Your house
Credit: Morguefile photo by kconnors

My husband and I made the grave mistake of filing a homeowner's claim. It was a very expensive lesson. Potentially, it could have even cost us our house.

We suffered a leak in our second-floor bathroom, because a metal part that drains water, located under our bathroom floor, had eroded. Our policy covered water damage, so we notified our carrier.

Within days, an adjuster came to inspect the damage. It was right before Christmas, and I had been working many hours. More focused on work, and on the holiday season, the house wasn't as clean as it probably should have been when he arrived.

But it wasn't a total wreck either. There were some papers around, and probably a few dishes in the sink.

We also need a new kitchen floor, as a couple spots of linoleum are ripped. Our house has a relatively new roof. Several years ago, the old one sprang a leak and we fixed it. But it left a circular stain on our second-floor bathroom, which the adjuster noted.

Otherwise, though, our house is attractive and it's located in a nice residential development. We try to stay on top of repairs, but, since only one of us works full time, we need to budget for them.

An Ominous Letter Arrives

Shortly after the adjuster's visit, we received written notification our claim was approved. However, in a separate letter, we were also informed that our insurance would be cancelled right after Christmas. It was surprising, as we're not habitual claim filers. (This type of behavior will often get you dropped.) But the adjuster cited problems with the "condition of our house."

He had pinpointed the ripped linoleum and the second-floor water stain. The fact that we now had a new roof, ensuring this wouldn't happen again, didn't make a difference.

I put this notice in the back of my mind until after Christmas. We were having a lot of relatives over for the holiday. Plus, I was very busy with work.

However, I had a sinking feeling we were in trouble.

Our Coverage Ended

I had hoped we could quickly enroll with another carrier, as I never really liked the one we had. However, I soon realized that wasn't possible.

That's because we had been dropped. If our carrier had simply decided not to renew, then our relationship would have simply ended. Now, we were seen as "high risk."

Because the insurance industry has gained so much power, many states have created their own public insurance plans.

Mistakenly thinking this was also a good time to change insurance agents, I called another agent, about a week before our policy would end. She assured me she knew of a company that would take us, and said not to worry.

However, shortly before our insurance would run out, I called her again. She said no one had gotten back to her yet, and she didn't want to keep bothering them. "But don't worry," she insisted.

Then, only hours left before our policy would expire, she informed me no one would take us, not even the state. She insisted only option now was an "offshore" firm that charged outrageous rates.

Protect your home
Credit: Morguefile photo by kconnors

Then the Bottom Falls Out

With the clock ticking loudly, I drove to my former agent to see what he could do. He said he'd work on it.

Surprisingly, because the other agent tried to convince us the state plan wouldn't work, our former agent assured us we'd be accepted without any trouble. These plans are set up as safety nets for consumers such as us, who get caught up in insurance nightmares.

With one phone call, we now had new insurance.

It was very important that we obtained coverage, primarily to protect us in the event of a catastrophic loss. In addition, when we were dropped, a letter was also sent to our mortgage holder. This could have triggered a cascade of unfortunate events, in which our mortgage could have gone into default.

Consumers Must Proceed Carefully

As I've discovered, it pays to have an ethical insurance agent, especially in today's climate. If you are looking for an agent, it can't hurt to obtain a word-of-mouth referral. Until this happened, I had greatly underestimated the important role of an insurance agent.

Current legislation, unfortunately, puts the needs of insurance companies ahead of consumers. As it turns out, homeowners around the country are being dropped, sometimes for minor issues.

Part of this is due to natural disasters, such as Hurricane Katrina, which hit the United States in 2005. After paying a record number of claims, carriers are now doing all they can to reduce expenses.

Consequently, some industry insiders warn against filing small claims, or even calling your carrier with questions about your coverage. (Every call will be duly noted.)

In our case, we did get reimbursed for our kitchen ceiling. But it cost us dearly, because we'll be paying much higher premiums for years to come.

The adjuster from the state told us we definitely shouldn't have been dropped. But he also told us the same thing is happening to many other people.