Check Your Policy: A Marine Family's $14K Bill for Base Housing Damage

Like many busy families, Marine Corps Maj. Richard Salchow and his wife, Colleen, are masters of multitasking, especially when it comes to chores -- toss in a load of laundry while watching TV, or before heading out to San Diego's Balboa Park for a day of fun.

The family, who until recently lived at Camp Pendleton, California, did just that on Jan. 18: Colleen threw in laundry before leaving her base house, not thinking her washing machine was on the fritz. Sure, there was that one-off leak earlier in the month, but the couple were pretty sure it was just a glitch from overstuffing the machine.

Still, when the family returned home that afternoon, they found their first floor completely flooded. The water had seeped beneath the linoleum, causing it to buckle and swell, and the baseboards and drywall were bloated.

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Their property manager, Lincoln Military Housing, immediately placed the family in temporary quarters while repairs were made and advised them to file a liability claim under their renters' insurance.

Richard Salchow felt confident he was covered, with a $100,000 policy for liability under his renters insurance through USAA.

But what Salchow didn't know -- and would find out only after he received a bill for $14,377.40 -- was that many insurers, including his, cover the cost of damages incurred by a renter to other people's property, i.e., the homes they are living in, only under certain conditions.

The flooding was not one of those circumstances.

And while USAA specifically noted in the Salchows' policy that it pays for "damage to government housing" as long as he was an "officer ... on active duty," their home at Camp Pendleton -- public-private venture housing, which now makes up 99% of the U.S. military's housing stock -- didn't count.

"The home you rent from Lincoln Military Housing is not considered to be Government housing," a USAA representative told the Salchows, according to a transcript of a phone call provided to Military.com.

Lincoln Military Housing, which holds insurance on all its properties, also had no plans to pay for the damage and intended to recoup the total amount from the Salchows regardless of the housing company's insurance deductible -- a process known as subrogation.

The practice can leave military families liable for any damages to their home caused by their own fault or negligence, regardless of cost -- from a few hundred dollars to $150,000 or more.

"I kept wondering -- did I fail to select an additional rider to cover damages to property owned by others? The response I got from USAA was no -- they don't offer an additional rider nor do the major insurance providers," Salchow said.

The Salchows moved out of their Camp Pendleton home on May 28 and were offered a payment plan to cover the damages -- 25% down, or roughly $3,500, with 30 days to pay the full amount.

They handed Lincoln Military Housing a money order for the down payment and agreed to pay $1,800 a month until the balance was paid off.

On June 24, however, after a Task & Purpose article on the Salchows generated outrage on social media among military families -- many of whom are USAA members -- the company agreed to pay the bill.

On July 13, USAA told Military.com it has changed its policy to ensure that its customers who carry liability coverage through their renters' insurance are covered in privatized military housing.

"USAA has made a decision to provide coverage for accidental damage to privatized housing when our members are responsible," USAA spokeswoman Rebekah Nelson said. "We regularly review our policies and coverages to ensure we are providing industry-leading experiences. We remain committed to providing outstanding coverage to our members and helping them select the proper type and amount of insurance to protect their property."

Meanwhile, military families whose rental insurance comes from other companies remain vulnerable, according to Jean Coffman, co-founder of Military Safe Housing Initiative, a nonprofit group that assists military families dealing with disputes over their on-base housing.

“These families don’t realize that they may be responsible or liable for damages,” Coffman said.

Meanwhile, Lincoln Military Housing will pay nothing out of pocket, even as it holds insurance expressly for the purpose of covering the cost of damages to the more than 6,000 properties it owns.

What happened to the Salchows isn't uncommon, said Coffman.

While the group doesn't have data on the number of these types of disputed insurance claims filed by tenants of privately owned base housing, Coffman said she has seen the real estate companies press tenants to pay "over and over and over again."

The landlords often threaten to send tenants to collections if they don't.

"They may not even have the chance to question the responsibility or the liability because they get billed as they are checking out -- right while they are [moving] and they are in a desperate situation to get to their next place, so they just pay or try to use their insurance," Coffman said.

The Salchows had USAA renters' insurance for years, paying the premium along with the $3,411 per month in rent they gave Lincoln Military Housing. But they would need to pay nearly the entire bill for the water damage on their own -- less $1,000 that USAA sent them for incidental damages.

"Thankfully, we can afford to pay this, but 'insert sergeant or corporal living in base housing' who is relatively new to the Marine Corps, and trying to get them to pay, say, $50,000 in damages is completely unreasonable," Salchow said.

In June, days after the Salchows agreed to a payment plan with Lincoln Military Housing and filed a complaint with the base housing office, the Camp Pendleton public affairs office published an article urging residents to make sure they have comprehensive renters' insurance.

"Not having a comprehensive renters insurance plan that protects against both liability and personal property loss is risky and can cause a family avoidable financial hardship and debt," wrote Lance Cpl. Kerstin Roberts.

Until 2015, the Defense Department paid for renters' insurance as part of Basic Allowance for Housing, but as part of a Pentagon cost-cutting measure, the agency shunted the requirement to purchase such insurance onto military personnel.

Lincoln Military Housing currently provides tenant insurance for personal property; another housing company, Corvias, is considering doing the same, according to Coffman.

But, Lincoln Military Housing spokeswoman Ashley Gorski Poole said, that insurance "was never intended to be a substitute for proper renter's insurance policy, including liability coverage."

Most military housing has been managed by private companies since the late 1990s, when the Defense Department launched a Military Housing Privatization Initiative, engaging in contracts with corporations to restore or build homes and privately manage them under 50-year agreements. In return, the companies receive residents' Basic Allowance for Housing or -- in the cases of civilians residing on base -- rent.

In the past three years, the agreements have come under tremendous scrutiny by members of Congress after a scandal erupted over poor living conditions, ranging from lead-based paint and faulty wiring to mold and vermin infestation in military housing communities nationwide.

Complaints from military families following a Reuters report detailing the disrepair and hazardous conditions in privately managed on-base housing prompted promises from the companies and pledges from military officials and lawmakers to fix the problems.

But military personnel, their dependents and the federal government also have faced issues over insurance and insurance claims within the public-private venture arrangement.

Earlier this year, following a series of natural disasters on military installations, including hurricanes that caused billions of dollars worth of damages to Tyndall Air Force Base, Florida, and Camp Lejeune, North Carolina, and floods at Offutt Air Force Base, Nebraska, the Government Accountability Office found that the military departments and the Defense Department have not been sufficiently monitoring privatized housing's property insurance coverage.

In the case of several disasters, the GAO found that the insurance held by the private developers would "not provide all funding needed to restore and rebuild the housing units."

In March, another Marine Corps family received a $32,000 bill from their private housing providers in Hawaii, Hunt Military Communities, for fire and subsequent water damage to their Kaneohe Bay home.

In that case, the insurer, also USAA, concluded that the fire was not the family's fault. Company representatives told Master Sgt. John Rudd in mid-February they planned to file a claim against the company that made a battery that was the source of the fire and would deny any claims filed against Rudd by the housing office.

The Rudds assumed Hunt would do the same -- seek reimbursement from its own insurer or the battery maker -- but instead, the family received the $32,000 bill on Feb. 22, payable on receipt.

Only after military family advocate -- and Rudd's sister-in-law -- Jessica Rudd contacted congressional staff members on the issue was the bill dropped.

Heather Hall, deputy director of the Safe Military Housing Initiative, said she also has seen an uptick in housing management offices holding the tenant responsible for damages that occurred as the result of poor management or shoddy workmanship. That includes bills for damages to vinyl flooring that tears underfoot or while installing appliances, to fiberglass tubs that lacked proper foundations, or for fires that resulted from inexpensive stoves with cheap wiring.

"I think we are going to see more and more insurance companies deciding not to offer renters insurance for those residing on post if this behavior continues," Hall said.

Spokeswoman Gorski Poole said Lincoln Military Housing encourages tenants to obtain renters' insurance in addition to the personal property insurance it plans to provide through 2021.

"We understand that unforeseen circumstances can occur," Gorski Poole said. "That is why LMH and our military partners have always encouraged service members to maintain additional renter's insurance coverage to protect their belongings and prevent financial hardship."

But the Salchows thought they had made every effort to be covered in any emergency.

"As far as we can tell, there is literally no type of insurance we could have gotten that would have covered the structural damage to a property that we did not own," Colleen Salchow said in a post on Facebook.

Her husband said he'd like to see the military housing offices do more to help resolve problems such as theirs and "prevent more families from getting stuck with damage bills of this magnitude."

"I'll never live on base again," Salchow said.

-- Patricia Kime can be reached at Patricia.Kime@Monster.com. Follow her on Twitter @patriciakime.

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