This article shows you what those added risks are—focusing on three different
types of moving scenarios—and recommends how to best manage those risks.
Scenario 1—Selling One House While Building Another
Phillip Sanderson and his wife Alice are selling their house of 20 years
and are buying a "Manor Home," under construction, to be completed in 4 months.
The kids are gone, and they are downsizing. The closing won't take place until
completion, so there are no construction risks to be concerned about at this
point.
They are having their $600,000 of personal property professionally moved.
However, due to the downsizing, they are selling or giving away to their children
and charities about $200,000 of property, leaving them with a $400,000 exposure.
Until their new home is completed, they are renting a furnished apartment. They
will store with the moving company $300,000 of their personal property while
using the remaining $100,000 of personal property at the apartment.
What the Mover Does and Doesn't Cover Unless you declare a higher value and pay extra, the standard moving contract
from most moving and storage companies limits their liability for damage to
your property to cents per pound—typically $.50 or $.60. So if they damage your
$5,000, 60-pound plasma television set, they will only owe you $30 (60 lbs.
x $.50/lb.). In addition, the moving contract typically excuses them for any
responsibility for damage caused by acts of God (i.e., if the warehouse floods
from heavy rains, ruining your personal property in storage).
For an additional cost, you usually can upgrade the coverage from the moving
company from cents per pound to "full value" either on a per-piece basis or
on a blanket basis. A lot of people naively do upgrade, without knowing that
there are some pitfalls. First, settlement is on a current value/depreciated
basis—not full replacement cost. Second, breakage is excluded unless the movers
do the packing and you pay some significant extra charges. Third, there are
still some excluded losses such as flooding, groundwater, etc.
What the Homeowner's Form 3 Does and Doesn't Cover The HO-3 covers personal property in transit for the full Coverage C personal
property limit. (The 10 percent off-premises limit usually only applies to property
at another residence not listed on the policy.) The policy also covers personal
property for the full limit in storage facilities (i.e., see definition of "insured
location"). Losses are settled at actual cash value or optionally full replacement
cost if that option is included or purchased, and then only for those items
that are actually replaced. Optional Special Perils contents coverage will cover
breakage of all but fragiles (collectibles, china, vases, fine arts, etc.)
The Risks To Be Concerned about The following are seven types of risk that the Sandersons face in their move.
- Loss/breakage, theft, collision, etc. to $400,000 of personal property
while being loaded and moved to two locations—a storage facility and a temporary
apartment while the new home is being built.
- Loss, damage, theft, and flood/groundwater damage, etc., to the $300,000
of personal property while being stored.
- Loss, damage, or theft to $100,000 of personal property that will be
used in the apartment.
- The moving company's contractual limit of $.60 a pound, with a breakage
exclusion and water damage exclusion.
- $400,000 loss or damage to the property in the moving truck while being
moved from the two locations to the new home.
- Homeowner's Coverage C covers only named perils (i.e., no breakage from
load shifting; no water damage coverage). Losses are settled on an actual
cash value basis unless the replacement cost optional endorsement is added.
- Optional special perils contents coverage covers most breakage and flooding
away from the described residence premises but excludes breakage of fragiles
such as collectibles, china, vases, fine arts, etc.
The Risk Management Strategy I Recommend The warehouse location is over 10 miles away from the rented apartment, so
the risks of property at both locations being destroyed in the same loss in
Minnesota is extremely remote (i.e., no exposure in Minnesota to hurricanes
or earthquakes).
Step 1: Don't cancel the homeowners policy
when the current house is sold until the move to storage and to the apartment
is completed so that the full Coverage C $400,000 transit limit will apply.
If the current homeowners policy does not include optional coverage for replacement
cost valuation and special perils, add those endorsements to the current Homeowner's
Form 3. The special perils coverage will cover the transit and breakage risks,
except for fragiles.
Step 2: Set up a Homeowner's HO-4 Renter's
policy covering contents for $300,000 at the apartment. This full $300,000 coverage
also extends to items in storage. (Note: the 10 percent limitation on personal
property away from the premises only applies to property at other residences
not covered by the policy.) The temporary storage facility is not another residence.
Thus, although there is only $100,000 personal property exposure at the apartment,
by insuring the contents for $300,000, you also pick up the full $300,000 away
from premises at the storage facility.
Step 3: Hire the moving company to pack
the fragiles and buy specific optional full-value coverage from the moving company
on just those fragiles, including breakage.
Step 4: Include both the replacement cost
and special perils coverage endorsements on the HO-4 Renter's Policy. The special
perils coverage excludes groundwater and flood damage
except to personal property away from the
described residence premises.
Step 5: Start the new Homeowner's Form
3 on the manor home under construction with both replacement cost and special
perils coverage effective the earlier of the closing date or the date personal
property is being moved into the home or the garage so that the full Coverage
C limit will apply to the second move. Raise the Coverage C Contents limit to
the full $400,000 if the new homeowners policy doesn't automatically cover that
amount.
Step 6: Don't cancel the Renter's Policy
until the later of the day after the personal property is moved out or the date
the lease ends. (It is necessary to keep liability coverage in force until the
lease ends, even after the personal property has been moved out, in case any
injuries occur to anyone at the vacant premises.)
Scenario 2—Moving Yourself
When you rent a truck and get friends to help you load and unload, there
is the same need for replacement cost and special perils contents endorsements
on the current homeowners policy to give the best possible coverage to the items
being moved. Those fragile items that are not covered by the Special Perils
Endorsement—especially if they are of high value—can be appraised and scheduled
on a Fine Arts Floater with optional breakage coverage added. However, in most
cases, reducing risk is the best idea with thorough, careful packing with bubble
wrap, etc. There are a couple of new risks in this scenario pertaining to the
rental of the large truck—liability for injuries and property damage to the
public and liability for damage to the rented truck itself, often worth $50,000
or more.
If you have a personal automobile policy, regardless of the size of the truck,
you and your spouse have automatic bodily injury and property damage liability
coverage when driving this rented truck. However, the coverage won't extend
to friends driving the trucks. So, since you often could be dragged into lawsuits
caused by the friend's negligent driving, it's best to avoid that risk by limiting
the driving to family members only.
Under most rental contracts, you are also responsible for any kind of physical
damage that occurs to the truck while it is in your custody, from collisions
that you cause to collisions that someone else causes to hail damage, windstorm
damage, vandalism, glass breakage, etc. If you have a Personal Automobile Policy
with Collision and Comprehensive coverage on at least one vehicle, those coverages
generally will not transfer to a non-owned rented moving van since coverage
for non-vehicles requires that they be of the private passenger type. A large
rented moving van does not fit the definition of private passenger vehicle.
A few states like Minnesota require that the automobile property damage liability
coverage cover the damage to rented vehicles with no deductible (in Minnesota,
as long as the gross vehicle weight is 22,500 pounds or less). If you are in
such a state, you just have to make sure that your rented moving vehicle falls
within the parameters of the law (i.e., has a gross vehicle weight under 22,500
pounds) and that your property damage liability limit is adequate to replace
the rented vehicle—in this case a $50,000 truck.
But even if there is coverage in your policy for damage to the rented van,
for a one-day move and due to your unfamiliarity with driving a large truck,
it’s probably best to buy the optional collision damage waiver coverage from
the rental company if it’s not too expensive. It definitely makes your claim
settlement easier with the rental agency if there is damage. And if you live
in a state where your personal auto policy collision and comprehensive coverage
is required to cover the rented van, buying the optional collision damage waiver
coverage will protect your personal auto insurance rates from increasing due
to an at-fault accident you cause while using the van.
For a one-day move, and due to your unfamiliarity with driving a large truck,
it's probably best to buy the optional collision coverage from the rental company
if it's not too expensive. Not only does it make claim settlement easier with
them if there is damage, but it also helps protect your own personal auto policy
against claims which will ultimately affect your future auto insurance rates.
Scenario 3—The Sale and Rent-Back Agreement
Many times, although the closing date and ownership changes occur on the
same day, on both the property you are selling and the new property you are
buying, the dates of occupancy do not coincide. This can occur when you, the
buyer of a home, have agreed to let the seller of your new home, stay on for
a couple of months or so because they can't get into
their new place right away. So, you become
a landlord for 2 months on the new house and perhaps a tenant for the same 2
months on the home you are selling. What are the risks? First, since you're
now a landlord, liability for injuries to the tenant may be excluded under your
current homeowners policy. On your current home that you have closed on but
in which you are still residing, you are now a tenant, Although you no longer
own the building per se, you still need coverage on contents and liability which
your existing homeowners policy on that property will continue to provide those
coverages for you. You also need liability and structural coverage at the new
location where you are renting the home out to the seller.
I think the safest and easiest thing to do there is to buy a homeowners policy
on the new location while communicating to the insurance company underwriter
the existence of a temporary rental situation—that the home will not at first
be owner-occupied. In effect, you will have two homeowners policies in place
for the duration of the rental arrangement—one covering your contents and liability
at the old location and one covering your ownership structural exposures and
liability at the new location.
I think these strategies for handling this temporary rental exposures at
two locations are easier by far and probably better coverage than the "by the
book" approach, which is to cancel your homeowners policy the day you sell.
Buy a tenant's policy at your current location to be canceled in 2 months and
rewritten as a full homeowners policy. And to set up a Dwelling Fire Policy
for the structure and liability exposures at the new location, which also has
to be canceled in a couple of months.
Closing Thoughts
Household moves introduce a significant number of new or volatile exposures,
many of which go uncovered mostly because they are unidentified. But really
taking the time to identify the exposures related to household moves for both
property and liability, and then developing a strategy that works to greatly
reduce or transfer these exposures, is hugely important.
Cautionary Note Because property and liability coverages under homeowners forms used
by different insurers vary somewhat, the recommendation made pertaining
to those policies are for illustrative purposes. If the coverages in
your company or companies are different than what is cited in this article,
you will have to adjust the recommendations accordingly. |