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Extended Dwelling Coverage on a Homeowner

Many moons ago all insurance companies used to have guaranteed replacement cost endorsement you could put on your homeowner policy. This endorsement would guarantee that the insurance company would rebuild your house exactly as it was prior to the claim even if your limit of insurance on the house was lower than the cost to rebuild. Today many insurance companies limit that endorsement to only homes that are considered high value (homes valued at $500,000 or more). The endorsements also require that the insurance companies send out professional reconstruction appraisers to figure out as best they can what it would cost to rebuild your home.

For those homeowner clients who have a house valued at less than $500,000 the endorsement that needs to be added to the homeowner policy is Extended Dwelling Coverage. What this endorsement does is give a percentage of the homeowner limit as extra coverage in case of a total loss on the home. For example, if you have 25% Extended Dwelling Coverage and your house is insured for $200,000 then you would actually have $250,000 if your home suffered a total loss ($200,000 X 1.25 = $250,000).

We feel this coverage is important for two reasons. One reason is we do not send out professional reconstruction appraisers to every house. Instead, insurance companies use in house software that helps determine reconstruction cost on your house using things like square footage, construction type, location, year built, etc. to come up with a value. These programs are usually very accurate but nothing replaces the accuracy of an in home visit with measuring tape and details of the type of amenities in the house. The Extended Dwelling Coverage endorsement helps make sure that if for some reason the calculations on the house are a little off, there is still enough insurance there to replace the house to its original state.

The second reason we encourage this endorsement is for catastrophe situations. Let’s say a tornado wipes out not only your house but two other neighborhoods worth of homes. Every builder and building supplier in town will be in demand. Economics 101 will tell you that if demand goes up and supply is the same, then prices are going to rise. That home that only cost $200,000 to rebuild just got a lot more expensive but if you have the Extended Dwelling Coverage on your homeowner you would be in a much better situation.

One thing to note about this endorsement, you can’t use it to underinsure your home. In our example above, you can’t insure the house for only $160,000 and add the 25% Extended Dwelling Coverage (which would put your total insurance at $200,000). That is not the intent of the coverage. The insure companies will use their software to figure out a good estimate of the cost to rebuild your house and you would have to have it insured for that amount in order to add the coverage.

Rental Car Coverage

The Holiday Season brings on a lot of travel.  People are either taking advantage of time off to go on vacation or they are traveling to see loved ones in other areas of the country.  Either way they often rent a vehicle during the Holiday Season so we thought it would be a good idea to post our thoughts on whether to buy or not buy rental car insurance.  

The first question we get from customers asking about rental cars is "does my insurance cover a rental car that I rent?"  Our answer is always a "gray" answer because it just depends on the coverage they selected on their personal insurance policy, what state they will be traveling in and what rental car company they are using.  Because of this "gray" response we always recommend at least take out Collision Damage Waiver from rental car companies.  Here are four reasons why this is always a safe option:

1.  Chance of claims is higher when traveling:  In our opinion the chance of a claim when you are driving around an unfamiliar city are much higher then when you are around your hometown.  You are not often sure of where you are going so you may spend more time looking at road signsor GPS devices instead of focusing on other vehicles.  

 

2. Claims paid out by your own policy can cause your rates to increase:  As mentioned in item 1, the chance of a claim is higher when in unfamiliar areas and if you were to have a claim and did not buy the Collision Damage Waiver than the payment of the claim would come from your personal auto policy.  This could cause your rates to increase.  If, however, you had purchased the Collision Damage Waiver from the rental car company the damages to the rental car would be paid by the rental car company and not your personal auto policy.  This would help preserve your claims history.

3.  Your auto insurance deductible would apply:  If you have a claim and need to go under your own insurance, often your auto policy deductible would apply.  If, however you take out the Collision Damage Waiver there would be no deductible.

 

4.  Dealing with out of state accidents is difficult:  If you were to cause an accident while on vacation you would have to work with the rental car company on getting their car fixed by your insurance company (again, assuming you didn't purchase the Collision Damage Waiver).  You also run the risk of them automatically charging the damages to your credit card which some rental car contracts let them do.  If you did have the Collision Damage Waiver, however, you would just simply turn the car over to the rental car company and they would then deal with all the repairs and not bother you with getting payment for the damages.

It is because of these four points that in Fey Insurance Service's opinion it is always good to purchase the Collision Damage Waiver from the rental car companies.  If anything it gives you peace of mind during your Holiday travels.

Named Peril vs. Open Peril Homeowner Policies

Many today feel all homeowner policies are the same, that they are a commodity of sorts. In our professional opinion this is not the case. One glaring difference between homeowner policies is whether they are “Named Peril” or “Open Peril” homeowner policies.

Named Peril insurance policies specifically list the risks they will cover your home for. The policy contract will cover such happenings as wind, lightning, fire, smoke, theft, etc. If something happens to your home that doesn’t fall into the insurance policies definitions of the name peril terms than there is no coverage.

Open Peril insurance policies state that all risks are covered except for a list of exclusions that are outlined in the policy contract. This type of contract gives broader coverage than a Named Peril because the incident that happened to your home or personal contents doesn’t have to fit into a certain definition of coverage. As long as the incident isn’t excluded it is covered.

A homeowner policy that is using a “Named Peril” contract will always be cheaper than an “Open Peril” contract. It is important to know this so that you don’t fall victim to purchasing solely on price. You may be excited to see a savings from one policy to the next but that savings could be at a much higher cost and exposure to you. Unfortunately you may not know this until you actually have a claim and are staring at a bill that would have been covered under an Open Peril policy but is not covered now under your Named Peril policy.

This is just one example of what may be different between homeowner policies. Other things like deductibles, specialty items coverage, fallen tree coverage, water backing up sewers and drains, and earthquake coverage are a few others to consider.

Legal Challenge to ACA Contraceptive Coverage Mandate Could Portend More Complications for Self-Insurance Marketplace

The United States Supreme Court is now expected to consider Hobby Lobby’s legal challenge to the contraceptive coverage mandate implemented as part of the Affordable Care Act.  The owners of the national retailer claim that the law’s requirement that the company’s group health plan includes coverage for contraceptive services violates their religious beliefs. 

This blog remains agnostic with regard to the religious liberty issues, but there are evolving self-insurance angles related to this story that deserve attention.

We recently reported that federal regulators contend the final contraceptive coverage mandate rules incudes a practical accommodation for most self-insured religious organizations (non-profit entities), but  it’s really just a bureaucratic illusion.  The rules allow such organizations a functional exemption from the requirements by transferring all financial and administration responsibilities to their third party administrator (TPA) partners.

While this firewall approach may have satisfied the Administration’s political considerations, it is so far proving unworkable in the real world as multiple TPAs servicing this market segment report that they cannot perform the required responsibilities, citing specific substantive reasons.  The end result is that these self-insured religious non-profit organizations may simply have to dissolve their self-insured group health plans to the extent that they wish to stick to their religious convictions.

The Hobby Lobby case potentially adds a new twist specific to for-profit self-insured companies.  In other words, companies that do not have a primary religious mission but whose owners may have strong religious beliefs.

There are actually about 60 similar cases pending in various federal courts and we expect that some companies are self-insured and others are not.  (This blog has not independently verified the funding structure of Hobby Lobby’s group health plans, but it is likely self-insured given the company’s size.)   Hobby Lobby is the highest profile case both because of its size and because its position was affirmed by the 10^thCircuit Court of Appeals in June of this year.

In addition to the central constitutional issue,  Court may also need decide whether the ACA is in conflict with the 1993 Religious Freed Restoration Act (RFRA), which says the government “shall not substantially burden a person’s exercise of religion” unless that burden is the least restrictive means to further a compelling government interest.

A broad ruling by Court declaring the ACA contraceptive coverage mandate provisions unconstitutional outright would take this issue off the table.  An equally broad ruling in the other direction would certainly not be welcome by Hobby Lobby and other similar plaintiffs, but it would at least bring some clarity to their legal obligations.

The more interesting scenario is if the Court charts a middle course in its ruling and determines that the exemption arrangement designed for self-insured religious organization could satisfy the RFRA’s “least restrictive means test” and therefore opens this option up for companies like Hobby Lobby.

In other words, allow these for profit companies to self-certify as exempt organizations for purpose side-stepping compliance with the contraceptive coverage mandate.

But for self-insured companies it would not be that simple because their TPA partners will be put in the same tenuous position as the current non-profit exempt organizations have already done, which could force these companies into more expensive fully-insured health insurance arrangements or drop coverage altogether.

Yes, companies may be able to rely on legally permissible firewalls should the Court rule accordingly, but both their TPAs and sponsored self-insured group health plans may end up getting burned in the process.  Perhaps this may be an unanticipated example of being careful of what you ask for…or on this case, what you pray for. 

Douglas M. Fey

Fey Insurance Services morns the loss of Douglas M Fey who served those in our agency as an owner, brother and uncle.  We will greatly miss him and his warm spirit around the office.  Below is his obituary.

FEY, Douglas Michael age 64, went home to be with the Lord on Friday, September 27, 2013. He was born on December 30, 1948 in Cincinnati, OH, the son of Ralph N. Fey and Ruth Yvonne Curpen "Bonnie" Fey. He attended school in Oxford graduating from Talawanda High School and later attending Miami University in Oxford where he was awarded a Bachelors of Science Degree in Business Administration in 1971. While at Miami he was a member of Beta Theta Pi Fraternity where he served as Chapter Treasurer. Following graduation he entered the U. S. Army serving in the Finance Branch in the United States and for 18 months in South Korea. Upon completion of his military service he returned to Oxford to begin working in the family insurance business with his father, older brother, his sister-in-law and later his nephew. Doug was Vice President of Fey Insurance Services. He loved to fly and held a commercial instructor's rating, and at one time he owned a vintage 1946 Piper Cub which he hangered at his family's farm. In addition, he was at various times a member of the Oxford Presbyterian Church, the Oxford Kiwanis Club, the Oxford Rotary Club and the Oxford Country Club. On October 17, 1993, Doug married his beloved Paulette, and they moved to Lebanon, OH where he lived the rest of his life. Doug and Paulette loved to travel and spend time with their children and grandchildren. He leaves his brother, Thomas Curpen Fey (Cathy) of Oxford, Ohio, Paulette's daughters Amber Mitchell (Jon) of New Carlisle, Ohio, Kim Martin (Zach) of Loveland, Ohio and Laura Hockett of Lebanon, and thirteen grandchildren including Samantha Mitchell, Milo Mitchell, Ulyana Mitchell, Ilia Mitchell, Anastasia Mitchell, Slava Mitchell, Olga Mitchell, China Martin, Nova Martin, Cherokee Martin, Zion Martin, Ivy Hockett, a niece, Elizabeth Fey Mundy (Al) of Cincinnati, Ohio and nephew, Brian Douglas Fey (Kate) of Cincinnati, Ohio and their children. He was preceded in death by his parents. Visitation will be held on Wednesday October 2nd from 10:00-12noon at Oswald-Hoskins Funeral Home with a service immediately following. Interment will take place in Lebanon Cemetery. Arrangements were made by Oswald-Hoskins Funeral Home. Online condolences may be sent to the family by visiting www.hoskinsfh.com

DOL Teams Up With Vermont on the Latest ERISA Preemption Attack

The practice of individual states enacting laws that arguably infringe on ERISA preemption is not new.  In fact, some states have become increasingly creative in poking and prodding at the limits of this federal law, which has raised obvious concerns among those involved in the self-insurance marketplace.  (See previous blog posts commenting on the Michigan health care claims tax.)

A new twist worth reporting on is the fact that the Department of Labor has apparently decided to take a more hands-on (political) role in shaping the evolving legal landscape, positioning the agency as a powerful accomplice in the effort to make self-insurance a more challenging risk management strategy.

 This intent was demonstrated last month by the DOL’s decision to file an Amicus brief in the case of Liberty Mutual Insurance Company v. Susan L. Dorgan, in her Capacity as the Commissioner of the Vermont Department of Regulation.  The case is currently pending in the United States Court of Appeals for the Second Circuit

 At issue is whether Vermont’s Health Care Database” statute is preempted by ERISA.  Among other things, the statute requires health insurers, providers, facilities and government agencies to “file reports, data, schedules, statistics, or other information determined by the commissioner.”  The term “health insurer” is defined broadly to include any administrator of a self-insured group health plans, including third party administrators and pharmacy benefit managers.

The purpose of these requirements is to enable the state to build a comprehensive database it believes is necessary in order to effectively carry out health care administration functions.   Liberty Mutual, a self-insured employer, refused to provide the requested data.  The company subsequently sued the state, arguing that the collection and reporting of the requested data created administrative burdens for the plans, therefore triggering ERISA preemption.

Siding with the state, a federal trial court judge granted summary judgment, finding that the Vermont law did not affect ERISA plan administration and further concluding that it was appropriate for the state to regulate in this area.

Admittedly, ERISA preemption law can be complicated and highly technical in many cases.  In this regard, to be charitable, we suppose that a good faith argument could be made the requirements set forth  in this stature do not, in fact, affect plan administration so criticism of the state should be put in proper context – a disagreement on legal and policy grounds.

The DOL’s participation is another matter.  By putting its large thumb on the scale, an ambitious political agenda is exposed for those who care to notice.

As the agency primarily responsible for administrating and enforcing ERISA, DOL has historically defended the law’s broad federal preemption provisions.   But with its provocative interpretation that Vermont is essentially regulating the business of insurance (the key exception to ERISA preemption), DOL has clearly signaled it has changed course, presumably to support the Administration’s implicit objective of squeezing the private health care marketplace when possible and where few people are watching.

We commented recently that Tom Perez’s nomination as secretary of DOL portended a more political agency.  Given that he was subsequently confirmed after this Amicus brief was filed, his fingerprints aren’t on this one but it can be reasonably concluded that under his watch the DOL will continue to back Vermont if the case is ultimately heard by the U.S. Supreme Court. 

And so it goes.  A huge federal bureaucracy quietly imposes the Administration’s political will in ways too nuanced to attract attention.  But that’s where the real action is.