Legally Speaking Archive

The law of unintended consequences is manifest again. Information impresarios looking to invent a marketable new product developed a database that compiles information about homeowner insurance claims by street address. Sellers of homeowners’ insurance promptly signed up in droves to pay for the Internet-based information, and are using the new intelligence to decide whether to sell insurance to a homeowner, and how much to charge.

The development of the CLUE property damage claim database and the growing desire by insurers to refill coffers drained by mounting water damage and mold claims have put homeowners in a vise between escalating premiums and outright denials of insurance. CLUE, one of the largest providers of such information, is the acronym for Comprehensive Loss Underwriting Exchange, a product of Georgia-based Choice Point Inc.

The CLUE database and escalating insurance premiums have emerged at the same time rocketing housing prices in California have prompted many homeowners to sell and trade up. But when they do, they may learn their new home is nearly uninsurable, or if a policy can be obtained it is much more costly. Outright refusal to write a policy on a newly purchased home may occur because the insurer has scrutinized the residence’s record on the CLUE database. A history of water damage claims or other types of insurance payouts that insurers deem likely to repeat, can draw a “no thanks” from a prospective insurer.

The recent obstacles consumers have encountered in obtaining homeowners’ insurance mirror similar hurdles customers faced with the development of other types of personal information databases used by various industries to price their products. Health and life insurance providers consult databases to double-check patient medical histories and increase the price or deny coverage to customers with pre-existing conditions, unless such practices are barred by law. Similarly, financial services companies stockpile credit histories on millions of Americans and these computer repositories often hold the key to whether a borrower can obtain credit at favorable rates.

As with the reforms that were imposed on the medical history and credit reporting industries, the CLUE database has attracted government scrutiny, in California at least. State Insurance Commissioner John Garamendi is formulating orders and legislation aimed at forcing insurance data compilers to make their information more readily available to consumers, and to allow consumers to correct inaccurate records that wrongly interfere with their ability to obtain insurance.

Although CLUE allows consumers to buy copies of claim histories on properties they own for $12.95, it will not provide information to a nonowner. That means a person considering the purchase of a home has no ready access to its claims history. This is so even though the claims history is a likely indicator of how difficult it will be to insure the property, and a possible source of construction defect information the seller may not have disclosed on real estate transfer disclosure statements required by state law.

Garamendi has proposed tearing down this obstacle to valuable information by making CLUE information available to prospective home buyers. If Garamendi’s plans are implemented, the hardship wrought by the CLUE database will have a silver lining: home buyers will be able to double-check disclosures made by a seller, in the same way life insurers confirm an applicant’s medical history prior to issuing a policy.

In the meantime, if you are considering buying a home, ask the seller to provide a copy of the CLUE report prior to close of escrow, along with other routine disclosures such as the title report. To check your own home’s CLUE record, go to www.choicetrust.com and select “CLUE Property” under “Products.”

Pamela Lawton Wilson is a shareholder at the Downtown law firm of Sullivan, Wertz, McDade & Wallace, where she represents clients in litigation matters, including real estate disputes, ADA defense, political law compliance and civil writs and appeals.