I have been in the insurance bus for 20+yrs, primarily serving the mfg and construction sectors. I recently listened to Dave’s story about one of his parks getting hit by a tornado. Besides the compassion I felt for Dave and his community losing everything, I was surprised to hear his insurance policy was completely inadequate in helping him with the event. Of course, being my profession, I started to think about the issues that caused the shortfall.
Dave’s policy fell short in the lost rental income section of his property policy. What most purchasers don’t realize is there are numerous extra endorsements sitting on an insurance company’s shelf to address unique coverage needs when recognized. His policy could have provided coverage at a reasonable cost if it was properly endorsed. Since property insurance policies are typically written on standardized industry forms, virtually every insurance property policy written in the country will fall short when considering a catastrophe in a TOH MHP. The policy must be specifically endorsed to correct the shortfall.
Each region of our country has its own unique issues where natural catastrophes are concerned:
• The NW deals with mud slides due to its often-saturated soils combined with significant soil slopes.
• The west coast is generally a massive earthquake waiting to happen and the whole inland west coast is highly prone to wildfires.
• The central part of our country has tornadoes and hail.
• The East Coast has hurricanes and flooding
• The South has flooding, wildfire and hurricanes.
• The North has collapse issues related to snow and hailstorms.
The point being every region in the country is prone to a community wide catastrophic event. Unfortunately, flood and earthquake require specialty policies in addition to a basic property policy and mudslide requires a different policy from either flood or earthquake. Again, the focus here is a catastrophic event where the park and community is significantly damaged and the community infrastructure will take months to recover.
Regardless, whether coverage comes from a specialty policy or a basic property policy the primary concern should be lost income. In my experience this is usually where the greatest need is regardless of industry and is a commonly overlooked coverage item by insurance agents. When a regional catastrophe occurs, there are always loans and grants available to replace the structures, but seldom is anything available to address the lost income to endure the event. In Dave’s story he said he lost half his park; I believe 60 lots. So, using $300/lot/mo that could mean $216,000 of lost revenue for the year. This presumes it will take 12 months to get replacement homes purchased and sold to new tenants. If the whole park was lost, that would be $432,000 of lost income. That is some serious pain that some owners may not be able to survive.
Once one understands how the lost income section of a property policy works, then it makes more sense why Dave didn’t have coverage on his policy. You see, a property policy assumes that the insured owns the property causing the lost income. So, when owned property is damaged, the property damage then triggers coverage from the lost income portion of the policy. the policy will reimburse you for lost income while the productive use of the structure is unavailable. Generally speaking, the reimbursement will continue until the property is restored plus another 30 days or so.
So, why are TOH MHP’s unique? Who owns the damaged property? Exactly, the tenants!
Therefore, the park property policy must be endorsed to trigger lost income coverage in the event a tenant’s home is damaged. Without this endorsement, the lost income section will never be triggered. In addition, the policy needs be be endorsed to extend reimbursement for an additional 6 to 18 months after the property is restored instead of the standard 30 days. This will give the park owner time to replace the lost tenant who is permanently displaced.
How do you get the policy endorsed correctly? You ask for lost rental income and extra expense coverage associated with your dependent properties. I highlighted the word rental on purpose because the lost income section differentiates between lost production revenue (manufacturing or services) and and lost rental income. By default the policy assumes production revenue is what is being lost, so you also must specifically ask for rental income.
The additional cost for lost rental income coverage on dependent properties will likely be about 1/4- 1/2% of your gross income. If you also need to buy specialty policies, those may add another 1/4 - 1/2%. I will leave it to you if that coverage is worth the cost.
Your agent may not be aware of the unique nuances of this coverage section, because TOH MHP’s don’t fit into normal or typical when considering coverage exposures. So, your agent may have to do some investigation, but it can be done. Also, note this is a very high level discussion of how coverage is triggered in a property policy. The actual details of how your policy coverage is triggered should be explained by your agent.
