Managing the Risks of a Household Move

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.

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.

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 following are seven types of risk that the Sandersons face in their move.

1. 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.
2. Loss, damage, theft, and flood/groundwater damage, etc., to the $300,000 of personal property while being stored.
3. Loss, damage, or theft to $100,000 of personal property that will be used in the apartment.
4. The moving company's contractual limit of $.60 a pound, with a breakage exclusion and water damage exclusion.
5. $400,000 loss or damage to the property in the moving truck while being moved from the two locations to the new home.
6. 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.
7. 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 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.