Damage to Real Estate (Land and Buildings)

Learn whether you should file an insurance claim or sue for real estate property damage.

By , Attorney

Fixing damage to your house or another type of real estate can be costly. Fortunately, you might not have to pay for it if insurance is available to cover the damage. If filing a claim isn't possible, and someone other than yourself is at fault, you can use small claims court to recover the cost of repairs. In this article, you'll learn more about the options available if you've incurred real estate damage.

Insurance Coverage for Real Estate Damage

Virtually all landowners have property insurance, primarily because most owners have a mortgage or a loan secured by the property itself. To guarantee the debt, the lender takes a lien against the property. The lien allows the lender to foreclose on the real estate if the borrower falls behind on the payment (or breaches some other contract term), sell the property at auction, and apply the sales proceeds to the mortgage.

The lender won't finance a real property purchase or make a loan secured by land unless the borrower obtains and maintains sufficient property insurance because the lender wants the property to remain in good condition. Even those owners whose land is unencumbered by mortgages or loans have property insurance typically–it's the obvious and smart way to protect the investment.

Coverage Types

Property insurance comes in three basic types:

  • basic coverage, covering just a few perils or causes
  • broad coverage, which includes more risks, and
  • all-risk coverage, which provides for all hazards except specified exclusions.

All three policy types exclude damage from nuclear hazards, earthquakes, and floods, though you can sometimes buy separate policies to protect against such events.

The purchaser also decides the insurance policy limit—the most that the insurance company will pay for a loss—and the deductible. The higher the policy limit, and the lower your deductible, the higher the premium payment (the cost of the policy).

When Will Insurance Cover the Repairs?

If the damage is due to an act of nature, such as a storm or fire, your policy might pay, depending on your policy coverage. If someone else caused the property damage—suppose, for instance, that your neighbor's rotting tree fell on your house—you can file a claim against the responsible party's insurance policy or sue the party at fault directly.

Even if property insurance covers the damage your property, you might still have small claims court in your future. Here's how it 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 provide coverage 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're responsible for $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 to you, and, if your neighbor carries property insurance, it's likely the insurance company would do so. If they collected, the insurance company would write a check to you reimbursing you for the deductible amount of $1,500.

Recovering Real Estate Damages in Small Claims

Sometimes the person at fault doesn't carry insurance or have much in the way of assets. In that case, it's less likely that the insurance company would spend the time and money to go after the responsible party—especially for a small dollar amount.

If you, however, wanted to be reimbursed for your deductible, you could sue for it in small claims court. You could also use small claims court to get a money judgment for any repairs that weren't covered by insurance, as long as the amount didn't exceed your state's small claims court dollar limit.

The first step most people take is writing a demand letter asking for reimbursement. If you aren't able to settle the case informally, you might be able to reach an agreement by mediating the case with a neutral third party. If your settlement efforts fail, you can have a judge decide the matter by filing either a negligent or intentional property damage claim, depending on whether the damage occurred accidentally or intentionally.

You can learn about what you'll need to prove in small claims court by reading Property Damage Cases in Small Claims Court or use Everybody's Guide to Small Claims Court by attorney Cara O'Neill for more detailed self-help guidance.