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At what damage amount should I pursue a homeowner's insurance claim?
We have a recently built house (2008). This past year, a roof leak materialized. I am out of pocket $3250 for several contractor visits that tore out interior drywall, recaulked flashing and siding, tested areas with a hose, and ultimately replaced a torn section of EPDM rubber membrane (insulation screws had worked up from underneath, this was hidden under a green roof feature); however the contractor noted my insulation underneath was soaked, he didn’t agree with the original pitch line, and I would need a new roof soon: rough estimate $8000-12000.
It’s imperfectly clear to me if my homeowner’s insurance would cover this. The contractor said “no”, a lawyer on a free introductory consult said “maybe”, or alternately “maybe” to a fraud lawsuit against the builder and suppliers. The lawyer indicated he would have a better estimate of either outcome (claim or lawsuit) after 2-3 billable hours.
We have enough credit via a HELOC to finance the repair, backed up by nonretirement investments, so I am not in a liquidity trap where I need the insurance as a source of cash to repair.
For the purpose of the question, assume this is a covered peril. The premium is now $1500 per year with $1000 deductible (I happened to shop around earlier in the year; I could get a $1200 premium from a different national-brand insurance company, but I hold off on a change until I decide whether to make a claim).
- What could I expect in terms of a premium increase if I make a claim?
- Do homeowner insurance rates ever go back down after a claim (similar to how car accidents age out of an auto policy), and if so, what time horizon? Or am I possibly burning ourselves for the rest of the time in this house?
- Is there an “expected value” rule of thumb to pursue a homeowner’s claim? My mental line was $10000+ (10x deductible), but on reflection this is just a round number and not an objective reason; and the event hovers around it.
- Given this anecdote, would you just pay out of pocket, or put in the effort for a claim or lawsuit?
A different approach to repairs
Some builders — if given the first chance to deal with the problem, instead of being presented with a bill after the fact — will fix the problem at no charge to the homeowner. Good faith matters.
My house was built by such a builder. If I have a problem that I am competent enough to diagnose and fix, I fix it myself, at my cost. If I have a problem that that I cannot diagnose and fix myself, but that I think the builder (or his subcontractor) is competent enough to diagnose and/or fix, I contact the builder (or subcontractor directly). I am willing to pay for the diagnosis and/or fix, especially if it is an aging or wear-and-tear issue, or the logical consequence of a cost-saving measure that I voluntarily chose when the house was being designed.
If the problem is a plumbing problem, I contact my preferred plumber for a diagnosis and/or repair. I pay for my preferred plumber’s work. On two occasions, my preferred plumber was unable to fix the problem. Both problems turned out to be installation (or testing) errors related to work done specifically for building inspections. In both cases, I paid for my preferred plumber’s diagnosis, and the builder (and/or his subcontractor) fixed the problem at no additional cost to me.
Your situation
The diagnosis and repair work that you describe seems like a similar situation to me. (In fact, I had my builder’s subcontractor replace a few prematurely damaged shingles on my roof. This repair prevented a roof leak. I noticed the problem while trimming a tree back from the roof. The shingles were damaged because the building permit implied that the tree could not be trimmed back. I’m spotting a pattern with these problems…)
In my opinion, the alleged problem with the roof pitch seems like a design flaw that should have been obvious at the time you chose the house design. I expect that any corrections of this design flaw will need to come out of your remodelling budget. In the absence of further details, I doubt that either the builder or the homeowners’ insurance company is responsible for it.
Some builders make a point of minimizing the warranty work they pay for, regardless of its effect on the builder’s reputation. I do not know which kind of builder you have.
Legal issues
The lawyer has probably told you whether the relevant statutes of limitations have lapsed. (The statutes of limitations vary from state-to-state, and vary depending on the alleged tort.) Starting a lawsuit is likely to further damage your relationship with your builder.
Effect on insurance rates
Homeowners’ insurance companies now share the number of claims that have been made historically at each property address. Most insurance companies now use this cumulative number of claims when setting rates, even if the claim(s) were made against a different insurance company, or by a different homeowner. I do not know whether any insurance companies ignore claims older than a certain number of years, or ignore the first claim.