Filing a claim can mean loss of insurance

THE BALTIMORE SUN

Consumers might want to think twice before filing a claim on their home insurance policies, warns the Maryland Insurance Administration, because it could lead to higher premiums or even lost coverage.

A local lawmaker and some consumers are unhappy about that. They say they buy insurance to cover their property when something goes wrong and want insurance carriers to be forced to notify customers if they're in danger of losing their coverage.

Maryland law - like many around the country - generally prevents an insurance company from canceling or not renewing a policy if fewer than three weather-related claims are filed in a three-year period. But insurers can raise rates or not renew policies that subject them to an increased risk if they outline their reasons, state regulators said.

The slumping economy and several natural disasters across the country have caused most insurance companies to raise rates or drop homeowners who file too many claims. Many insurers inspect properties after claims have been filed to make sure homeowners are maintaining their houses.

Homeowners who lose their coverage often find it difficult to secure insurance in today's depressed market. Many companies are limiting the number of new policies they issue.

Randi Johnson, Maryland's associate commissioner for property and casualty insurance, said homeowners can avoid some insurance problems if they better understand the purpose of homeowners insurance and when to use it.

She would not specify a dollar figure for when it's advisable for consumers to file, Johnson suggested that claims for as little as a few hundred dollars should be avoided.

"The purpose of a homeowners policy is really to protect you for a catastrophe - a fire, your roof gets torn off your house, someone comes in and empties it out. What it is not is a maintenance policy," Johnson said.

"What every carrier is going to look at is your claims experience. If a homeowner makes three or four claims in a relatively short time - in the last three years - they're going to have a really difficult time getting insured, because no company is going to want to take on that risk."

Sen. Brian E. Frosh, a Bethesda Democrat, has proposed a bill that would require insurance companies to notify customers who have made two claims within a three-year period and who might be in jeopardy of losing their coverage. Insurance companies have opposed the legislation.

"You shouldn't be penalized for taking advantage of the coverage you have," Frosh said. "To me, that seems unfair. That's saying, 'You're insured as long as you don't have any losses.' I mean, why are we buying insurance?"

Consumer complaints about insurance companies have been increasing. Last year, 6,192 consumer complaints were filed with the Maryland Insurance Administration's property and casualty office, 15 percent more than were filed a year earlier.

The insurance office held 188 nonautomobile-related hearings last year. It completed 44 orders and two consent orders that required companies to pay administrative penalties, settle related claims and, in some cases, reinstate canceled policies.

In 1964, Frances and Purcell Smith bought and moved into a one-story, two-bedroom home in Chevy Chase. They insured it for nearly 40 years with Travelers Insurance.

In 2001, Frances Smith filed a $289 water-damage claim. The next year, she filed a $100 claim for damage to her roof caused by a storm. She then filed a related claim in March last year for $63. Her three claims amounted to less than $500.

Smith said Travelers canceled her policy in March. The 89-year-old widow filed a complaint with the Maryland Insurance Administration, but it was dismissed because she had made three claims within three years. Johnson said that given the current insurance market, consumers such as Smith are better off saving their claims for catastrophes.

Smith's stepson Peter Smith said she "thinks it is grossly unfair that the insurance company failed to notify her that they might cancel her policy if she made several claims. She thought the claims were perfectly justified under her policy, and she had no idea whatsoever that they might cancel her if she made a couple of claims."

A Travelers spokeswoman said the company takes into account claims history and the length of time the policyholder has been with the company.

Eileen Pagano, a registered nurse who has had State Farm Insurance policies on her family's automobiles and home for more than 30 years, said the company threatened to drop her coverage after inspecting her house. She had filed about $5,000 worth of claims in the previous few years.

After a pipe burst in the basement of her Columbia home last year, Pagano said, she filed a claim, her second in three years. State Farm sent a representative to her home several months later for a property inspection. The company told Pagano that she would lose her coverage if she did not make $20,000 worth of repairs within 45 days, including trimming trees, resurfacing the driveway and repainting the exterior trim.

State Farm spokeswoman Angela Mitchell would not address specific complaints from homeowners but said the company often inspects a property after a claim has been filed to make sure it is being maintained properly. "According to our policy language, we have the right to inspect any time," said Mitchell, whose company insures 337,167 Maryland homes and is the state's largest insurer.

"What a company is looking at is their risk of exposure," said Johnson of the state's Insurance Administration's office. "For instance, a driveway that is cracked and broken represents a liability hazard."

Pagano, whose State Farm policy is about to be canceled because she hasn't made the repairs, called other companies, hoping to switch carriers, but was denied coverage. She asked the state to investigate, and a decision is expected in about three months.

One way consumers can avoid losing coverage is to limit their claims to major damage, the insurance commissioner's office.

The industry uses a trade database that compiles a homeowner's claims history. When someone files a claim, the policyholder is entered into a national database called Claims Loss Underwriting Exchange, or CLUE, to which all insurers have access.

Some companies also report telephone calls from homeowners who are considering filing claims as actual claims. Frosh's bill would prohibit insurers from counting those inquiries against a homeowner.

Some carriers will consider a homeowner's history with the company when assessing the risk of continuing coverage. In 2002, Nationwide Insurance implemented a statewide retention program that studies a homeowner's loss history and takes into account how long the homeowner has been a customer.

Still, options are few for those facing the loss of their coverage.

Many consumers are relegated to a last-ditch option, an expensive state-run insurance plan that covers only fire damage. The Joint Insurance Association in Lutherville is the insurer of last resort. It meets the minimum requirements of mortgage lenders.

Dr. Ralph Yodaiken of Bethesda had insured his home with State Farm for 20 years. But 2000 was a bad year. He filed three claims worth about $4,000 involving robberies and a car break-in. "No one warned me not to file a third claim," Yodaiken said. "I made this cardinal mistake apparently, for using the insurance that I've been paying for during those past 20 years."

State Farm's Mitchell said most homeowners are aware of the risks of filing claims. "With respect to nonweather-related claims, policyholders are aware of what their policy will and will not do, what the premiums are and coverages are," she said.

The Yodaikens have since secured insurance from another company. But they are disappointed with their experience and testified this month before the Senate Finance Committee in favor of Frosh's bill.

"Simply put, the client should be told," Yodaiken said. "It should be a requirement that the agent says to you when you put in the claim that the company may cancel - not review - but may cancel your policy because you had two claims already and the third strike you're probably going to be out."

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