Has the Floor Fallen out of Basements?

iStock_000003617292XSmallThe fallout from superstorm Sandy continues and the last issue that has given homeowners difficulty in the claims process is the ambiguity of coverage for their damaged basements. As many homeowners found out after Sandy, the standard home insurance policy excludes damage resulting from anything that could be classified as a flood. A good percentage of the affected homeowners did not maintain flood insurance and were essentially uninsured for the majority of their damages. Unfortunately, even those that did purchase flood insurance found that the coverage was somewhat lacking due to its categorization of certain spaces as basements, thereby barring homeowners from coverage.

A recent USA Today article points out the problem for homeowners in Hoboken, N.J., which was hard hit by the storm. Residents who suffered damages were surprised to learn of the flood insurance policy’s limitations on what is covered when there is damage to a basement as well as the basic definition of a basement. According to the flood policy, any portion of the building that has its floor below ground level is considered a basement. Unfortunately, this definition is somewhat limiting for homeowners in an urban setting such as Hoboken.

Unlike rural or suburban areas where a basement can be treated by homeowners as simply an area below their house where they store things, the basements in densely populated urban areas are sometimes viable living spaces. In many situations, the basements are only a few steps below the ground and have direct access to the outside sidewalk. This is quite different from the traditional notion of a basement being a dark, rarely accessed space underneath the house. Nonetheless, the strict definition of a basement in the policy is being imposed in the claim handling process and the homeowners are finding that their claims for most of the damage in their basements are not covered.

According to the American Bar Association’s ABA Journal, some homeowners have joined a class action lawsuit to challenge the flood insurance policy’s definition of basements. Even if these homeowners prevail, it will still take quite some time before they receive any resolution. As a homeowner, you can learn an important lesson from this particular scenario.

Many homeowners simply do not read their insurance policies and do not have a good understanding of what is or is not covered. Too many people make erroneous assumptions about their coverage that are only brought too light at the worst possible time: when they are making a claim for damage their house has already incurred. As a prudent homeowner, you should both read your insurance policy and think about the scenarios that you might find yourself in to see if the coverage is sufficient.

While having this knowledge would not necessarily have changed anything for the Hoboken homeowners as the coverage was simply unavailable, it would have better prepared them for the loss. Knowing that the ground floors were considered basements may have allowed the homeowners to minimize their exposure to a potentially uninsured loss. They could have made decisions in advance about how much money they wanted to invest in finishing the lower floor of their homes, realizing that it may not be covered or reimbursed in the event of a flood.

Ultimately, not every circumstance can be fully insured. However, knowing what is and is not insured allows you to make informed decisions about how to protect your property in cities like Tulsa, Kansas City, Oklahoma City, Nashville, and Wichita.

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