If you get a full house in a poker game, you should be excited, but if you get an insurance claim with a full house, however, you should be careful.
“Hoarding” is characterized by the excessive accumulation of items over the course of months or years that have virtually no value. While this behavior may lead to a starring role on the TLC network’s show “Hoarders: Buried Alive,” it can develop into a major headache for insurance carriers in the event of a property claim. This is true not only when the claim is related directly to the hoarding, but also when this condition affects the handling and payment for a valid claim that stems from a different covered peril.
Hoarders may have piles of debris several feet high throughout their property. The pathological refusal to discard items may hinder the ability to use a house or room for its intended purpose, or it may render the property unfit for human habitation due to sanitary or structural concerns. Claims involving hoarding present a minefield of coverage and damage issues that an insurer must consider.
Seldom will a claim be submitted solely for hoarding. It is far more likely that claimed damages result directly from the problems arising out of the hoarding issue.
If an insurer is presented with a hoarding claim, there are several potential defenses available. To begin with, a hoarding claim may not fall within the coverage granted by most homeowners’ policies because it is not fortuitous. However, if the loss falls within coverage, there are several exclusions in standard homeowners’ policies that may be available to an insurer.
In extreme cases, hoarding could impair the structural integrity of a building. In those cases, the insurer also must evaluate whether the policy provides collapse coverage.
Assuming there is at least some coverage for a claim involving hoarding, the insurer must ensure that it does not pay more than the reasonable and necessary costs to repair the covered loss.
The idea of insurance is to protect a homeowner against risks that may cause damage to real or personal property. However, it is only intended to protect against fortuitous—or unexpected—losses. In a claim involving hoarding, the volume of material accumulated may cause a loss. For example, the amount of material may impair the structural integrity of a home or result in damage from rodent infestation. In these circumstances, an insurer may argue that the loss was the inevitable result of the insured’s hoarding. In other words, the loss was not “unexpected.”
Let’s assume an insured removes one wall of a house and parks his car in the living room, leading the floor joists to fail because residential property floor joists are not designed to hold that kind of weight. Most would not expect insurance to pay for that loss.
The same analysis applies to hoarding claims. When an insured continues to accumulate paper or other debris, the load can become too much for the floor. An experienced engineer can calculate the load placed on a floor and compare it to the designed tolerance. A professional hauler who removed debris from the property also may be able to provide an estimated amount of weight.
Often, an insured (or their counsel) may argue that the insurance carrier assumes any risk that exists at the time the policy is issued. According to this argument, any dangerous condition is accepted by the carrier simply because it accepted the premiums for the risk. These arguments are especially persuasive if there is any kind of underwriting inspection or report which is found within the underwriting file for the policy.
Almost universally, these underwriting reports consist merely of a “drive-by” inspection, with photos of the front and (maybe) rear elevations, notations as to the presence of any potentially dangerous dogs, and the distance to the nearest fire hydrant. Only the insured can provide information regarding the interior of the property.
Furthermore, a hoarding issue may develop long after the application for coverage was made and the policy placed in force. In these situations, most would agree that a carrier is well within their rights to argue a substantial change in risk when denying coverage to a home in which hoarding is involved.
If an insurer wants to argue an increase in hazard, however, it should ensure that it can prove the risk was increased after the policy was issued or renewed. An insurer also can examine the policy application to determine whether there were any representations made regarding the condition of the property that suggested an increase in hazard.
A standard homeowner’s policy also may have several exclusions that could apply to a hoarding claim. For example, most policies do not cover losses that result from an insured’s intentional conduct if the loss may be reasonably expected to result from that conduct. If the insured has accumulated so much paper that a room cannot be used for its intended purpose, it is reasonable to believe that the structural integrity of a building could become compromised. Similarly, damage from rodent infestation is reasonable to expect if someone accumulates trash.
Some policies may exclude losses that specifically result from an increase in hazard caused by the insured. If, for example, an insured has two tons of paper throughout the ground floor of a home, an insurer should consider whether that creates an increased fire hazard. Similarly, under an all-risks policy, the excessive amounts of trash frequently found in instances of hoarding may increase the risk of damage due to rodent infestation. Likewise, if the policy provides coverage for collapse, an insurer could argue that the accumulation of debris alone increased the risk of a covered collapse occurring.
An insurer also could attempt to argue that the insured failed to protect the property when it was endangered by a covered cause of loss. Although this exclusion generally addresses the preservation of property after a loss, an argument can be made to apply this exclusion to an instance of hoarding. Basically, an insurer could argue that the danger posed by the conditions in the property was so obvious that an insured had an obligation to prevent a loss.
Let’s assume the structural integrity of a property was compromised due to the weight of debris accumulated over a two-year period. An insurer could argue that at some point in those two years—perhaps when the insured had to carve paths through the accumulated paper in the living room—the insured should have recognized that the property was in danger of either collapsing or sustaining some kind of property damage. In these situations, the “reasonable person” standard should apply, establishing when these conditions would trigger that level of responsibility.
An insurer also should examine the effect of building code enforcement on its coverage analysis. Most policies do not provide coverage for a loss due to the enforcement of building codes without a special endorsement. Assuming the insured hoarder does not have such an endorsement, an insurer should retain counsel to determine whether the loss is the result of the enforcement of a building code. For instance, if a municipality determines a property is uninhabitable, that determination is based on the enforcement of a law regulating the construction or maintenance of a building and may not be covered.
How can a carrier approach the handling of a covered loss when hoarding is merely a condition that exists within the risk? This is far more likely to occur, as the number of covered perils (or the presence of an all-risks policy) far outnumbers the potential exclusions that may apply.
As a general rule, ordinary adjusting practices allow to “remove and reset contents” when effectuating covered repairs to the structure. Questions may arise if the “reasonable conditions” standard would apply and if the hoarding has created a situation outside of the reasonable expectation of risk assumed by the carrier in the placement of coverage.
Exceptions may come into play if the dwelling policy is a rental in which no contents coverage applies. This is especially so if the policy is written under the National Flood Insurance Program (NFIP), which requires that contents coverage be specifically requested and assessed for a separate premium. Without contents coverage in place, the NFIP dwelling policy will not pay to remove and reset contents, even as debris removal.
Finally, an insurer should be wary about any provision that affords coverage for collapse. In general, states have adopted one of two definitions for collapse. In the absence of a policy definition, a collapse is interpreted frequently as a substantial structural impairment. Most policies, however, now define collapse as a complete falling to the ground.
In either case, the “collapse” must be fortuitous and result from one or more of several named perils, including weight of contents. As discussed above, an insurer should consider arguing that a loss related to hoarding is not fortuitous. If a court determines a collapse is fortuitous, then the insurer should explore whether the building has “collapsed” under whatever standard is applied in your state.
Guy M. Conti is a senior associate at Condon & Cook, where his practice includes the coverage analysis of personal and commercial policies. He has been a CLM Member since 2011 and can be reached at email@example.com.
Kevin Hromas is CEO of US Insurance Information, LLC (dba Kevin Hromas and Associates). A 20-year career as a general contractor pre-dated his entry into insurance claims adjusting in 1996, and he has been an independent adjuster since 2003. He has been a CLM Fellow since 2007 and can be reached at KH@KevinHromas.com.