Contract Q&A – Insurance Disclosure (CLUE Report)

There are several disclosures called for in the standard Arizona Residential Resale Purchase Contract (and it’s safe to assume in virtually every other state as well). It’s important for both buyers and sellers (agents too..) to understand all of the required disclosures, how and what to properly disclose, and the time lines spelled out in the contract. Because we frequently get questions on disclosures, we decided to start a little series on the blog to discuss each one. Welcome to Part 1 – Insurance Claims History Disclosure.

All disclosures are important. We’re starting with the Insurance Claims History Disclosure first, only because it came up in discussions with a client today. And if they didn’t understand it, there’s a good chance someone else out there doesn’t understand it either.

Here’s the pertinent portion of the actual contract: (click image for larger version)

Some key things to note:

The required insurance claims disclosure is often referred to as a [tag]CLUE Report[/tag] (Comprehensive Loss Underwriting Exchange). In a nutshell, the report is a history of any insurance claims made on the home. Lenders like to see it, and buyers like to see it, and insurers will almost certainly require it. Claim history is one indicator of home condition, and there is a strong correlation between previous claims and probability of future claims. Here is a good FAQ on what a CLUE report is.

The contract says the “Seller shall deliver a written five-year insurance claims history…” Thats a short sentence packed full of important words. It doesn’t say the seller “should” or “can”, it says the seller “shall“. That means Mr. Seller has no choice. Failure to deliver the history can result in a sellers breech of contract. It says the history must be written, and cover the past five years (or length of ownership if less than five years). A “history” means a complete history. The seller can not pick and chose which claims to include or exclude. The seller has to provide a full claims history.

The history is due five days after contract acceptance. That isn’t five business days, that’s five calendar days. Insurance companies can be slow sometimes. Mr. Seller can not drag his feet in getting the claims history.

The claim history can come from either the sellers insurance company, or from third party agencies that produce these reports. (see ChoiceTrust for one on-line source. $19.95 for a complete report that’s readily accepted in Arizona, and I suspect anywhere else.)

There is a provision in the [tag]contract[/tag] language allowing the seller to provide the information, if it’s not available from another source. But trust me, you don’t want to go down that road. Call your insurance company (most provide statements free of charge, or at minimal cost). Or cut loose with the 20 bucks to get one from ChoiceTrust. Don’t do it too early though as the buyer is going to want to see a current report.

Finally, the buyer has at least five days after receipt of the report to disapprove any items. It is possible for a buyer to get out of the contract during the inspection period for items they disapprove of in the CLUE report.

I’ve seen sellers get a little miffed when something minor shows up on a CLUE report. Personally, I don’t know of any deal that’s fallen apart because of a ‘bad” CLUE report. The [tag]Sellers Property Disclosure Statement[/tag] (SPDS) should, if properly completed, eliminate any surprises from a CLUE report. We’ll discuss the SPDS in part 2 of this little series. The CLUE report just helps back up the accuracy of the seller completed SPDS. It’s nothing to worry about, it’s quick and easy to get. The important thing is to not forget it, and that’s just one of the many things your agent should be helping you with.