Question: I rented a townhouse for nearly five years before deciding to purchase it. When I originally entered into the lease, I obtained auto insurance at the rental address. The auto insurer explained my rates would be higher because this was the address for an insured person who filed an accident claim, even though the accident did not occur at or near my townhouse. I had only just moved in, did not know the prior renters and have never filed an auto claim.
Afterward, I decided to purchase this same townhouse. As required by my mortgage agreement, I applied for homeowner insurance. The insurer told me there were three homeowner insurance claims associated with this address filed by a prior owner or occupant. As a result, the agent explained, I would have to accept less coverage or the insurer would not cover the property. My premium would also be much higher due to these prior claims. Other insurers said that because of all the claims associated with this address I was considered a risk!
For the nearly five years I've lived at this address prior to my purchase I've never filed a claim for auto or homeowner insurance. How is it possible my rates could be affected by claims made by others? Isn't that information supposed to be private? Is this happening because I live in a common interest development with a homeowner association?
Answer: You are not the only person who has run into a situation in which premiums were increased based on a previous owner's information. What you are experiencing could happen even if you did not live in a common interest development and did not belong to a homeowner association.
Although not all of the specifics are public knowledge, it appears to be a common practice for insurers to group information by addresses. This means that when evaluating risk for underwriting purposes the carrier considers an overall picture in determining how risky a person or property is to insure. That determination includes the address and neighborhood where the property is located.
That evaluation also includes claims that are associated with the address. You are not being charged for someone else's claims; your policy is being underwritten using criteria based on the totality of the circumstances. This may not be a perfect system, but understanding that claims completely unrelated to you may affect the price you pay for insurance can be helpful when making a decision about a property rental or purchase.
Insurance claims information may be considered private in terms of their release to third parties. However, they are generally not protected for internal use by underwriters. In fact, insurers access something called the Comprehensive Loss Underwriting Exchange, or CLUE. The report is composed of different specialty reports that are maintained by nationwide consumer and credit reporting agencies.
The reports track claims and are linked to property, people, homeowners and automobiles. Insurers are free to report the fact that a claim was not paid, as well as any telephone inquiries regarding hypothetical claims or questions in general. The burden is on the consumer to prove that information is inaccurate.
In California, CLUE reports are not legally required for rentals or home sales but it is arguably one of the most important reports to get prior to purchase or rental of property. Though buyers can and should request them, CLUE reports are no longer automatically included in California real estate escrow instructions. Waiting until the end of escrow to obtain this information could be a mistake.
CLUE is composed of multiple reports that a consumer must individually request through different channels and at different costs. Some agencies will provide free reports under the "Fair and Accurate Credit Transactions Act of 2003" (FACT) 15 USC section 1681, but not all specialty consumer reporting agencies provide free reports.
Some of the most important specialty reports that consumers should obtain are:
For prior homeowner insurance loss claim reports and other FACT Act disclosures: https://personalreports.lexisnexis.com/ or call (866) 312-8076.
For an insurance claims report: www.iso.com or call 800-627-3487.
For other free specialty reports or to file a complaint: www.consumerfinance.gov.
Also, federal law allows you to get a free copy of your credit report every 12 months from each credit reporting company. Go to www.annualcreditreport.com.
Zachary Levine, a partner at Wolk & Levine, a business and intellectual property law firm, co-wrote this column. Vanitzian is an arbitrator and mediator. Send questions to Donie Vanitzian, JD, P.O. Box 10490, Marina del Rey, CA 90295 or firstname.lastname@example.org