Coverage A vs. Coverage B: Understanding the Difference

A message that we constantly try to communicate to homeowners is the importance of reading the insurance policy and to ask questions if there is any term or provision that is unclear. While most of us who work in the insurance field are familiar with what a homeowners policy contains and the significance of coverages and exclusions, it is always good to reinforce our knowledge and understanding of the basics. That said, I want to spend a moment to talk about Coverage A and Coverage B.

In general, Coverage A covers damage to the dwelling or house. Coverage B covers damage to other structures such as a detached garage, work sheds, etc. I recently came across a California appellate case, decided this past September, that discussed in some depth the difference between Coverage A and Coverage B. In Adamo v. Fire Insurance Exchange,1 a dispute arose between the property owner and insurance company following a wildfire as to whether a damaged water tank and other structures not attached to the residence would be covered under Coverage A if coverage under Coverage B for "other structures" was fully exhausted. The property owner argued that even though Coverage B expressly covered "other structures" "separated from the dwelling by clear space," nothing in the policy precluded additional coverage for the same property under Coverage A. The insurance company contended coverage for something like a water tank fell under Coverage B and not Coverage A, and furthermore, since Coverage B limits had already been exhausted to cover damage to some woodsheds and a culvert system, there was nothing left to pay under the policy. The trial court ruled in favor of the insurance company and the property owner appealed.

Well, how did the appellate court decide this one? The court agreed with the insurance company holding that the water tank and other property were neither "attached" to the dwelling nor "building equipment" for Coverage A to apply and that no additional coverage was available under Coverage B. The court also rejected the insured's contention that both Coverage A and Coverage B should apply to the same loss suffered as to the same property. In reaching its decision, the court emphasized the following:

[T]he plain language and physical relationship between Coverage A and Coverage B dictate that the coverages are mutually exclusive, not compounded. Coverage B for "other structures" immediately follows Coverage A for the "dwelling." In addition, "other structures" are defined in relationship to the dwelling. They must be "separated from the dwelling by clear space" to qualify. Property is covered under either Coverage A or B, not both. Structures covered under Coverage B are structures "other" than, and distinct from, those covered under Coverage A.

So, if damage falls under Coverage B, then it cannot fall under Coverage A, and vice versa. As simple as this may sound, the issue was nonetheless litigated and followed by an appeal. There is a lot to an insurance policy and things aren't always cut and dry.

1 Adamo v. Fire Insurance Exchange (2013) 219 Cal. App. 4th 1286.

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Comments (3) Read through and enter the discussion with the form at the end
shirley heflin - November 6, 2013 2:29 PM

Dear Attorney Kan:

Hello! I had to re-read (and "re-smirk") the last paragraph of your blog, to wit:

".... As simple as this may sound, the issue was nonetheless litigated and followed by an appeal. There is a lot to an insurance policy and things aren't always cut and dry..."

I smirked for several reasons, but one was because the simpler something sounds in the insurance world, the more complicated it actually is! Also, regarding the last sentence of your article, "...There is a lot to an insurance policy...", that's an understatement!

I think it's safe to assume that most people do NOT read their insurance policy before buying it. Likewise, these same people (usually) don't find out what their policy does and does not cover until they endure a loss and submit a POL. Frankly, even if a policy says a particular loss is covered, that's no guarantee that the carrier will, indeed, afford coverage..

(Tampa, FL)

Mirta Fernandez - April 24, 2015 11:34 PM

I have a question. I refinanced my home in 2012 and in that occasion the bank forced me to buy an additional insurance covering dwelling, among other things. I already had insurance coverage through my Condominium association. My question is, is it legal that situation, do I have to keep that second insurance? What might happens if I cancel it?

Bob Ellenberg - July 25, 2015 2:42 PM

Under the provisions of how a loss is paid, can the insurer treat Cov A payment method different that Cov B?
A fire caused a total loss. For Cov A, the insurer and insured differed greatly on the amount of the loss with the insurer estimating it was below policy limits and the insured contractor estimating it was more than policy limits. For Cov B, both estimated an amount less than coverage limits. When the insured rebuilt, they spent less than the Cov A amount on reconstruction (partially because the insurer would not agree). The policy provisions on how a loss is paid stated this:
"a. The limit of liability under this policy that applies to the building;
b. The "replacement cost" of that part of the building damaged with material of like kind and quality and for like use; or
c. The necessary amount actually spent to repair or replace the damaged building."
a. is the limits of coverage. b. is the theoretical amount to put back what you had. c. is what you actually spend but it does NOT have to be the same plan, materials, etc.
Is what you spend for both coverage A and B separated under the policy provisions on how a loss is paid, or can they be combined since the policy is not clear on this point?

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