Just a few weeks ago, Consumerist reader Ben went to close on his new home, complete with documentation from State Farm saying he had a homeowner’s insurance policy for the property. Then the other day, he gets a call from the insurer telling him, sorry, he’s not actually covered because his previous apartment had been robbed a couple years earlier while he had a State Farm renter’s policy.

“In 2010 and 2011, I had a $25,000 rental insurance policy through State Farm,” he explains to Consumerist. “In January of 2011, my apartment was burglarized, and roughly $3,000 worth of my property was stolen. State Farm was very helpful from the beginning and helped me through this difficult time. However, after the claim was completed, I was told that they would be dropping me, due to my claim. Apparently using 12% of my policy deemed me a high risk. Not happy about it, but I get it.”

But little did he know that this incident would have any influence on a homeowner’s policy more than a year later.

And Ben says no one at State Farm so much as mentioned there would be an issue when he was shopping around for homeowner’s insurance. But their policy was by far the lowest price, so he went with them, and had everything set at closing.

Then, while he’s still settling in to his new place, naively thinking his insurance was taken care of, Ben got some bad news.

“I just received a call today letting me know that my coverage was declined because I’m not eligible for coverage from State Farm for three years because of my break-in,” he writes. “After 30 days, I no longer have home insurance.”

We advised Ben that he should immediately find another insurance company, lest the bank finds out and force-places him into a policy that costs significantly more money but offers minimum coverage.

Meanwhile, we tried talking to State Farm to figure out what happened.

Citing privacy policies, a company rep could not discuss specifics of Ben’s case, but issued the following statement:

Generally speaking, and you’ll find this is true across the industry, it’s not unusual for a policyholder not have their coverage renewed if they experience a significant claim within the first year of coverage. This is a decision that is not made lightly and several factors would contribute to the decision—not just the single claim event.

As for the characterization that there is a 3 year “ban” of coverage, I would disagree with that description. We always examine each coverage and underwriting decision on an individual basis, and make the decisions based on the merit of that individual case. And again, many underwriting factors are going to be considered when making that decision. Obviously, we’re in the business of providing insurance, so we are always looking to make coverage happen and provide an excellent experience to our customers, but we have to balance that against the responsibility we have to all our policyholders to make business decisions so we can continue to provide that coverage.

We regret the inconvenience and hope he’ll be successful finding coverage with another carrier.

When we pointed out that this statement doesn’t explain why State Farm would tell someone they have the green light for a policy, only to pull the rug out from under them a few weeks later — and after they’ve closed on the house, we received the following reply:

Once again, speaking generally, when a customer approaches us (or any insurer), an agent will “bind” the application for the policy. That application is always pending an official review and approval by Underwriting. Occasionally that application is declined. This particular circumstance is regrettable for the inconvenience it has caused, but we were truly trying to find a way to provide the coverage.

This is another case of an industry using the excuse of “everyone does it that way” to avoid facing the fact that maybe everyone shouldn’t be doing it that way. It would only have required a quick search through their own files to realize that Ben was ultimately going to be denied coverage.

If this small step were added to the process, rather than the State Farm agent merely assuming all would be okay, Ben would not be scrambling and the insurance company would not look inept. Had he been told up front that he could not be covered, he would simply have moved on to another insurer. Instead, time has been wasted by everyone involved and we don’t imagine Ben will be recommending State Farm to folks any time in the near future.

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