiring shorted, sparked and started the fire. What overloaded the wiring raises an interesting question about whether or not the home insurance will cover this fire claim.
Dallas Fire Department officials pulled a half dozen marijuana plants from the home and placed them on the driveway for the Dallas Police Department to pick up. What overloaded the home’s electrical system were the grow lights and ventilation system for the plants. Since marijuana is illegal in Texas, the question I had is whether or not the fire claim would be covered by home insurance?
Not every insurance policy covers a claim when illegal activity is involved. I’ve seen a car insurance claim denied when the person involved in the accident was evading arrest. I talked with several underwriters to get their perspective on whether or not a claim for damages caused by an illegal activity would be covered. Their answers were it depends on two variables.
Policy Language: All home insurance policies fall into two categories based on how they’re written; they are either named peril policies or broad form policies. Name peril policies are written in such a way that they only cover the perils that are named within the policy such as fire, theft, smoke, vandalism, etc. If the peril isn’t mentioned it’s not covered.
Broad form polies are written in the opposite manner, they cover everything that’s not specifically excluded. In other words, it something isn’t excluded, then it’s covered. In both cases, there may be some language addressing the conditions of the coverage. For instance, a water leak resulting from a frozen pipe may not be covered if the homeowner turns off the heat. If the policy contains some language addressing damages arising from illegal activity are excluded from coverage, then such a claim would not be covered.
Claim Adjuster Interpretation: Not every policy is written with every eventuality considered. When something occurs that may be outside of the policy language, then, there is a little wiggle room for a claim adjuster to interpret the policy as to what’s covered and what isn’t. In these cases, the adjuster reviews the policy language to interpret what it says and applies it to the claim to determine whether a claim is covered or not. The outcome may vary from one claim adjuster to another even within the same insurance company.
While this is an interesting question to consider, most homeowners I know don’t have to worry about a home fire being caused by a situation like this or something from an episode of Breaking Bad. The biggest take away from a situation like this is review your home insurance policy and confirm it covers you for the causes of most claims. I’d also recommend a broad form policy such as a HO-B or HO-3 policy over a named peril policy.
What do you think? Share your questions, comments, and experiences with me on my Google +, Facebook, and LinkedIn pages. I’d love to hear from you!