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Capitola flood victims caught by subtle differences in insurance

By TOVIN LAPAN  as seen in the Santa Cruz Sentinel, April 23, 2011
Posted: 04/23/2011 01:30:31 AM PDT

Businesses Wading Through Insurance

CAPITOLA — The stores Hot Feet and Euphoria are separated by about 100 feet of sidewalk in the Capitola Village.

Both were hit hard in the flash floods of March 24 and 26, closing for a week or more while mold-harboring carpet and drywall were torn out.

When it came time to submit insurance claims, however, the responses to their shared circumstances were completely different.

Amy Tognazzini, who owns Hot Feet, Slap Happy and Big Kahuna on Capitola Avenue, had a general business insurance policy with Farmers Insurance Group. A claims adjuster visited her stores within a couple days of the flood and soon after her claim was accepted.

“The adjuster was down here right away,” Tognazzini said. “I’ve had Farmers for 30 years, and I think everyone in the village who used them has been happy.”

Indeed, others who carry insurance through Farmers, including San Jose Avenue’s Rainbow City Limits, have said that the company approved their claims and was very responsive.

Tatiana Lima, who owns the clothing store Euphoria on Stockton Avenue, had a general policy with Allied Insurance.

No adjuster came to look at her store, but she recently received a letter saying her claim was denied. The letter from the insurance company cited her policy, which specifically excludes coverage for water damage from broken pipes or backed up sewers.

“Allied basically denied my claim over the phone, no one ever came to look at the damage,” said Lima, who said there was $10,000 in damage to her store. “I’ve been with them nine years and never filed a claim until now.”

Allied said that they cannot discuss individual claims because of privacy issues, but that they try to resolve all claims as quickly and accurately as possible.

“In all cases, we evaluate each claim on its own merits subject to the terms of the policy and state law. Allied makes its claim decisions based upon the applicable facts and circumstances in a fair manner and pursuant to the terms of our insurance policy,” said Elizabeth Gianetti, spokeswoman for Allied’s parent company, Nationwide Mutual Insurance.

The two March flash floods occurred after heavy rains blanketed the county, and a drainpipe that carries Noble Gulch Creek under the city-owned Pacific Cove Mobile Home Park ruptured, creating a sinkhole and releasing a rush of water through the park and the village.

Insurance policies can vary significantly in the language and type of coverage. Where one company may include coverage for an item in its basic package, for water damage from off-site broken pipes for example, another company may charge less for its basic policy but require additional coverage for certain types of water damage.

“All insurance policies contain differences in language that affect claims, and different adjusters can interpret the policy in different ways,” said insurance agent John Allanson, who sells Farmers policies. “It can make it tough for the consumer to know what will happen ahead of time.”

When consumers are shopping for insurance, the little details can have huge ramifications.

“In general Allied is cheaper than ours and there is a reason why. They exclude some things that we don’t,” said Matthew King, an insurance agent who sells Farmers policies, “When people buy insurance they may think certain policies are all the same, but that’s the furthest thing from the truth.”

Allied is not the only company that has denied claims for the water damage. Nat Inpong, who owns the clothing store La Vita, said her State Farm business insurance policy also did not cover her estimated $8,500 in loses. Others in the village are still waiting on decisions from their insurance companies.

Some business owners had flood insurance, which covered repairs to their stores but not business losses such as lost payroll and income from having to close for cleanup.

The Village Mouse and Thomas Kinkade Gallery received some money through their flood insurance policy, but Allied turned down their claim through their general business policy. After carrying the Allied policy for 30 years, they found that none of the lost revenue, wages or business materials would be covered, said the Village’s Mouse’s Valerie Austen.

Tom Austen, of the Thomas Kinkade Gallery, said the store lost 120 giclee canvases and frames in the flood, and, while he did not have an exact figure for the damages, he previously estimated the total cost at more than $1 million.

Since it is common for policy holders to go years, or even decades, without filing a claim, it is important for people to review their policies regularly, industry experts said.

“You want to check your policy yearly and go over what is and isn’t covered,” said Tully Lehman, a spokesman for the Insurance Information Network of California, a nonprofit consumer information organization supported by the insurance industry. “You want to make sure you have the right amount and type of coverage. A lot can change in 30 years in a given area. Areas that didn’t flood 30 years ago may flood now because of new construction that has limited the amount of water the ground will absorb.”

The California Department of Insurance will investigate claims in which the policy holder thinks they have been unjustly denied.

“The department will mediate and try to find a positive resolution,” said Pat McConahay, Department of Insurance deputy press secretary. “If we see something that they should pay, we encourage them to pay and most times they do. If they don’t, there can be financial penalties, but generally things are resolved before that point.”

In the end, if the decisions of the insurance companies are upheld, the only recourse for policyholders may be to react with their wallets.

“I’m not going to renew with Allied,” Lima said. “After talking to my neighbors, I’ll be switching to Farmers.”