Insurance for historic homes

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People purchase historic homes for a number of reasons — the style, the story, the nostalgia.

Historic homes can be great investments, but they can also be troublesome if you need to collect on an insurance claim.

One of the biggest issues when filing claims for historic homes is getting the insurance company to recognize the actual reconstruction costs of replicating what was lost, says Darin Checchia, regional vice president and senior professional loss consultant at Utica-based Adjusters International/Basloe, Levin & Cuccaro.

The fact that unique materials — such as ornate moldings, wide plank floors and rough cut lumber — are not readily available in today’s construction-supply market makes repairing these homes especially challenging.

“Typically the craftsmanship, detail and type of materials that are used in historic properties are very rare, so to try to put that into dollars and cents and make sure that you’re capturing the proper costs is extremely difficult. This is especially true in today’s world where insurance companies are using software-based programs for estimating insurance claims. It’s a huge, huge challenge to take modern-day software and spell out financially what it would cost to reproduce the characteristics of these historic properties,” says Checchia.

Taking care of a legacy

Millions of American homes that were built prior to 1950 are still being lived in, according to Amy Lawson, president of the Society for Historic American Homes, which is comprised of owners of pre-1945 houses.

“Our research puts the number at approximately 8 million but it’s hard to pin down because what’s historic really varies by interpretation. However, ‘old’ houses are quite numerous,” says Lawson.

According to Christie Alderman, vice president at Chubb Personal Insurance, “People who purchase historic homes often view themselves as the caretakers of a legacy and take great effort to maintain their property and protect it, which is appealing to us from an underwriting perspective. We therefore insure historic homes throughout the world — ancient castles across Europe, 1700s Colonials in the Northeast, 1800s ‘Shotgun’ and ‘Dogtrot’ style homes in the South, 1920s Bungalows in the West, architecturally significant homes by famous architects and everything in between.”

Having a house on a historic registry can prove helpful if there’s a claim, even though there can be potential for conflicts between historic association requirements to maintain certain authentic characteristics and insurance company assessments of repairs.

Checchia has seen cases in which historical societies issued grants to aid homeowners in restoring a house. Then, after unexpected damage, the society had a financial interest in the property and how the insurance proceeds were used for restoration.

“In these cases, the registries operated in the same manner as a bank would if they had a mortgage on that property. They have a financial interest in that property that allows them to govern how you spend that funds because they gave you grant money. On both of these occasions, they basically managed the money to make sure that the property was being restored to its original condition in order to meet the requirements needed to keep them on the registry,” says Checchia.

But a historical association cannot force an insurance company to make repairs that fall outside of the owner’s coverage.

“If the association doesn’t have that financial relationship with the homeowner, then they’ll come in and check to see if you’re meeting the requirements to stay on the registry, but they can’t supersede the relationship between the policyholder and the insurance company unless they have an insurable interest. Obviously, if there was significant damage and you decided to walk away from the property, the association also can’t force you to put the money back into the property,” says Checchia. “But they may choose to remove your home from the registry as a result of your not making needed repairs.”

Extra coverage for historic houses

Chip Merlin, president of Tampa-based Merlin Law Group, notes that homes in historic districts that receive tax breaks as a result of being deeded as “historic” need special code coverage and guaranteed replacement cost coverage.

“Before insuring these homes, I would advise homeowners to think carefully about what it will cost to repair the property and get it back to the condition required under their districts’ guidelines. Experts such as insurance brokers, attorneys and contractors experienced with historic preservation can assist with this process. If they do not obtain proper coverage, then they may be liable for those repair costs that aren’t covered and that can be quite expensive,” says Merlin.

Guaranteed replacement cost coverage is a policy add-on that provides extra insurance if your policy limits aren’t enough to repair damage. This type of coverage guarantees to pay for all repairs no matter how much they cost. But guaranteed replacement cost coverage is increasingly difficult to find and may require some shopping around. If you can’t find it, ask about extended replacement cost coverage, which adds a certain extra layer of coverage on top of your policy limit.

Then there’s the cost of meeting local building codes. Code coverage pays for the cost of repairs that may be required in order to meet the local area’s current code laws.

“If you have an older home, then you always worry how the exterior looks, but what are some of the things that are going to be intrinsic to having an historic property? Are you going to need to comply with a new energy code when you’re rebuilding? You’ll likely need to address issues such as electrical, plumbing, insulation or electrical code. Usually when you’re dealing with an older property, code coverage ends up being a very big piece of the puzzle,” says Checchia.

Lawson agrees that finding the right home insurance policy before disaster strikes is the best move that owners of historic homes can take to protect their properties.

“How do you replace something that’s irreplaceable?” asks Lawson. “That boils down to finding a policy that allows the homeowner to ‘replace’ damaged materials with historically accurate moldings, etc., or allows salvage to be used that has been recovered from similar houses. By acquiring the proper insurance in the first place, you’re saving yourselves major headaches down the line,” says Lawson.