Damage to Real Estate (Land and Buildings)

If you own real property (land and structures) that has been damaged by another person or by a force of nature, chances are that you won't turn first to small claims court to cover your loss. That's because virtually all landowners have property insurance, primarily because most owners have a mortgage or a loan secured by the land. Mortgagors and lenders will not finance a purchase of real property or make a loan secured by land unless the borrower obtains and maintains sufficient property insurance. Even those owners whose land is unencumbered by mortgages or loans have property insurance–it's the obvious, smart way to protect their investment.

Property insurance comes in three basic types: basic coverage, covering just a few perils, or causes; broad coverage, which covers more perils, and all-risk coverage, which covers all perils except specified ones. All three types exclude damage from nuclear hazards, earthquakes, and floods, though you can sometimes buy separate policies to cover some excluded perils. All property insurance comes with a deductible–the higher your deductible, the lower your premium. And all policies include a policy limit–the most that the insurance company will pay for a loss.

Even though you have property insurance that will cover the damage your property has suffered, you may still have small claims court in your future. Here's how that can happen: Suppose your commercial building is damaged when your neighbor's sewer line ruptures, sending water down the hill and into your first floor. Most property policies will cover in this situation–they won't consider this a flood, which is, in insurance lingo, the result of a "sudden inundation" of water from the sky. Let's say your property insurance covers the $10,000 worth of damage to the walls, floors, and basement, but you've had cover $1,500 worth of the damage, because that's your deductible.

Your insurance company has the right to go after the neighbor to recoup the money it's paid you. With a large claim, they'll do just that–and happily for you, they will also demand the deductible that you had to cover. If they collect, they will write a check to you, reimbursing you for the deductible you were stuck with.

But not all claims are worth pursuing. Naturally, the smaller the claim, the less inclined the insurance company will be to spend the time and money to go after the responsible party. Suppose the damage in this example amounted to only $2,500. Your company would be out-of-pocket (they'd pay you) only $1,000 ($2,500 minus your $1,500 deductible). It may not be worth their time to pursue your neighbor over such a small sum. You, however, would like that $1,500, so you can apply it to repairs. And this is where small claims court comes in.

To recover from your neighbor, you'd have to convince the judge that the neighbor acted carelessly, or negligently, when it came to maintaining his sewer pipes. Did he know that they were already leaking (great news for you)? Did he know that they were ancient and at risk of breaking at any time (again, information in your favor). Or were they new, or almost-new, and failed because they were installed improperly–in other words, there was no reason for the neighbor to suspect they'd break? The more you can show that your neighbor knew, or should have known, that this was an accident waiting to happen, the more likely it would be that you'd prevail.

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