A reflection on flood insurance when you need it. By: Christopher Pascale
My rental property flooded in 2018. Because I had the right insurance, and knew how to make claims, it made all the difference.
In 2007, I bought a little house in Jacksonville, NC at the height of the market. To explain the climate for buyers, there were several times we showed up to an open house to be told that multiple offers for the full amount came in, but if we wanted it, we could offer more.
Eventually, we found a place worth $109,500 and bought it for $113,000; the equivalent of buying shares of VTSAX for $86.47 on 2/19/2020 when they’re selling for $83.79. As I type this less than a month later, VTSAX closed at $61.36.
In January, 2009, we converted it to a rental and were cash flow positive, but with a market overflowing partially due to underwater properties being converted until they could be sold, rental prices dropped – supply increased while demand was flat. Over the years what rented for $950 in 2009 was $775 in 2018.
Given that rental real estate is said to be resistant to inflation, I reasonably assumed that the place would be renting for $1,500 or more that by that time, and that I could sell it for more than I bought it for at any given time. While true for many, it was not for me.
And then the Hurricane hit.
Hurricane Florence struck North Carolina directly, making it different from the storms that usually land in Florida and work their way north. Jacksonville is a coastal town, but my property was over 10 miles from the beach. What it was close to, though, was a storm drain – the pipe ran alongside my driveway and into a creek more than 100 feet from my back porch.
The creek overflowed, which was bad, but the storm drain, as seen in the photo, completely collapsed. As such, the home took on 2 feet of water. Had it been more than 4 feet, or if the home was lifted off its foundation, the property would have been deemed a complete loss.
Your regular homeowner’s policy is called a wind policy. This is very important because some things you think would be covered, which is why you need flood insurance, even if you’re not in a flood zone.
The example I use is this: If a flower pot blows through your window during a rainstorm, the homeowner’s policy covers the broken window, but that subsequent rain could be deemed a flood. If a tree falls on your roof, the same could be applied.
For my property, rain came in through two spots in the roof – through the master bedroom, where the ceiling completely fell in, and the laundry room.
I called my insurer on 9/21/2018 to inspect the home. Four days later the flood adjuster told me the following: It’s not a total loss due to there only being 2 feet of flooding. And he’d have $52,000 to me soon, but was approving the release of $10,000 that day so that I could have the home mitigated.
Mitigation is the process of completely drying out the home. He said he could not recommend a company, but that any of the ones that have a national reputation would be sure to draw up the invoice the right way so that when I submitted it to my wind claims it would be reimbursed.
Wait. Did the flood adjuster say that he was giving me money so that I could have the place dried out, but that my homeowner’s policy was paying for it also?
I called the flood insurance company’s customer service line and asked what the flood funds were for. They were to compensate me for my loss. Since there was a mortgage, the checks were also made out to the bank, who then endorsed them back to me, taking my word, based on over a decade of timely payments, that I was going to use the money to fix the property rather than decorate my lawn with Halloween-themed ice sculptures.
I then called the wind policy customer service. To be crystal clear on this matter, I asked: If the home was a total loss from a combination of the flood and the wind, would I receive full payouts from both policies totaling to $250,000 for the loss of a $125,000 home?
“Yes,” she said. The answer was yes. From everything I’ve looked up, I could not find a link to confirm this, but also not one to dispute it. Most were vague but gave good advice minus some crucial specifics, like this Consumer Reports piece.
Fortunately, the renters went back to see what was salvageable, and sent me photos. These were the basis for showing improvements. I sent these to the homeowner’s policy adjuster to get the rest of the money I’d need, plus whatever else I was entitled to, per the policy.
In the meantime, I found a builder.
Finding the Right Builder
The perfect builder will be an expert who personally works on your house ahead of anything else, gets it done quickly, and is amazing at paperwork.
Good luck with that.
The next best thing is someone who will be completely honest while getting the job done.
After more than 30 phone calls to companies on this very convenient NC builder list, I finally got a hold of C.M. Renigar Builders. The owner, Chris Renigar, said he could take on my property, and did not ask for a deposit, only the flood report so he knew what kind of budget he was working with.
Everyone else before this said I couldn’t even be on their waiting list.
“But,” he said, “I’m only tarping rooves this week. After that I’m only doing mitigation and roofing. After that, I’m focusing on locals. Your house will get done, but it’s not first on the list.”
He tarped the roof, then sent a photo and invoice. I sent the invoice to the insurer, who rejected it. The builder then stripped everything out per the guidance of the flood report, built a budget around the $52,000 sent to me, and dried the place out, roofed it, and treated potential mold issues.
I submitted the mitigation and roofing invoices, and was sent about $1,800, because not everything was approved.
Supplemental Claims, Multiple Requests
Marveling at how they could only send me $1,800, I called for an explanation. The $1,800 was the estimate for replacing and hanging sheetrock, so I asked, what about the wiring that needs to be replaced? And the ceiling fan? ‘Electrical work,’ I was told, ‘is a supplemental claim, paid for after the work is done.’
Along with this new information, my initial claims were rejected because the invoices had to be a specific way. They needed dryness/moisture readings, and the charges of every individual line item.
Before and after photos with the current invoices weren’t enough, even for the tarping of the roof, so I reached out to my builder, who was confused.
“The roof should get paid for,” he said with casual certainly, “but the mitigation money came from the flood.”
It did, but if I was going to get paid for the water that came in through the roof, they needed it to be a certain way.
At this, he said that I was running a huge risk of fraud because I was paid for the place being wet, so why would it make a difference if other water came in?
Emailing the insurance company (so that it’s in writing) I asked whether I could make the claim, citing that the flood adjuster paid me for this already. The email that came back said that, yes, they would reimburse to dry the home from the water that came in through the roof.
Satisfied, I sent it to my builder, but he was not comfortable doing what he thought was more like doctoring something up to get more money. Also, he was satisfied with the invoice he sent. Which he should have been! I re-sent the invoice and was appropriately reimbursed.
This wouldn’t be the last time this happened.
What You Don’t Know Saves the Insurance Company Money
Like the builder said, my home was not at the top of his list. He got it secured and dried out quickly, but was now focused on local homeowners.
After 6 months I finally called him and said, “I’m paying $919 every month on the mortgage. It’s eating into what I have set aside to pay you.”
“Aren’t you getting rent from the insurance company?” he asked.
What? Rent? I called, told them it had been a rental, as they knew based on the insurance coverage, and was told to send a copy of the lease.
They sent the back rent, and then another $775 every month going forward until I sold the home.
Just like with the electrical, I had to know to ask for the money, and only got it after incurring the expense.
More Claims, More Photos
As we went, I did more of the same. Some things I had to submit multiple times, but in the end everything was taken care of.
When I ordered appliances for the kitchen, I did so through HomeDepot.com, who delivered and installed everything. I sent the link to the product package along with the invoice and proof of delivery, and was reimbursed. When I had the HVAC system installed, I had to submit it more than once, and the funds were eventually paid.
After the home was sold, my builder was sent a follow-up inquiry regarding the kitchen. He looped me in on the communication, but handled it all for me, and I was told there is another $1,400 being sent.
What is important to know is that not all things get reimbursed.
Structures, Nothing Else
When the shed needed to be hauled off, the insurance paid for it. But when the deck needed to be repaired it didn’t. My builder said this was normal.
The collapsed storm drain? Apparently, it was my responsibility after a certain point from the street. And since I didn’t live in the home, I couldn’t get FEMA funding, nor could the neighborhood for other reasons, according to multiple local politicians. So, all that money I thought I might get to keep? It went to repairing local infrastructure, as well as sodding the grass, taking care of the deck, and other odds/ends.
In the end, some of the math looks like this: 12 years after buying the home, 10 years of losing money, and 16 months after the hurricane, everything was done. It sold quickly, and for a fair price.
Flood Insurance and Related Claims: Not Fully Optimized
I did not fully optimize this insurance claim.
When I was getting reimbursed for things, like hauling off the shed, I could have fought to get the money for an equal building. Why? Because insurance is meant to pay for what you lost, not for what you paid for post-loss. This is why if you are rear-ended you can put the check in the bank and leave the bumper damage unfixed. It was also why the flood paid me for the loss of hardwood floors, but did not make a fuss when I replaced it with Pergo.
To give an example of how far you can take this, after Hurricane Sandy in 2012 a good friend of mine told his insurer that he wanted to be compensated for the very same wood in his home. The problem? That wood was no longer a stock item. It used to be, but now it’s custom. They offered an equal-quality wood, but he wanted the same thing, which would require having it milled and delivered.
“Okay,” said the adjuster, “but we’ll check to make sure you actually bought that wood.”
“You can,” he replied, “but I won’t. You’re supposed to replace what I lost, and what I lost is a custom wood.”
I personally have no idea if he was just very convincing or 100% correct, but his experience proves his point.
16 months passed when I finally sold the house. I felt that I had been treated fairly, but only because I had flood insurance, which paid out immediately, and because I knew to keep asking for reimbursements, for which I provided photos and invoices.