Property Insurance Coverage Law Blog : Florida Insurance Lawyer & Attorney : Merlin Law Group Law Firm : Tampa, Houston, Coral Gables, Gulfport

Fountain Powerboat v. Reliance Ins. Co., 119 F. Supp. 2d 552 (E.D. N.C. 2000), is illustrative of the value of this type of coverage. Fountain manufactured, distributed and sold boats and boating equipment out of a facility in Washington, N.C. In 1999 Hurricane Floyd dumped record-setting rain fall over the eastern part of North Carolina. After the storm passed, the only roads leading to the Fountain facility were closed for seven days. For three days Fountain used large trucks to pick up workers from various “pick-up points” and transport them to the facility. As a result of displacement caused by the floods, production at the Fountain facility fell to 33 percent of full capacity.

Reliance paid nearly $1,000,000 for certain claims but partially denied the claim for ingress/egress coverage asserting that without property damage, the insured could not recover under this provision and that there was no actual impairment to access since Fountain was able to drive its workers over the flooded and eroded roads for three days.

Fountain filed suit seeking appraisal, but Reliance refused and asked the court to interpret the following provision:

Loss of Ingress or Egress: This policy covers loss sustained during the period of time when, as a direct result of a peril not excluded, ingress to or egress from real and personal property not excluded hereunder, is thereby prevented.

The court held as follows:

The plain meaning of this language indicates an agreement between the parties that the contract for insurance cover any business interruption caused by loss by any peril not excluded. A “loss” is not predicated on physical damage but is one category of recovery along with damage and destruction as indicated by the use of the alternative coordinating conjunction “or.” Flooding due to Hurricane Floyd is exactly the type of peril this business interruption loss was drafted to insure against.

Furthermore, Reliance was aware of the location of the Fountain facility and was aware that the facility had a limited access. The court can only conclude that the parties intended that the policy would provide coverage not only when the property itself was inaccessible, but also when the only route to the Facility caused the property to be inaccessible. The court's conclusion that no physical loss is required to trigger business interruption coverage is further bolstered by the parties' inclusion of the following provision:

5. Interruption by Civil or Military Authority: This policy is extended to cover the loss sustained during the period of time when, as a direct result of a peril not excluded, access to real or personal property is prohibited by order of civil or military authority.

This provision immediately precedes the loss of ingress/egress provision. Neither provision requires physical loss, but merely covers loss sustained due to lack of access to the property. Therefore, the court finds that no requirement for physical loss to the property is required under the contract of insurance in order to trigger business interruption coverage under the ingress/egress clause.

Interestingly, the court found that the length of time for which loss of ingress/egress may be claimed is the length of time to restore Fountain's business to the condition that would have existed had no loss of ingress/egress occurred. The court also found that the insured’s efforts to pick up its employees and drive them to work were extraordinary (since they were driving over flooded and closed roads) and that the ingress/egress provision related only to reasonable access to the property.

Not all ingress/egress provisions are as expansive as the one interpreted in Fountain Powerboat, as most forms will limit the period of recovery to a few weeks. It is highly recommended that any business located in an isolated or hard to access area consider reviewing the ingress/egress provision of its policy to ensure that adequate coverage is provided.

An inexpensive property insurance policy that does not cover claims as thought or bought prior to loss becomes is a very expensive insurance policy...We must remember that cost of risk includes uninsured loss whether subject to deductible, exclusion, inadequate limit or improperly placed coverage.

There is more to property insurance than simply the major categories of building, contents and business interruption. What about all the various sublimits and nuances within the grants of coverage? A 2010 New Year?s resolution for risk management professionals is to make time to understand what makes up the complete property insurance policy... The sum of all property loss exposures must be understood in order to create a sound property insurance policy that is loss effective as well as cost effective.

Many of the problems uncovered during an insurance policy review are not from complex issues but simply from the risk management professional from not spending enough time to understand and arrange the basics of coverage.

Austin's article is worthy of reflection by anybody involved in commercial insurance coverage issues. He provides a checklist of items he feels are important and should be studied for 2010. One of the reasons that I endorse the use of the IRMI.com, is its extensive use of checklists for coverage. Any professional involved in selling or advising about property insurance cannot reasonably do their job without a heavy reliance on such checklists. Otherwise, too many coverage issues will simply be missed and uncovered losses or gaps in coverage will occur.

Policyholders should find a trusted insurance professional who has the experience and understanding of how to properly insure risks unique to them. I often remind my clients that "cheap" insurance may be a lot more expensive when a claim occurs and coverage is excluded or benefits limited. When it comes to insurance coverage, as it is often in life, you generally get what you pay for. As Austin warns, with insurance coverage:

The devil is in not knowing the details. Coverage needs to mirror exposure whenever possible. All property risk management details must be understood prior to policy inception: peril, exposure to loss, values exposed and minimum coverage limit. Numbers used in any insurance policy to express a coverage limit, including sublimit, must be analyzed to ensure adequate coverage at time of loss.

Under those same set of facts, if our wannabe Emeril Lagasse fails to properly mitigate those same fire damages, coverage could be reduced or even avoided all together by the insurer.

The general rule in insurance law is that a policyholder’s prior actions will not necessarily void coverage for a loss, even if that loss is directly caused by the negligence of the individual. After the loss, however, failing to take the appropriate measures to mitigate could lead to an increase in the amount of damages and may substantially reduce coverage or even eliminate it in some instances.

In a fire loss, for instance, the insured should make sure to remove any undamaged property if there is a question about the stability of the walls in that particular area. This was the exact situation that one court addressed in Suttir v. Indemnity Co. of America, St. Louis, Mo,. 226 Ill.App. 214, (1st dist. 1922). In this case, the Court refused to hold an insurer liable for damage to a car that occurred when the walls around it collapsed as a result of previous fire damage. The Court reasoned that the insured knew the walls of the building might collapse and had failed to properly mitigate the damages by moving the automobile to a different location. Therefore, the insurer should not be responsible for the further damages.

The exact consequences of a failure to mitigate are determined by the terms of the policy as well as the particular jurisdiction. Normally, the damages that result from the failure to mitigate the loss may not be covered, leaving the insurer responsible for only the original damages. A Louisiana court followed this partial recovery theory when a policyholder’s roof was damaged by wind and the house suffered periodic water damages over a long period of time. Higginbotham v. New Hampshire Indem. Co., 498 So.2d 1149 (La.App. 3 Cir.1986).

In Higginbotham, the Court held that although the insurer was responsible for the cost of replacing the roof, the policyholders were liable for damages sustained after the storm “where measures could have been taken to reasonably protect the premises from further deterioration.”

A similar decision was reached in Texas, when one court was asked to determine whether the duty to mitigate damages was a condition precedent to recovery, meaning that coverage was void if the appropriate steps were not taken. Fortunately for the policyholder, the Court found that “the failure to mitigate damages is an offset to recovery under the generic homeowners policy, and the district court erred and abused its discretion when it instructed the jury that mitigation was a condition precedent to recovery.” Carrizales v. State Farm Lloyds, 518 F.3d 343 (5th Cir. 2008).

There are cases in which a failure to mitigate may void coverage completely. Some courts have found that where the cooperation clause requires an insured to exercise all reasonable means to protect, safeguard, and salvage property, there is a possibility that the policyholder could void coverage altogether if this is not done. See Slay Warehousing Co., Inc. v. Reliance Ins. Co., 471 F. 2d 1364 (8th Cir. 1973).

Regardless of whether coverage is lessened or outright forfeited, these cases all have one thing in common – the problem could be avoided. Generally after loss, the first thing on an insured’s mind is not “how can I mitigate these damages, and have I done enough to comply with my obligations under the policy.” In fact, most insureds do not even know what the cooperation clause is, and who can blame them? How many people spend their lives immersed in insurance case law and treatises?

This is why it is important for homeowners to have professionals working for them as quickly as possible after the loss. Whether it is a public adjuster, attorney, or water remediation specialist, having someone there to guide you and make sure things are done properly can be priceless in the end.

The story delves right into the insurance coverage problem:

Joey Roche never set out to be a leading voice in educating homeowners on protecting their investment.

But in the more than two years since 15,000 gallons of raw sewage spewed into his newly purchased house in Oregon City, he's ended up instructing more than a few people on how to steer clear of his own fate.

"Looking back, I, of all people, should have known better," Roche said. "I'm a licensed general contractor. So I figure if this could happen to me, it could happen to anyone."

He's far from alone in assuming that the insurance policy he bought to protect his vintage 1940 house in the city's historic Canemah neighborhood would cover any contingency.

In fact, it covered almost nothing. And even the $10,000 he collected from State Farm Insurance to pay to clean up the muck came through a previous purchase of a separate endorsement -- an addition to his policy -- that if not for his contractor's background he might never have thought to ask about.
...

But whether it's a freak sewage backup, flooding, landslide or earthquake, a majority of homeowners probably assume the insurance policy they've taken out to cover such contingencies will pay off in time of need, Roche and others say.

Often, that's simply not the case.

"I get calls every single day from people who are outraged to find out that they simply aren't covered for things they thought they were," said Ron Fredrickson, who manages the Oregon Insurance Division's consumer advocacy unit. "In the end, unfortunately, there's usually not much I can do for them."

I think that State Farm agents must get some of the best "how to be likeable" training in the insurance business. I say this because as I pointed out in Is the State Farm Policy Really Worth Anything? the policy they sell does not really offer broad coverage and after all those commercials suggesting that State Farm will be there for you after the disaster, it simply is not true. Joey Roche had State Farm coverage. He got paid a fraction of his loss, but he loves his agent who sold him the coverage.

"Roche praised his State Farm agent for making good on everything the policy provided.

"Unfortunately and to our ultimate chagrin," he added, "it just didn't cover very much."

To be Fair And Balanced, standard homeowners forms, like most property forms in current use, exclude all loss "caused directly or indirectly by any of the following . . . water which backs up through sewers or drains or which overflows from a sump." Newer homeowners forms expand the exclusion to include "water-borne material which backs up through sewers and drains." It also adds "which overflows or is discharged." And, "a sump pump or related equipment" now accompanies a sump. The bottom line: most insurance companies only cover this occurrence under endorsements that offer little extra coverage.

In Rodin v. State Farm Fire & Casualty Co., 844 S.W.2d 537 (Mo. App. 1993) the insureds argued that damage done to their dwelling was caused by sewage, not by water. Tree roots in the outside sewer system caused sewage to back up into the homes of the Rodins and their neighbors. Rodin described the eight inches of effluent that entered his basement as an odorous, viscous, black liquid with solid matter floating in it. He added that the liquid definitely was not water. However, the court stated that the plaintiffs’ argument that the policy excluded only water damage overlooked the totality of the exclusion. The Court noted that the loss that would not have occurred in the absence of the water backing up through sewers or drains, regardless of other causes acting "concurrently . . . with the excluded event to produce the loss." Therefore, whether the loss was caused by water or pollutants contained in the sewage acting concurrently with water, it was excluded under State Farm's policy.

What a stinking mess and unexpected uninsured event from the policyholder's standpoint.

The reality is that an earthquake can strike anywhere in the world with potentially devastating effects. Injury and damage in poverty stricken areas like Haiti, with a poor infrastructure, of course will be much greater than in an area where buildings are sturdier and compliant to earth movement safety standards.

But disaster can strike anywhere and at anytime. Despite this reality, only 13-15 percent of California residents carry earthquake insurance on their homes—and it is well known that much of California is prime territory for destruction by earth movement.

Have you reviewed the earth movement insurance that your clients carry recently?

It even offers a white paper regarding the coverage and issues, "After a Quake: Insurance Coverage in Earthquake Disasters." My suggestion is that policyholders discuss the alternative methods for obtaining the coverage with their agents and brokers. Also, consider obtaining a Difference in Conditions form which picks up otherwise excluded coverages. 

An article by Christopher Boggs, "Insurance Checklists and Client Letters are Important," proves my point and shows how insurance agents should go about their business making certain that the insurance their customers purchase does not have gaps or gaffs in coverage. Boggs noted:

Errors and omissions carriers and consultants highly recommend the use of insurance checklists to aid agents in smoking out the insured's true exposures and as proof that certain information was sought. Some agencies take the use of checklists so seriously that they do not pay the producer, or lower his pay, if the requisite checklists are not in the file - signed by the client.

Without using checklists, insurance agents and brokers will make mistakes obtaining the right and full coverage needed. Unlike other products, most customers looking for insurance have only a vague idea about how the insurance product works, how endorsements and other insurance are needed to obtain "full coverage," and how it should be purchased in a package that is economical. I cannot tell you how many people, even MBA educated business owners, have looked me square in the face and told me that they saw ads about flood insurance not being covered and then called their agent to ask if their property insurance covered the peril of a hurricane. Like ships passing in the night, there was discussion, but not sharing of knowledge. Insurance policies are complicated and customers should learn about the product from their agents and not buy on price. As often is the case, you get what you pay for. Less expensive insurance often means it is cheaper, not better nor just as good. 

For an example of how complicated the considerations of insurance can be, here is the checklist that Boggs recommends using just on the aspect of property valuation:

What are the chances an insurance customer would appreciate how important each of these questions and points are to property insurance? I suggest close to zero. Yet, insurance agents are trained to deal with these questions and issues as part of their job. My advice is to work closely with an insurance agent and let them help you raise all these issues so the insurance is right, not just cheap.

The Complaint alleged in part:

1.  The State of Minnesota, by its Attorney General, Make Hatch, brings this consumer protection lawsuit for declaratory and injunctive relief, restitution, civil penalties, costs and reasonable attorney fees. Defendant American Family Mutual Insurance Company, in advertising and selling its homeowners insurance policies to Minnesota consumers, represents that it will provide full insurance coverage to consumers in the event that their homes are damaged by accidental perils, including windstorm and hail. Contrary to such representations and the reasonable expectations of consumers, defendant has repeatedly failed to provide full replacement coverage to insured consumers whose homes are damaged by storms. Instead defendant reimburses such consumers only for work necessary to replace the portion of the consumer's home (for example, one wall of siding) that defendant maintains was directly damaged. Defendant;s practice forces many consumers to choose between having a home with mismatched siding of roofing or reaching into their own pockets to pay for the matched siding or roofing that was on their homes before the storm damages occurred.

The Order set out the relevant policy language:

5.  American Family's homeowners' policies provide for full replacement costs, without deduction for depreciation, and insure the policyholder's dwelling for all loss or damage unless the loss is excluded in the policy. Under the "Replacement Cost" section of American Family's policies, American Family undertakes the following obligation:

[W]e will pay the full cost to repair or replace the damaged building without deducting for depreciation, but not exceeding the smallest of...ii. the cost to replace the damaged building with like construction for similar use on the same premises; or iii. the amount actually and necessarily spent for repair or replacement of the damaged building.

Our Settlement Option. In the event of a covered loss, we have the option to: a. make a cash settlement for all or part of the damaged, destroyed or stolen property; or b) pay the cost to repair, rebuild or replace all or the necessary part(s) of the damaged, destroyed or stolen property with like property, as of the time of loss, less an allowance for depreciation when replacement cost coverage doesn't apply.

The Court then set out the facts which are virtually the same as in all matching cases:

7.  After the storm damage occurred in 1998, in many instances, materials of like kind and quality necessary to repair damages to the siding or roofing existing on consumers' homes were no longer manufactured or were otherwise unavailable; consequently, materials reasonably matching those on consumers' homes were not available. As a result, consumers have had to incur substantial out-of-pocket costs in order to obtain matching materials or live in mismatched homes.

The Court also noted that the insurer never gave the consumer the impression, in any other advertising or dealings with the consumer, that a matching structure would not be paid for:

9.  Nothing in American Family's policies limits the insurer's obligation, excludes coverage or otherwise supports American Family's practice of limiting payment under replacement value provisions of its policies to sums necessary to replace only the portion of the policyholder's dwelling that is directly damaged by a covered peril, including a hail or wind storm, where replacement materials that reasonably match (i.e., that are, under the policies' language, "of like construction for similar use" to) the existing materials on the dwelling are no longer manufactured or are otherwise not available.

10.  In advertising and selling its homeowners' insurance policies, American Family has not affirmatively disclosed or informed consumers of the material fact that Defendant, as a matter of practice, limits the amount it pays for storm damages to the cost of replacing only those portions of the consumer's home that American Family maintains are directly damaged even if its failure to do so would result in a mismatch.

11. Defendant does not disclose or inform consumers, prior to their purchase of homeowners' insurance policies from Defendant or at any time prior to the consumer's filing of a claim, that Defendant limits the amount that it pays for storm damages to the cost of replacing only those portions of the consumer's home that Defendant maintains are directly damaged, even if repairs result in a mismatch.

12.  As a matter of practice and policy, American Family routinely settles claims under its automobile insurance policies and Minnesota law with parts of "like kind and quality" that match or are painted to match the undamaged parts of the vehicle. At oral argument, American Family explained this discrepancy in its interpretation of "like kind and quality" between its homeowners and automobile insurance as one strictly of cost.

The Court's ruling is significant and should provide some guidance to others with these situations:

2.  In construing and interpreting the text of an insurance policy, the Court must consider the interaction of the policy clauses, the insured causes of loss and any limitations or exclusions on the insurer's liability for the consequences of an otherwise insured event. Witcher Construction Company v. St. Paul Fire & Insurance Co., 550 NW2d 1 (Minn. App. 1996), rev. denied (Minn. 1966). Pursuant to American Family's policies, hail damage to a dwelling is a covered loss with the amount of monetary loss subject to the limitations as set out in the replacement value provisions and the exclusions contained within the different policies.

3.  A court is not to read an ambiguity into the plain language of a policy to ensure coverage. Farkas v. Hartford Acc. & Indem., 173 NW2d 21, 24 (Minn.). Instead, the Court must give the terms in a policy their plain, ordinary and popular meaning, Columbia Heights Motors v. Allstate Insurance, 275 NW 2d 32, 34 (Minn. 1979) and construe the policy terms in conformance with applicable statutes. When policy language is ambiguous or confusing, it is public policy in Minnesota to extend coverage, rather than restrict it. Hennen v. St. Paul Mercury Insurance, 312 Minn. 131, 136, 250 NW2d 840, 844 (1977). The language in the Defendant's policy regarding replacement value for the repair of covered damages is not ambiguous and not subject to more than one interpretation. Estes v. State Farm & Casualty Co., 358 NW2d 123, 124 (Minn. App. 1984); Columbia Heights Motors v. Allstate Insurance, 275 NW2d 32 (Minn. 1979). In this case, any confusion as to the amount of a covered loss has resulted from Defendant's argument that their obligations under their policy provisions are met by only paying for new materials to replace the damaged areas of the home, without regard as to whether the new materials match in color, quality, texture or material the original siding or roofing on the home "at the time of the loss." At oral argument, Defendant conceded that pursuant to the same statutory language of "like kind and quality", Defendant repairs damaged automobiles with matching parts, both physically and "cosmetically." Defendant points out that the difference in their interpretation of their obligations under these two subdivisions of Minn. Stat. 72A.201 is based on the greater cost to Defendant to achieve a "matching" result on a damaged home. Compare Minn. Stat. 72A.201, Subd. 6 (2) and 72A.201 Subd. 5 (8).

4.  Generally, given the discrepancy in the bargaining positions of the insured and insurer, when the meaning of insurance policy language is in dispute, the matter is to be resolved in favor of the insured. State Farm Insurance v. Seefeld, 481 NW2d 62 (Minn. 1992). Here, Defendant was in a position to add an exclusion or limitation in its replacement coverage under its homeowners' policies for what should be the common and easily anticipated event that matching housing materials would no longer be available for repairs over the entire useful life of a dwelling. Defendant's policies contain no such exclusion or limitation. Further, the greater cost to Defendant to achieve a matching result on a home versus an automobile is not justification to interpret identical language in Minn. Stat. 72A.201 differently.

I came across this ruling in the FC&S Bulletins, where it was mentioned briefly. I thank our Knowledge Manager, Attorney Ruck DeMinico, for tracking down the state docket and obtaining the decision after having it copied from the Court archives. My understanding is that Lexis will now make it available as a published opinion. It is a significant decision, and I encourage other Departments of Insurance to take note of the need to prevent this practice by insurers-- it happens frequently.

Click here to read the entire Complaint.

Click here to read the entire Order.

The sources for my information are former Nationwide Executive General Adjuster Scott Eich and Commercial Large Loss Adjuster Dennis James, as well as interviews with various Nationwide policyholders, adjusters and public adjusters. Eich told me of a story concerning the underpayment and ignorance by Nationwide adjusters and claims management concerning this form of coverage to a fast food franchise.

Apparently, nobody in the claims department at Nationwide taught its adjusters how to inform Nationwide policyholders about this very valuable coverage. Nationwide claims executives intentionally fail to teach their catastrophe and claims adjusters about how this obscure policy provision works.

Scott Eich should know. He was a Subject Matter Expert for Nationwide and helped develop commercial training at Nationwide Insurance Company until he left Nationwide in 2006.
In reflection, he said virtually every business owner that has lost income following a catastrophe should have a dependent property claim investigated because it probably is covered---regardless if the Nationwide customer suffered any physical damage at all.

The point I want to make is that as an obligation of good faith, an insurer must train its claims adjusters about the benefits of the policy so adjusters can intelligently investigate for those damages and inform the policyholder of the benefits. How fair would it be for an insurer to intentionally not train its adjusters so benefits are never paid, and allow otherwise recoverable benefits to go uncollected? This is the effective result of feigned ignorance at Nationwide because no claims personnel understood how the policy worked regarding this coverage. I am certain the underwriters knew and agents should know as well.

During a mediation with Nationwide yesterday, I kept thinking how many millions (if not billions) of dependent business income coverage benefits have gone unclaimed from Hurricanes and other natural catastrophes over the past decade. I would not be surprised if some major class action law firms do not read this post and try to rectify this situation soon. Maybe Nationwide will contact their customers to correct this underpayment situation and make restitution to business policyholders in catastrophe areas.

Most commercial insurance companies write "dependent" or "contingent" business income coverage as additional coverage under an endorsement. Nationwide has it in the primary business policy, and it is not subject to any policy limits other than the loss of income be incurred within twelve months of the other person's damage.

The key to this type of coverage is to remember the Insurance Company pays its policyholder for its loss of income because of damage to other people's, businesses' and governments' real and personal property. Fulcrum consultants indicate this on its website:

Contingent Business Interruption

If your business has key suppliers or customers affected by a disaster, your business could have insurance for this business interruption. This is true even though your own business property may not have sustained physical damage. This frequently occurs because of (i) strategic supplier and customer relationships, (ii) outsourcing agreements, and (iii) just-in-time inventory systems. If included in your policy, contingent business interruption covers losses caused when key suppliers or customers experience a disaster that also affects your business. Contingent insurance occurs when the physically-damaged property is NOT owned, operated or controlled by the insured. The contingent property may be specifically named, or the coverage may blanket all suppliers and customers. The type and cause of physical damage must be the same as insured under the controlling policy. The actual coverage will depend upon your policy language...

The Nationwide policy provides the coverage on a blanket basis. Essentially, hurricane damage to property owned by others who are customers of Nationwide's policyholder which result in loss of income to the policyholder results in a covered claim. The definition of dependent property is very broad under Nationwide's policy. I am certain there are many business owners with Nationwide that have lost money in many catastrophe areas that are ignorant that their policy will help soften that financial blow
 

The case involved an insurance agent who sold insurance to a private school for 16 years before Hurricane Katrina struck in 2005. At issue, was the relatively limited amount of business interruption coverage. The form sold had a limit of $350,000, inclusive of both business income and extra expenses. Apparently, the coverage limit was raised once during the sixteen years from $250,000 to $350,000, based on an explanation by the agent of what the coverage provided. The agent allegedly told the school's business managers at that time that the coverage protected the school against the risk that it would incur extra expenses while it was fixing physical damage.

Following Hurricane Katrina, the school was closed for several months. The school lost significant income as a result of lost tuition. The school sued the agent for error and omissions of failing to advise school personnel that business income/extra expense coverage included tuition loss. Allegedly, the requested limits would have been much higher had the full explanation of coverage benefits been provided.

The matter went to a trial court which found that the insurance agent breached the standard of reasonable care by failing to fully inform the school of the full nature of the coverage and the need to select higher limits in consideration of the school's one source of revenue--tuition. The damages were found to be $3,166,606.

That is not the end of the story or lesson of this case, however. As is often the situation in agent negligence cases, there is usually the issue of comparative negligence. I once tried a case before a jury where both the agent and my client said the agent failed to purchase theft coverage under a commercial policy. While some may wonder why a trial was necessary when the agent admits such a failure, most states place a duty on the policyholder to read the policy. In that case, my client had the policy for two years. Had he read the policy, he would have learned of the mistake. Thus, the jury had to consider the issue of my client’s failure to read the policy in comparison to the agent's blunder.

Similarly, in the Louisiana case, the school's business managers could have done a number of things to obtain the full understanding of coverage--including simply reading the policy. The court found the school 70% comparatively negligent, and reduced the total award by that percentage.

The lessons from the case are clear for agents and policyholders:

1. Policyholder Must Communicate Needs;
2. Agents Should Communicate Coverages Available--Usually Followed up With Written Information so Policyholders Do Not Get the Wrong Impression;
3. Agents Should Investigate Needs of Clients--Use Checklists Which are Copied for Verification to Policyholders.

Insurance agents perform a vital function in the insurance marketplace and especially with businesses. I am not a fan of internet marketing and placement of insurance because agents can provide much better and detailed explanations of various coverages needed by different businesses.

For instance, our law firm carries an extraordinary amount of coverage for valuable papers and data restoration, which might not be important to a butcher shop. Yet, a butcher shop may need a utility services endorsement, spoilage coverage, and equipment breakdown coverage to properly protect its large investment in refrigerated meat. Insurance agents are trained to investigate those needs and make policyholders aware of those coverages which prevent economic calamity.

My advice is for policyholders to listen to insurance agents about the products that are available. Agents need to spend more time with clients and establish a relationship where insurance is looked upon as a necessary hedge against unthinkable consequences.

My suggestions and impressions are supported by the editors of the FC&S Bulletins. The following is what they noted regarding the need to need for agents to implore their clients to schedule valuable property:

Homeowners forms commonly limit amounts paid for loss to certain classes of property. For example, the 1991 Insurance Services Office (ISO) form HO 00 03 limits are: money, coins, gold and silver, $200; securities, $1,500; watercraft, $1,500; trailers, $1,500; theft of jewelry and furs, $1,500; theft of guns, $2,500; theft of silverware, $2,500; business property on the residence premises, $2,500; business property off the residence premises, $500; and certain electronic devices, $1,500.
…
When discussing homeowners insurance with a client, the agent should make sure that the client understands there is often a need to increase the coverage for these classes of property, either by endorsement to the homeowners policy or by separate insurance…

Other areas to be explored for possible coverage needs include the client’s outside interests and hobbies. Photography, sports, collecting antiques or memorabilia may call for additional insurance. Emphasize to the client that although these particular items are not limited by dollar amount in the basic policy, there may not be enough insurance to cover all of them plus the other unscheduled personal property in the home in case of a large or total loss. Think, for example, of a $50,000 grand piano. If the insured has a $200,000 home, with 50% (or $100,000) for personal property, in event of a total loss that leaves, after replacing the piano, only $50,000 to replace an entire household’s contents.

Also, many of these items—because of their portable nature and use in many places—are subject to losses not covered by the homeowners forms. A strong selling point for the agent is the “open perils” coverage provided by scheduling. For example, the insured may carry an expensive camera on a trip. While photographing the Grand Canyon, she drops it over the edge of the canyon and breaks it. There is no named peril that provides coverage. Also, neither the ISO schedule HO 04 61 10 00 nor the AAIS schedule ML-61 exclude loss by flood or earthquake, as do the underlying homeowners policies.

I discussed this last year in Insuring Valuables And Collectibles and stated:

Most standard homeowners policies do not pay loss of market value for these items and have significant dollar limitations on recovery. Most collector's insurance policies pay the reduction and loss of market value when a loss occurs. Further, the deductibles are generally less and, unlike most homeowner policies, the perils of flood, earthquake, accidental breakage, and expanded water loss are generally covered.

If you do not want to be underinsured and you are fortunate enough to have items of financial value, do yourself a favor and buy collector's coverage. The peace of mind that comes when insuring these items cannot be overstated.

I once had a client who lost a valuable collection. He told me that the money he received from his collector's insurance policy allowed him to go back and enjoy the process of accumulating items for his collection. His passion for what he truly enjoyed was restored. As is often the case in life, wanting and obtaining is often far more pleasurable than the having.

In Some Thoughts and a Story Regarding Insurance Fraud I also provided some advice regarding how to make certain valuables are adequately covered:

Collectors should always get an independent appraisal and expertization before purchasing from a dealer or at auction. Some dealers and auctioneers advertise and promote items which are not authentic, damaged or altered. Dealers often make expert repairs which are difficult to detect and make the item appear pristine. Such alterations subtract significantly from value. Items sold on eBay are notorious for this.

So always follow this rule:

When buying something of value, get the expertization from a true expert not affiliated with the dealer or seller.

The additional jewelry coverage for perils on an open basis is quite significant. It is not just that the values are limited under the standard forms. The risks are limited. FC&S had this remark regarding this issue:

Sublimits on certain classes of expensive personal property in the homeowners exist because the policy is written and priced for the “average” exposure. Anyone who has items in excess of the limits in the policy is deemed to present a risk greater than the “average.” Because of the susceptibility to theft and “mysterious disappearance,” the premium to insure jewelry in particular can be substantial, which may give some insureds second thoughts about scheduling. However, there are definite benefits in scheduling the property. First, as stated above, scheduling provides open perils coverage.

Coverage for personal property on the homeowners is on a named perils basis, so a woman whose toddler throws her diamond engagement ring down the garbage disposal would find no coverage under her homeowners policy. The only excluded causes of loss that apply to scheduled jewelry are wear and tear, gradual deterioration or inherent vice, insects or vermin, war, or nuclear hazard. Gold, for example, will wear away after a time (as when a gold ring is worn for a long period of time), but for the most the coverage is broad enough to allow for virtually all that may befall jewelry. By scheduling, jewelry is even covered for loss resulting from flood or earthquake.

Scheduling jewelry also provides some coverage for newly acquired jewelry if jewelry is already insured—the lesser of 25% of the amount of insurance for that class, or $10,000. The insured must advise the company within 30 days of any acquisitions, and pay any additional premium from the date of acquisition. This coverage does not extend past the policy period.

The lesson is quite clear:

Policyholders should schedule jewelry and other collectables on a separate coverage form that fully protects those expensive, and sometimes priceless, articles. Insurance agents and brokers should inquire about the need and place this coverage as a matter of practice.

Another comment also finished with a question for me:

If the argument is that aesthetics is part of the function of the item then it would be just as true for composition shingle roofs as for the copper roof panel example. The base color of shingles is always the same, black asphalt, the color comes from the granules; therefore granule loss is equal to color loss.

If color loss is equal to aesthetic loss then granule loss and the resulting color loss is a loss of function.

Or, am I reading this all wrong?

First, I applaud everybody that sends in a comment or asks a question. I encourage it. Sometimes, I respond privately and nothing gets posted. Still, it is important that comments to what we post are made so we can reflect and have dialogue.

Second, I want to encourage everybody to use the “SEARCH” function of our Blog. You will find it very useful to all kinds of coverage or insurance questions. Let me show you an example from the two questions above.

“Matching” is the topic of both questions. If I were to put the word “match” into our search function, the following 10 Posts would be the result:

1. Matching Coverage Disputes and Disagreements are Routine and Not Going Away--Don't Miss Our September 11 Seminar in Houston Which Covers This Topic
2. Provide the Right Proof so Your Insurer Will Pay Costs to Repair or Replace to Match Texture, Color and Likeness
3. Matching of Property Damage is Statutory in Florida
4. Causation Issues to Note in Texas Property Insurance Coverage Disputes-Part II
5. The Proposed Federal Charter Legislation Should be Named: "The Anti-Consumer Insurance Act of 2009"
6. "It's an Ill Wind that Blows No Good"
7. The TWIA Roof Damage Memo: Checking Basic References to Resolve Adjustment Questions
8. "Texas Hold 'Em": Merlin Law Group's Seminar for Texas Public Insurance Adjusters
9. Is The Saffir-Simpson Scale Still Relevant
10. New Insurance Companies Founded in Florida

Of those results, five posts seem to provide most of the answers to the two questions. Indeed, I invite anybody to ask me questions about roofs, matching, and indemnity in Texas after they have read the following posts:

• Matching Coverage Disputes and Disagreements are Routine and Not Going Away--Don't Miss Our September 11 Seminar in Houston Which Covers This Topic,
• Provide the Right Proof so Your Insurer Will Pay Costs to Repair or Replace to Match Texture, Color and Likeness,
• Matching of Property Damage is Statutory in Florida,
• Causation Issues to Note in Texas Property Insurance Coverage Disputes-Part II,
• The TWIA Roof Damage Memo: Checking Basic References to Resolve Adjustment Questions

I want readers to benefit from the work I have already done for them by using the search function and reading what I have previously written, so I don't have to do all the work twice. This seems fair.

I also need to warn to everybody. Unless you are an attorney, you are breaking a number of laws by advocating legal positions of coverage in letters or phone conversations with insurance adjusters or claims managers. You are practicing law. Do not do it. If you get turned into the Bar or the Department of Insurance, you are warned. And, insurance adjusters and insurance companies have an ethical obligation to turn you in if you practice law without a license. BEWARE.

I get questions all day long from people, public adjusters, contractors, and potential clients regarding insurance coverage questions that pertain to actual controversies. I can understand the need to ask me questions and obtain a better understanding of coverage issues. If you attend my seminars or others where I speak, I will teach you how to use what I write without practicing law. Go to our seminars.

If you are an adjuster, independent adjuster, or insurance claims managers, you do not have to put up with public adjusters, and especially contractors, practicing law. I have no patience with unlicensed people practicing law and acting as legal advocates. All professional public adjusters agree. I cannot speak for many of the insurance contractors and insurance restoration contractors because many seem to violate many laws regarding public adjusting and practicing law without regard to anything because nobody does anything about it.

If you are a policyholder trying to do this yourself, I remind you of the old saying that “he who represents himself has a fool for a client.”

And please understand that my advice as to what to advocate applies only when I get retained. If you attempt to do anything as a legal advocate or by giving advice of a legal nature with an insurer, you may be violating the law and harming the public, your client, or yourself. I am providing general legal principals so readers and others do not get harmed by insurance companies and so policyholders can get paid in full.

The problem is that the property insurance policy covers loss caused by physical damage. To receive benefits, you normally have to have “physical damage” to something caused by a peril that is covered under the policy. Virtually all modern forms say something to the effect that the coverage is for “direct physical loss or damage to covered property…..caused by or resulting from a Covered Cause of loss.” If you can show that there has been physical loss or damage caused by an insured peril, the warranty value is a consideration for the amount of the loss. Without actual damage, however, you cannot make a claim for the contractual loss because property insurance policies require physical damage.

The FC&S Bulletin has two question and answers about this issue regarding warranties which are very instructive. The first is on point with the questions posed to me:

Warranty Cancelled—Direct Physical Loss?

Our client has a CP 00 10 04 02 covering their leased telephone system. The system, consisting of several components located throughout the building, was only thirty days old when it suffered water damage from a frozen overhead water pipe.

The lessor insists that any component exposed to water be replaced, whether it suffered obvious damage or not. The lessor will not honor the warranty/service agreement for any components exposed to water but not replaced. Likewise, the lessor will not honor the agreement for components which are repaired, rather than replaced.

The insurer says that they are only obligated to pay for components which suffered obvious damage. They will not replace equipment simply because it was exposed to water. Similarly, they refuse to replace components where repairs cost less than replacement. According to the insurance company, the loss of the warranty/service agreement is not "direct physical loss or damage" and is not covered under the policy.

We don't believe the insured is made whole if they lose the warranty/service agreement on their equipment. Whether the insurance company pays to replace the equipment, or pays the value of the warranty (which would be difficult to determine), it seems clear to us that they must recognize the value of the warranty in the claim settlement.
…

Answer

In your insured's case, there is some question whether the telephone components are damaged. The policy covers "direct damage" to property. If that direct damage can be proved, and if the warranty is lost because the manufacturer will not honor the warranty on repaired equipment, then the value of the warranty can be said to be part of the loss. If there is no direct damage to the components exposed to water but not obviously damaged, then there is no coverage. The argument here seems to be with the lessor, and whether it is acting within its rights in voiding a warranty on exposed, but undamaged property.

The insured is caught between two contracts and interests. His "deal" with the insurance company does not mesh with his deal with the telephone equipment manufacturer. We do not know of any insurer will[ing] to replace property only when it might have been damaged and then forego the insurer's option of making repairs rather than replacing.

The editors of the FC&S Bulletin are right. I will research the issue of direct physical loss for examples and post those at another time.

The second question and answer also demonstrates how warranties can be used to increase claim value when physical loss occurs:

Businessowners — Value of a Warranty Included in Replacement Cost?

My client is insured under a businessowners policy, form BP 00 02 12 99. Her laptop computer was damaged, and the loss was covered by the BOP policy. I think the value of the warranty on the damaged laptop should be included in the settlement, but the insurance company adjuster disagrees.

Should the value of the warranty be included or not?

Answer

The value of a warranty should be included in the replacement cost valuation of a damaged object. Insurance policies are contracts of indemnification. As such, the policyholder should be placed in the same condition after the loss as before the loss. The adjuster may want to pro-rate the value of the warranty, but it should be considered.

As I indicated on Friday, everybody doing this for a living should subscribe to the FC&S Bulletins. It is an excellent general first source for questions about coverage and forms to which I routinely refer for my coverage considerations. In my opinion, the on-line edition is much easier to research than the paper edition, which would take hours looking for the proverbial “needle in the haystack.” Still, I learned a lot of coverage issues and answers I would otherwise miss today by reading for irrelevant coverage discussions when researching through the old paper edition.

If you feel you cannot afford a subscription to FC&S Bulletin, you should at least subscribe to their free e-Alert, a monthly online e-newsletter.

As I have mentioned in previous posts, there are a few insurers that consistently provide the coverage and customer service they promise

The survey also confirms what those of us in the property insurance industry already knew, Allstate is not living up to its advertised promises or its customers’ expectations.

Admittedly, the Consumer Reports article did not discuss whether some customers were partially to blame for their dissatisfaction with their insurers. Even the best insurance is truly beneficial only when the right coverage is purchased. Likewise, even if a consumer does not have access to the top three insurers, by carefully reviewing the policy with an understanding of the relevant terms and exclusions, he or she can buy great coverage. Some previous posts (Spring Storms and Tornadoes in Mississippi Serve as a Reminder: Review and Update Your Policy for Overlooked Benefits; Three Factors Homeowners Must Consider When Updating their insurance for hurricane season) have explained the terms and necessary coverage.

Their final advice cannot be overstated:

Read your policy and any other correspondence. Ask your agent to explain anything you don't understand.

The first two practical steps to using an insurance coverage attorney wisely are the following:

1. A written detailed chronology of everything that has happened from the time the policy was purchased up to the current time with names, addresses, phone numbers, facts and quotes---it cannot be too detailed because every little fact may be used by the experienced and creative insurance coverage counsel.
2. A binder with anything and everything that relates at all to the insurance or the claim---these binders cannot be big enough or have too many documents.

Analyze the situation with your attorney. And then ask the most practical question of your insurance coverage attorney:

What would you do if you were me?

The truth is that I do this every time I represent a client. Some attorneys are not trained that way. I think that is a mistake. To do this job right and act as a fiduciary, I think you have to. Attorneys may make a lot less money by doing so, but this is the only method I know to resolve a client’s problem for his or her maximum benefit.

The selection of your counsel makes a difference on what will happen and what your recovery will be. If you hire a law firm that simply settles cases and operates as a business shop that advertises well and maximizes profits by settling lots of cases en masse, and then advertises how many people they have represented and the amount of money they have obtained to make others feel falsely comfortable, you are probably nothing other than “cattle going to slaughter.” You should stop reading if you are one of those clients with “advertising for profit attorneys,” because this post will not apply to you. I do not dislike advertising, but many of my colleagues know that some in our crowd are simply providing service “en masse,” that does not maximize recoveries and provide justice. The bottom line: choose the best attorney you can trust and not the advertisements from those that are short term profit seekers with little in the practice of law other than making money. This is probably good advice for everything in life.

If you are like most clients where the attorney cares, the issue is what to do on your case. While I think I know because of some “Merlin” powers, the truth is every case and client are different, and this is where you have to listen and generally approve what your attorney says you need to do. And, please make certain you provide your counsel with all the information you know to help make the right strategy.

However, the greater the experience and more knowledgeable the attorney, the more you should let the attorney creatively make things happen for you.

This is very difficult for some in-house general counsel and executives. They are typically “A” personalities and want to control things because what they control usually works. Law is not an exact science, and creativity is extraordinarily important.

So, once you have done these things, I suggest:

Unleash your counsel, but monitor exactly what is happening.

Clients who always think their attorneys are out to “rip them off” will hate this advice as well. And, I cannot help those of you who are so suspicious of people trying to take advantage of you. Go hire the attorneys that advertise more and will give you less. You deserve each other. Each of you can bicker about the other. The rest of us of know because many of those “professionals” really are not at the level of others. Consumers who want a “deal” hate paying for the cost of professional service and love to talk about the great deal they made keeping costs down. This same make–believe attitude surprisingly applies in the corporate world with much more at stake.

Keep it Real

How much experience does your counsel have on your exact problem?

Have you provided your counsel with everything you know in a format that is easy to follow and reference?

Do you trust your counsel? If not, meet or hire new counsel.

Let them do what they do and follow up right away. “The squeaky wheel gets the oil” is a phrase that makes a lot sense. Most great attorneys want to perform. While we are pushed with demands, we love helping and enjoy the client interaction. It is human nature to push and push our staffs to take care of those we hear from more often. And the result is usually better and faster, which is good for both.

A quick search of the FC&S database had the following topic:

Student Away at College—Homeowners Coverage for Personal Property?

See how easy research can be when you invest in specific products that reflect your interests? I get paid nothing from the National Underwriter to promote this product. The bottom line is that if you are in the business of property insurance in any capacity, this product is a must read.

Here is the question and answer:

Several of our clients have sons and daughters attending college away from home. In some cases, they attend college locally, but choose to live at the dorm. We thought they had full coverage for their property under their parents' homeowners policies so long as they maintained their primary residence with their parents.

Now we have been advised that there are several restrictions, one of which is that, if the students are over 21, there is no coverage at all. Could you provide some insight?

Answer

The ISO homeowners forms include limitations for personal property away from the residence premises. First, for personal property "usually located" at an insured's residence other than the "residence premises," there is the limitation of 10 percent of the coverage C amount, or $1,000, whichever is greater.

For many students, the school year's length means that their property is "usually located" at another residence. Although the dorm or apartment is not their permanent residence, it is, nonetheless, a "residence." Webster's Collegiate Dictionary offers this definition of "residence": "...the act or fact of living or regularly staying at or in some place for the discharge of a duty or the enjoyment of a benefit." Therefore, the student's property is covered, but the coverage C limitation applies.

There is another limitation of coverage under the peril of "theft." The policy states that this peril does not include loss caused by theft unless the student who is an "insured" has been at the "residence away from home" at any time during the 45 days immediately before the loss. So, for example, if the student came home for the summer and left personal property in his dorm room, there could be a potential gap in coverage, unless he returned to the dorm room at some time within the 45 days preceding a theft loss.

The only requirement the policy makes regarding age of an insured is that, to be considered an "insured," the person must be a relative residing in the named insured's household, or any other person under the age of 21 in the care of a resident relative or the named insured.

The only problem is that many of the policies sold are not ISO form policies. A number of articles I found on this topic strongly suggested that parents with children away at college call their agents. Indeed, the National Association of Insurance Commissioners repeated this advice:

Check to see if your homeowners policy includes identity theft insurance, and ask your insurance agent if this extends to your student living away from the your primary residence. If not, you might be able to purchase a stand-alone policy from another insurer, bank or credit card company. If your student is renting an apartment, ask if their renter's insurance covers identity theft, or if it could be added to the policy.

I also ran across a related matter involving theft of personal property away from the residence premises. Many people do not realize that most homeowner policies cover personal property anywhere in the world with few imitations. One of the possible limitations came up in another FC&S discussion with the question asked being:

I have an insured with a standard homeowners policy. He has a fishing boat insured on the policy. One day he took the boat to a fish farm (a limited liability company in which he has an interest). While there, some personal property—fishing rods, tackle boxes and the like—was stolen. When I turned the claim in, the adjuster said that the named peril of "theft" for personal property did not apply, since it was stolen from a secondary residence that should have been scheduled on the homeowners policy.

We argued that it was a farm, but the adjuster was adamant in that it should have been scheduled. May we have your thoughts?

The answer by the editors was excellent and on point as usual:

The policy is quite clear in that the theft peril does not apply to personal property stolen at any other residence owned by, occupied by, or rented to an insured. A residence, according to Webster's Collegiate Dictionary, is "the place where one actually lives as distinguished from one's domicile or a place of temporary sojourn," and "the act or fact of dwelling in a place for some time." So, if the insured does not actually reside at any time at the farm it is not a residence, and therefore the loss is covered. The adjuster may be thinking that, if there is a dwelling on the property that makes it a residence, but that is not the case. It must be the insured's residence—that is, where he lives—for the exclusion to apply.

As for scheduling the farm on the homeowners policy, that is an underwriting decision.

College is a unique experience. I am certain that I will not be thinking of the subtle aspects of property insurance coverage when saying my good-bye to Chase. But if some bizarre manner of destruction that frequents the lives of humans under the age of twenty-one mysteriously occurs, I will at least know the property is covered. Whether the all-risk exclusionary scriveners crafted a clause to exclude such an extraordinary event is another story.

The rule and argument suggested in the title has applied at least in the following cases:

1. Zaitchick v. Am. Motorists Ins. Co., 554 F.Supp. 209, 215-16 (DCNY 1982), aff'd., 742 F.2d 1441 (2d Cir. 1983), cert., den., 464 U.S. 851 (1983) (insureds were entitled to recover replacement cost of home destroyed by fire where insurer refused to pay any money to insureds, which made it impossible for them to comply with condition precedent requiring them to first rebuild their home).
2. Ward v. Merricmack Mut. Fire Ins. Co., 753 A.2d 1214, 1218 (N.J.Super. 2000) (evidence created jury question whether property insurer's refusal to tender actual cash value made it impossible for insured to satisfy the precondition of replacing structure in order to recover the replacement cost and whether the condition was excused);
3. McCahill v. Commercial Union Ins. Co., 446 N.W.2d 579, 584 (Mich. Ct. App. 1989) (insurer's failure to advance funds that insured required in order to rebuild home excused insured from having to rebuild in order to recover for replacement costs of home);
4. Northrop v. Allstate Ins. Co., 720 A.2d 879, 883 (Conn. 1998) (insurer's withholding recoverable depreciation determined to be wrongful because it rendered replacement cost coverage illusory);
5. Bailey v. Farmers Union Co-op of Neb., 498 N.W. 2d 598-599 (Neb. Ct. App. 1992) (insured homeowner who lost home to fire entitled to recover replacement cost where insurer failed to ensure that it would reimburse her up to the policy limits);
6. Polack v. Fire Ins. Exch., 423 N.W. 2d 234, 235-38 (Mich. 1988) ("no reason to hold an insurer any less accountable for its actions than other contracting parties" replacement cost was proper measure of damages in case where insurer's refusal to pay prevented insured from rebuilding within 180 day deadline set forth in policy);
7. State Farm Fire & Cas. Ins, Co. v. Miceli, 518 N.E. 2d 357, 362 (III. Ct. App. 1987) (where insurer's denial of vandalism claim precluded insured from making repairs, insured entitled to recover replacement costs at trial);
8. Maine Mut. Fire Ins. Co. v. Watson, 532 A.2d 686, 688-89 (Me. 1987) (insured entitled to recover replacement cost).

Virtually all insurance adjusters are taught to pay the actual cash value of a building or personal property as soon as possible, and then pay replacement values on an ongoing basis for real and personal property as the replacement expense is “incurred.” Some policies now require the replacement to be “paid” or “completed” rather than just “incurred.” But, this is the common practice and most companies have written claims procedures that more specifically follow exactly what I have highlighted. Most insurers, acting in good faith, extend any limitations of the period of replacement, so long as the insurance company is not prejudiced by delay. The typical prejudice caused by delay usually results in price increases, and many insurers will still pay far outside the allowable period of replacement if the price is brought back to present value at the time of the loss rather than an inflated amount. Some just pay, acknowledging that they profited from the float. Some of my colleagues and others upset with the insurance industry may hate that I acknowledge that insurance adjusters and their managers do anything correctly, but most property insurance cases are amicably resolved in this manner.

The problem arises when some carriers make the wrong call on coverage, fail to timely pay, or fail to pay enough to allow the policyholder to replace. When this happens, the aforementioned cases and thorough discovery into the insurer’s typical practices provide the policyholder with a good factual and legal basis for jurists to relieve the policyholder from a harsh result caused by the insurance company’s wrongful decisions or actions.

Last week, the Associated Press apparently obtained a copy of the event cancellation policy issued by Lloyd’s Underwriters. Its story, “Jackson Show Insurance Excluded 'Illicit' Drug Use,” apparently reported that the policy contained exclsionary language regading “illicit drugs” that may be applicable, depending on the medical autopsies:

[I]nsurance on Michael Jackson's London shows has provisions that may deny a multimillion dollar payout if the pop star was found to have illegally possessed drugs or was involved in the "illicit taking of drugs."

The policy, a copy of which was provided to The Associated Press, covers cancellations resulting from death, but its provisions will hinge on the results of an autopsy that has been delayed twice.

Jackson's doctor administered multiple sedatives along with the powerful anesthetic propofol, a potentially lethal combination, hours before the singer died June 25, a law enforcement official who requested anonymity because the death investigation is ongoing told the AP.

It was not immediately clear whether any medications Jackson was taking would negate a payout up to $17.5 million, which would ultimately benefit his estate.

The insurance policy, covering the first 13 shows of the 50-show run, was taken out by Jackson and concert promoter AEG Live in April. Such a policy and its provisions are considered standard for events on the scale of the one for which Jackson was preparing.

A copy of the insurance policy also showed that it had several clauses that would prevent a payout, including if the singer concealed information or acted carelessly to increase the risk of a no-show.”

Another entertainer, Toni Braxton reportedly had to file a lawsuit with over similar issues following cancellation of her shows as reported in the Daily Express:

Braxton, who has microvascular angina - a small vessel disease, claims she bought insurance from Lloyd's of London in the event of "non-appearance" or "cancellation", which protects entertainers in case concerts have to be scrapped, reports TMZ.com.

[Insurance representatives] are refusing to pay up for the skipped shows, alleging Braxton never mentioned her pre-existing health issue when she signed with them - therefore deeming the insurance cover void.

One of the trends in insurance claims is that some insurance carriers are a lot more willing to litigate potential defenses regardless of the wealth or size of the policyholder. Two decasdes ago, corporate clients and those of public reputation infrequently needed to resolve insurance matters in courtrooms. That is no longer the case. With $17.5 million at issue, I would not be surprised if the underwriters were considering application defenses as well.

We’ll keep you posted on the developments of this case.

Brian Kingman, managing director for Gallagher Entertainment, a division of Arthur J. Gallagher & Co., said coverage for Mr. Jackson’s shows may not have been too difficult to secure, as the market is fairly soft for nonappearance contingency risks.

Mr. Kingman has previously served as a broker for Mr. Jackson as well as for Madonna on one of her tours.

In the case of Mr. Jackson’s tour, Mr. Kingman said he believes the risk was placed in London, and depending on how the policy was written will ultimately decide whether loss is covered. Every concert or series of concerts can be structured differently, he noted, and factors such as how much money is at risk, who could be out of money, and who is willing to insure the risk and under what circumstances are just a few considerations for events like Mr. Jackson’s tour.

The health of the performer also comes into play, Mr. Kingman said. It is typical, he explained, for a sickness to be covered only if the performer undergoes a medical examination before a tour. In the May Reuters story, Mr. Phillips said Mr. Jackson passed a physical “with flying colors.”

Mr. Kingman said he is uncertain of the terms of coverage placed for Mr. Jackson’s tour, or how much was, in fact, covered, although he said he has heard placement was somewhere around $20 million.

Outside the jet setting world of celebrity entertainment, many more mundane events are covered by this type of insurance. One such event that ended up in litigation was the annual “Defeat the Beat Battle of the Bands.” See Defeat The Beat, Inc. v. Underwriters At Lloyd's London, 669 S.E. 2d 48, (N.C. App. 2008). The facts are cited at length from the policyholder’s brief. They show a typical situation where many policyholders are given inaccurate information about the policy by their agents, they do not review the policy before the loss, and claims are delayed far beyond any reasonable time frame:

Defeat the Beat was established by Karen Blackmon…Its purpose was to host an annual “Battle of the Bands” competition that would bring together marching bands from historically black colleges and universities throughout the southeast. In 2003, Defeat the Beat hosted its first competition at Memorial Stadium in Charlotte, North Carolina. The event was a success, with approximately 22,000 people in attendance.

Following this successful debut, Ms. Blackmon …began planning a second competition …Ms. Blackmon contacted Stacy Fields, an insurance agent …about the possibility of obtaining insurance coverage for the 2004 Event. Ms. Blackmon communicated to Mr. Fields that she desired to obtain a policy that would protect her investment and eliminate the possibility of Defeat the Beat losing money on the Event.
…
…Ms. Blackmon…she inquired about the additional premium for the adverse weather coverage. After seeking clarification from Defendant Petersen, Mr. Fields informed her that the only difference between the adverse weather policy and the policy that she was purchasing was one of control. With the adverse weather coverage, Mr. Fields told Ms. Blackmon, she would be the person in charge of deciding if and when to stop the Event due to poor weather; without paying for that extra coverage, that choice would be made by the manager of the stadium where the Event was held. Based upon these representations, Ms. Blackmon elected to pay the Basic Premium of $8,805….

On August 21, 2004, the second “Defeat the Beat: Battle of the Bands” competition took place at Memorial Stadium in Charlotte. The local weather stations were predicting rain for the day, as the Hurricane Ivan storm system was traveling through the area. At 5:30 p.m., half an hour before the start of the Event, the officers of Defeat the Beat (CEO Karen Blackmon, Chief Operations Officer Duncan Gray, and Stadium Operations Director Robbie Nixon) met with Greg Clemmor, the manager of Charlotte Memorial Stadium, to discuss the weather. It was determined that the Event would continue as scheduled despite the forecasted rain.
…
At 6:30 p.m., thunder and lightning began. …At 6:40 p.m., the thunder and lightning became more pronounced, and those in charge became concerned for the safety of the spectators and participants. It was at that time, upon the recommendation of stadium manager Clemmor, that the decision was made to place the Event on hold until the lightning subsided. …At this announcement, many of the spectators returned to their cars, while others took shelter in various corridors and tunnels beneath the concrete steps of the stadium.

After making this announcement, Defeat the Beat's officers noticed that a number of fans who had departed the stadium were leaving permanently; they also became aware that many of the patrons who were waiting in line to purchase tickets were leaving as a result of those people coming out of the stadium who were saying that the event had been cancelled. Accordingly, at 6:45 p.m., Ms. Blackmon made an announcement over the public address system in which she stated: “The event will resume in a few moments per weather conditions. The event is not cancelled.”

At approximately 7:15 to 7:30 p.m., the lightning subsided and the Event resumed. The competition continued through to completion, ending around 11:00 p.m.

As a result of the bad weather and the interruption of the Event, the 2004 Battle of the Bands competition was considerably less successful than its predecessor in 2003…

Several days after the Event, Ms. Blackmon contacted Stacy Fields to discuss submitting a claim under the Policy. At that point, it was discovered that neither Blackmon nor Fields had a copy of the insurance policy. Accordingly, Stacy Fields contacted Defendant Petersen and received a copy of the Policy, executed September 2, 2004, sometime in early September 2004...

After receiving Plaintiff's claim, Defendant Underwriters assigned it to Michael Tocicki of Crawford Technical Services to be adjusted. …

On November 21, 2004, Mr. Tocicki came to Charlotte to inspect the stadium...During this meeting, multiple witnesses report that Mr. Tocicki said that the Plaintiff's claim was a valid one and that he was recommending to Defendant Underwriters that they pay Plaintiff's claim. In response to a question from Ms. Blackmon regarding how long it would take to receive payment of the claim, Mr. Tocicki stated that he would be submitting a request for payment to Defendant Underwriters following the Thanksgiving holiday, and that Ms. Blackmon would receive payment within two to three weeks following that submission.

On December 8, 2004, Mr. Tocicki submitted a Preliminary Report …Tocicki concluded that although the Plaintiff had elected not to purchase adverse weather coverage, Plaintiff nonetheless had a valid claim for a least a portion of its losses due to an “interruption” pursuant to Clauses 1.1 and 2.8 of the Policy.…Tocicki suggested setting aside a precautionary reserve of up to $124,000 to cover Plaintiff's loss.

…E-mail records show that Defendant Underwriters decided to deny Plaintiff's claim as early as December 16, 2004; however, there is no evidence that this decision was ever communicated to the Plaintiff at that time. Instead, still believing that it would receive the full amount of its claim, Plaintiff continued to work with adjuster Tocicki in his efforts to determine the amount of loss caused by the interruption of the event, providing Tocicki with the supporting documentation that he requested as it became available to the Plaintiff.

On February 2, 2005, by letter to Plaintiff's counsel, Defendants' counsel advised that Defendant Underwriters had decided to honor the Policy as written and to provide coverage for losses due to the interruption of the Event

On May 3, 2006, Plaintiff's counsel received a letter from Defendants' counsel stating that Underwriters had completed its adjustment of Plaintiff's claim and was prepared to settle the undisputed portion. The letter stated: “Underwriters have determined that the event interruption resulted in a covered loss of $37,135.20.” The letter further stated that “acceptance of this payment will in no way prejudice [Plaintiff's] right to pursue a claim for the disputed amount of coverage.”

Plaintiff received a check for $37,135.20 on May 30, 2006…Plaintiff instituted this suit for breach of contract, bad faith, and unfair or deceptive trade practices. 

There should be a good basis for a bad faith claim based upon claim delay, if nothing else. However, one never knows for certain how others view a fact pattern. The Appellate Court noted the policy language:

1.1 This insurance is to indemnify the Assured for their Ascertained Net Loss (as defined herein), should the insured Event(s) described in the Schedule, be necessarily Cancelled, Abandoned, Postponed, Interrupted or Relocated, in whole or in part, which necessary Cancellation, Abandonment, Postponement, Interruption or Relocation is the sole and direct result of any cause beyond the control of the Assured and the participants therein (except as hereinafter excluded), subject always to the terms, conditions and exclusions contained herein or endorsed hereon.

* * * *

2.1 Ascertained Net Loss means such sums as represent:-(a) Expenses which have been irrevocably expended in connection with the insured Event(s), less any savings the Assured is able to effect to mitigate such loss, and (b) Profit (where insured and stated in the Schedule) which the Assured can satisfactorily prove would have been earned had the insured Event(s) taken place.

* * * *

2.4 Profit (where insured) means Gross Revenue less Expenses.

(Emphasis added.)

The schedule of benefits attached to the policy provides in part:

Limit of Indemnity Excluding Profit:     US$540,000
Limit of Indemnity Including Profit:
(Profit insured only if this section completed) N/A

* * * *

Exclusion: TERRORISM COVERAGE

The Court found the issue of whether the weather was covered or excluded was moot because the insurer paid for the event being postponed in part by weather:

It is clear from the record that plaintiff purchased the basic coverage, rather than the adverse weather coverage; however, because only terrorism and not adverse weather is listed as an exclusion on the schedule of benefits, it is not clear whether adverse weather was an exclusion under the policy. We resolve this ambiguity in favor of the non-moving party and assume that any ascertained net loss which resulted from the adverse weather is insured under Section 1.1 of the Policy. Nonetheless, plaintiffs have produced no evidence demonstrating that the adverse weather resulted in an ascertained net loss, as defined and insured under the terms of the policy.

This is a key point I raise in many cases involving business interruption and lost revenue. Policyholders must provide evidence of the lost revenues. The best method is through accountants and economists along with testimony from the policyholder about expectations of business operations. In this case, the policyholder was in an impossible situation because the right type and full amount of coverage was not purchased. I do not think accountants could have helped because expenses did not change much with a 35 minute postponement---but the revenues certainly did. Who would pay to watch bands in the rain with a Tropical Storm approaching? As many agents would say, “penny wise and pound foolish” is the policyholder who does not opt for full coverage of likely perils:

[D]efendant produced evidence demonstrating that an essential element of plaintiff's claims is nonexistent. Specifically, our examination of the record before us reveals that plaintiff has failed to show that the loss complained of is embraced within the insuring language of the policy. First, defendants produced the document entitled “A Proposal for Event Cancellation Insurance” that expressly provides that the coverage is “for Non Refundable costs and expenses only (i.e. no cover for profits).” Likewise, defendants produced a copy of the policy, and under the terms of Section 2.1 of such policy, it is clear that the insured loss or “ascertained net loss” only includes profit “where insured and stated in the Schedule.” Defendants introduced a copy of the schedule of benefits, showing that profit is not stated on such schedule, and therefore, is not insured under the policy. Thus, defendants met their burden in establishing that the lost profit from low ticket sales, low DVD sales, low T-shirt and souvenir sales caused by the 35-minute interruption, which plaintiff asserts as damages under its breach of contract and bad faith claims, are not insured under the terms of the policy.

Given that defendants established that essential elements of the non-moving party's claims are nonexistent, the burden then shifted to plaintiff, the non-moving party, to forecast evidence or specific facts that demonstrate the existence of some sort of loss, insured under the terms of the policy, which defendants refused to pay. Under Section 2.1 of the policy, this would include “[e]xpenses which have been irrevocably expended in connection with the insured Event(s), less any savings the Assured is able to effect to mitigate such loss[.]” While plaintiff alleged in an interrogatory response that “Plaintiff has received $37,135.20, an amount that is woefully less than Plaintiff should have been paid under the insurance policy in question [,]” plaintiff has failed to set forth specific facts or forecast evidence that it incurred any non-refundable expenses and costs as a result of the 35-minute interruption in excess of the $37,135.20 that defendants have already paid. The only facts set forth by plaintiff demonstrate an uninsured loss consisting of lost revenue. Because plaintiff failed to meet this burden of establishing a net loss that defendant was obligated to pay under the terms of the contract, yet refused to pay, there is no issue of disputed fact with respect to the damages element of the breach of contract claim. Accordingly, the trial court's grant of summary judgment in defendant's favor with respect to this claim was proper.

This case did not turn out well for the policyholder. I hope Michael Jackson’s promoters and others who invested in his performance have better luck and much better coverage. This type of coverage is very valuable when you have a lot riding on an event. Death, weather, and all types of risks can happen at the worst possible time. “Safe is better than sorry,” and that is why this coverage exists.
 

I will suggest that the Windstorm Network look into this coverage at our Board Meeting this Wednesday. The Windstorm Conference is being held in Jacksonville, Florida, next January 25 through 28, 2010. Register and book your room early so you do not miss it. It is typically sold out several months in advance.

A special product of insurance coverage exists called “event” or “private event coverage.”  From weddings, to outdoor events, corporate outings, and concerts, those who host these events should consider calling an agent for quotes. Coverage available depends on the event, and can help with extra expenses, lost income, and liabilities to others in the event something goes wrong and the event does not take place. Call your insurance agent to get this valuable coverage.

In researching the issue, I found a case where the coverage discussion is applicable to general insurance disputes, not just canceled Def Leppard concerts. In Celebrate Windsor, Inc., d/b/a Summerwind Performing Arts Center, vs Harleysville Worcester Ins. Co., No. 3:05cv282, 2006 WL 1169816 (D.Conn. May 2, 2006), damage to a canopy lead to a protracted dispute with an insurer and difficulty dealing with the expenses of holding events during a period when the auditorium was not ready for performance. Much of the decision is irrelevant, but the following remark will strike remarkable relevance to many of our current clients and policyholders with delayed insurance claims:

“Harleysville argues that it is not required to pay SummerWind anything because SummerWind never filed a proof of loss. But Harleysville never asked for a proof of loss and continued to process the claim in the absence of one. Therefore, Harleysville waived that requirement. Harleysville also contends that it is not required to pay for any loss until the structure is actually repaired or replaced, and obviously that has not happened yet. But courts have found a duty on the insurer to reimburse the insured before rebuilding takes place when, as here, the insured does not have the means to rebuild the facility without the insurance proceeds. See, e.g., Zaitchick v. American Motorists Ins. Co., 554 F.Supp. 209, 217 (S.D.N.Y.1982); Pollock v. Fire Ins. Exch., 423 N.W.2d 234, 237 (Mich.Ct.App.1988). The Court believes that Connecticut courts would adopt those decisions as the law of Connecticut and, therefore, the Court rejects Harleysville's claim. Finally, Harleysville argues that its policy obligations are conditioned upon the insured replacing the property within a reasonable time after incurring the loss and that SummerWind has not done so. However, if Harleysville's failure to pay Soper's estimate was the reason why the facility has not been repaired sooner, then surely Harleysville could not defend its conduct on this basis. Therefore, this argument by Harleysville does not add anything to its main argument, which is that it is not required to pay the full cost of Soper's 2004 estimate.”

This issue is very important to policyholders. Replacement cost policies contemplate that policy proceeds of at least actual cash value are paid promptly as possible so that replacement can take place. When that does not happen, the entire purpose of insurance is defeated. Insurers that refuse to pay replacement cost benefits when the policyholder seeks judgment should not be allowed to take advantage of the policy terms requiring actual repair or replacement unless they have fully paid all actual cash value amounts owed. This seems common sense, as the Court found above, but not all courts are so inclined.

In Pollock v. Fire Ins. Exch., 423 N.W.2d 234 (Mich.Ct.App.1988), the Michigan case cited by the Celebrate Windsor court had an excellent discussion of the issue:

“…case law and equitable considerations render replacement cost the appropriate method of valuing plaintiffs' damages. The defendant does not challenge the plaintiffs' contention that a bank would be chary to lend money on the basis of an unlitigated law suit in which the defendant and its vast resources intend to present several defenses to payment. Nonetheless, defendant asserts, case law precludes plaintiffs' recovery of replacement value, citing American Universal [Ins Co v Falzone, 644 F2d 65 (CA 1, 1981); Kolls v Aetna Casualty & Surety Co, 503 F2d 569 (CA 8, 1974); Lerer Realty Corp v MFB Mutual Ins Co, 474 F2d 410 (CA 5, 1973); Bourazak v. North River Ins Co, 379 F2d 530 (CA 7, 1967); Higgins v. Ins Co of North America, 256 Or 151; 469 P2d 766 (1970) ]. These cited cases, however, are distinguishable from the instant case. In all the relevant cases cited by defendant save Lerer Realty, the defendant paid actual cash value, and was only litigating the issue of whether additional monies would be due under the relevant replacement cost contract provisos. Thus plaintiffs in the cited cases had at least some money with which to begin rebuilding their property.

The language of the Zaitchicks' insurance contract also supports my emphasis on whether cash value has been paid or not. The contract states that “[t]he Named Insured may elect to disregard this [replacement cost] condition in making claim hereunder, but such election shall not prejudice the Named Insured's right to make further claim within 180 days after loss for any additional liability [for replacement cost].” Defendant's Exhibit M, “Additional Conditions,” ¶ 1(f). In other words, insureds can obtain the necessary funds to begin rebuilding their home, and subsequently upon completion of the construction, obtain additional amounts up to the replacement value. In the instant case, plaintiffs were refused any monies under the insurance contract. Not surprisingly, they were unable to replace their home. This conduct by defendant made it impossible for plaintiffs to fulfill the condition precedent, and therefore, excuses plaintiffs from performance of the replacement condition…

While Zaitchick is foreign law, the concept of not permitting an insurance company to benefit from its own misdeeds is not foreign to the jurisprudence of this state. In Wendt v. Auto-Owners Ins. Co., 156 Mich.App. 19, 27-28, 401 N.W.2d 375 (1986), which considered a somewhat different question than that presented in the case at bar, this Court held that an insurance company is liable for its conduct and may suffer a pecuniary loss as a result of that conduct even where a loss would not ordinarily be imposed by statute:

We see no reason to hold an insurer less accountable for its actions than another contracting party. Consequently, we hold that the breach of an insurer's obligation to process a claim in good faith renders an insurer liable for pecuniary losses which are not otherwise compensated for by statute.

In the instant case, defendant impeded any progress in this matter by refusing to deal with plaintiff prior to her contacting an attorney, by failing to appoint an appraiser after plaintiff's attorney requested they do so and by forcing plaintiff to bring this lawsuit. Defendant failed to make any substantial payment to plaintiff until twenty-five months after the fire. Defendant does not even argue any good faith defenses to its actions of delay. At most, in its answer to plaintiff's complaint, defendant asserted as an affirmative defense that plaintiff failed to provide proper documentation of her loss. Defendant does not argue this defense on appeal. We conclude that, in the face of such lack of good faith processing of plaintiff's claim, the trial court correctly chose to award the replacement cost value to plaintiff based upon equitable considerations.

In short, defendant's failure to pay on the claim hindered, and quite possibly even prevented, plaintiff from complying with her obligation to repair or replace the building. Had defendant immediately paid in good faith the actual cash value of the loss, holding the additional amount due under the replacement cost provision in reserve until the replacement was made or contracted for, or had otherwise worked with plaintiff to insure her financial ability to immediately proceed with the replacement or repair, a different result might be called for. However, defendant did not work with plaintiff to promptly pay the claim and enable her to repair or replace the building; rather, it did as much as possible to hinder plaintiff and delay or prevent the payment of the claim. We will not now allow defendant to raise as a defense plaintiff's failure to perform an act which defendant itself greatly hindered plaintiff from performing…

For the above-stated reasons, we conclude that the trial court properly determined that plaintiff was excused from performing her obligation under the policy to repair or replace the building due to defendant's dilatory tactics.”

Sometimes, I start researching one area of insurance law just to find other gems more relevant to my current cases. I find it amazing how rock and roll can impact my “edgy” interests and then lead to more meaningful understandings in other areas of life. I guess I have to give credit to Def Leppard, a band that will “Rock for the Ages,” for their moving music. Their music made me a better lawyer and lead me to law that supports my clients’ cases.

Enjoy:

I fought against this new option. I felt people would opt out of coverage mandated by their mortgages as well as avoid the exposure to the most probable loss in areas close to Tampa. I thought "cheap" versus "safe" was bad public policy. I lost.

Well, complaints about the new law are starting to filter in as indicated in this letter to the editor:

"Sinkhole plan didn't work out

Did our elected officials really think mortgage companies would not catch on about the automatic dropping of sinkhole coverage? The if-they-don't-ask, don't-tell-them suggestion that Sen. Mike Fasano made at a meeting at the Spartan Manor was not going to work for long.

While I was president of HAC (Having Affordable Coverage) I strongly warned people the new legislation to automatically drop sinkhole coverage was risky and that when the mortgage companies figured it out the coverage would be required. We already knew of local banks that were requiring it, but it is only a matter of time before they all will require it. It is after all a peril that can destroy your home and cost tens of thousands of dollars to repair.

Well the proof just came in the form of a letter from U.S. Bank Mortgage Co. to a mortgage holder. The letter reads in short that the homeowner who had his sinkhole insurance automatically dropped from his insurance company is required to maintain his coverage or it will be forced.

The letter states:

"We understand from speaking with many insurance agents located in Florida that catastrophic ground collapse has been added to these policies in lieu of sinkhole coverage. However, our research has indicated major differences between these two perils. A sinkhole is the systematic weakening of the land supporting your home. If damage attributed to a sinkhole were to occur to your home, your property could still be deemed livable by your local authorities.

"A catastrophic collapse is a geological activity that results in all of the following conditions: 1) an abrupt collapse of the ground cover, 2) a depression in the ground cover visible to the naked eye, 3) structural damage to the building, including the foundation, and 4) the insured structure must be condemned and ordered vacated by a government agency. While we understand the financial burden caused by the current insurance situation in the state of Florida, we are required to ensure your home is covered in the event of damage. Sinkhole damage not only causes significant damage, but the repair costs are very high. Without sinkhole coverage, a homeowner would have to bear the burden of the cost to repair the property while maintaining their monthly mortgage payment.''

Now, what shall I tell this man who has Citizens Insurance, lives in Pasco County where no other insurance companies are writing and cannot afford to add the sinkhole policy back? Not to mention now to add the insurance back you will have to have a sinkhole evaluation at your cost. So much for our elected officials working to help lower our insurance!

Virginia Stevans, New Port Richey"

It will get worse as people incur uninsured losses and everybody asks why the risk of such loss was not spread across Florida. Eventually, these losses will result in lowered property values, lowered tax base, lowered appeal to live in the community, lowered expectation of property appreciation and a lowered economic opportunity in the Pasco community. In my view, Pasco County has doomed itself in the long run by passage of a law that lowers their insurance premiums in the short run versus building recovery in the long run. This letter is just the start.

Chris Boggs has a number of columns at MyNewMarkets.com that every insurance agent should read. Anybody reading some of Boggs’ very technical explanations of coverage can better appreciate how much education and dedication is required of insurance agents and brokers. Anybody very good in insurance at the claims or solicitation level knows you have to be a little bit of a nitpicker or nerd to enjoy the nuances of language within the various insurance policies. A little research about Boggs shows he is as well:

“Boggs brings nearly 18 years of experience in insurance and risk management, a background that includes teaching pre-licensing and insurance continuing education courses and writing on coverage and insurance-related issues.

He is a veteran insurance professional, having worked as an account executive for several property/casualty agencies and as a senior risk analyst for one of the largest risk consulting firms in the Southeast.

He is a former associate director of education for the Independent Insurance Agents of North Carolina, Inc. and a former loss control and claims specialist for the North Carolina Department of Insurance.

International Risk Management Institute's (IRMI's) The Risk Report, The John Liner Review, RIMS' Risk Management magazine, and the American Public Power Association magazine have featured several of his articles.

In addition to teaching others and writing about insurance and risk management, Boggs has himself earned a host of insurance designations, including CPCU, ARM, ALCM, LPCS, AAI and APA.
…
Boggs is thrilled with his new assignment. "I'm a little odd in that I absolutely love the technical issues in insurance and risk management. I enjoy delving into the details of policies, finding coverage gaps, comparing terms and conditions," says Boggs. "I'm truly excited about being able to do this while helping fellow agents and brokers solve their problems."

Few individuals have the depth of insurance education reflected in Boggs’ certifications. It is obvious he is well and wide versed in various aspects of insurance and should be thought of as a leading educator in the insurance field. His leadership of thought is demonstrated in his bold pronouncements of what agents and brokers should be doing during the solicitation and underwriting of policies. In a field with an extremely important ethical and knowledge based duties, it is important to have somebody discussing the issues agents and brokers confront, and doing so with clearly spelled out guidelines which should be followed to benefit and properly protect the policyholder.

His current article, Three Commercial Property Endorsements Every Client Should Have, notes that not all property is covered under standard forms but that endorsements are available to help partially correct this policy gap of coverage:

“This post is the first of a three-part series expounding on the theme of using coverage gaps to sell; but rather than specific coverage gaps, these three posts focus on endorsements to the commercial property, commercial auto and commercial general liability policies every insured should consider or avoid (in the case of the CGL article).

Three key commercial property endorsements are discussed in this first installment, the: 1) Additional Covered Property endorsement (CP 14 10 or state-specific form); 2) Additional Building Property endorsement (CP 14 15); and 3) Joint or Disputed Loss Agreement (CP 12 70). Obviously these are not the only commercial property endorsements valuable to a specific insured, but these are three every insured should consider.”

Notice how Boggs clearly indicates what agents should do. He notes that an agent or broker should make the coverage gap known to the policyholder. He then explains in the article what endorsements the policyholder should consider purchasing and why:

“The commercial property policy contains a list of "property not covered" within the form itself. Among the list of excluded property exists several property types or real and personal property the insured (and possibly even the agent) may assume is covered by the policy but is not. Examples include building foundations, underground pipes, flues or drains and fencing (this is not a complete list of excluded property, just a sample).

Some excluded property can be added back to the list of "covered property" via the Additional Covered Property endorsement. Two broad versions of the form are available from ISO - based on the state in question:

1. The CP 14 10. This is essentially a blank form allowing the insured to specifically list the property they wish to remove from the "property not covered" list and include as covered property; and
2. ISO State-specific endorsements. Two examples are N.C. (CP 14 11) and Va. (CP 14 12). In forms such as these, several types of real and personal property are taken from the list of "property not covered" within the unendorsed coverage form and listed on the endorsement. The insured chooses which property it desires to include as "covered property" and indicates that choice by placing an "X" in the box next to that property class.

Any removal of property from the "property not covered" list and its endorsed inclusion on the "covered property" list is, of course, subject to underwriter approval - regardless of which version of the form is used.”

Everybody can learn from people who have a specialized knowledge in a field. Chris Boggs can teach all of us a lot about property insurance coverage from the perspective of agents and brokers selling these products.

Below is an exchange between a Mississippi Justice and Nationwide’s lawyer during the Corban oral argument. Justice Pierce stretches a hypothetical position to show the illogic of Nationwide’s argument. I found it most recently at the end of Slabbbed’s post, Have we seen the end of rational economics? Behavioral Economics explains the Scheme:

“Justice Pierce:…. if 95 percent of the home was destroyed (by wind), and then we have the event of the storm surge, then you would not pay a dime?

MR. LANDAU: Your Honor, if we prove that the storm surge was sufficient to cause – we have that burden, again, and that is absolutely crystal clear.

If we can prove that the storm surge was sufficient to cause all of this, it is no answer then to say, ‘Yeah, but I’m going to show it — I’m going to have somebody come in and say, “Look, guess what, the window was broken before the storm surge came and then wiped away the whole house.

But you don’t get into those kinds of issues precisely because of the sequencing of the damage.

JUSTICE PIERCE: So you wouldn’t pay a dime?

MR. LANDAU: If – again, we wouldn’t pay a dime for things where we can carry our burden, which is right there in the policy, of showing that the loss was caused concurrently –

JUSTICE PIERCE: I’m giving you — the example is 95 percent of the home is destroyed, the flood comes in and gets the other five percent, and you know that.

Does your interpretation of the word “sequence” mean you pay zero?

MR. LANDAU: Yes, your Honor.”

If this is Nationwide’s position, they should make it clear to every policyholder. Then policyholders and potential customers would have fair warning that Nationwide is not on any policyholder’s side. Some may suggest that insurance policies need warning labels that there is no peace of mind because that position clearly contemplates illusory coverage. To be fair, I have found that Nationwide adjusters in the field do not adjust claims using this interpretation. Why Nationwide allows its attorneys to do so in court is beyond me. Slabbed is to be congratulated for publishing this absurd legal argument and for publicizing the problems resulting from Nationwide’s anti-concurrent causation clauses.

Slabbed highlighted Nationwide’s argument in Breaking: Gene Taylor sends letter to DHS Secretary Napolitano on Nationwide’s stunning admissions in Corban. Representative Gene Taylor has repeatedly tried to prove that insurance products available cannot adequately protect policyholders when a hurricane is accompanied by storm surge. Slabbed has reported in depth on Taylor’s efforts to pass legislation correcting this problem.

Discovery in Mississippi Katrina litigation has proven difficult. There is little downside for an insurer to refuse to turn over information and either objecting for a myriad of reasons or requesting a Protective Order which prevents policyholder attorneys from checking the veracity of the discovery the insurer did turn over. Early in litigation, State Farm would answer the same requests with different responses and far different documents. This did not last long. Now, State Farm objects to disclosure of internal information regarding the claims decisions impacting Mississippi claims. This evidence is crucial to reveal the true story of what, why and how the insurer created its wind/water protocol.

Slabbed reported on this recurrent issue recently in Keeping score #3 – Who has the balls?. The post quoted Mississppi attorney Judy Guice’s brief argument that a federal magistrate was not following longstanding discovery precedent. Her rhetoric shows that she has the guts to pointedly stand up to a federal judge:

“For no good reason expressed, State Farm unilaterally rewrote Plaintiff’s discovery and produced only limited documents relating to claims…This arbitrary restriction was approved by the Magistrate Judge. Given that such discovery is not only allowed within the broad parameters of the Federal Rules of Civil Procedure but more specifically by the same Magistrate’s own orders in similar cases, the restriction in this case is clearly “contrary to law.

…

Plaintiff has sought discovery of documents relating to meetings conducted by State Farm concerning the handling of Hurricane Katrina claims. Acting in a manner contrary to law, the Magistrate Judge protected State Farm from this discovery. Indeed, State Farm has not even been required in this case to produce documents it has produced in other cases.”

I feel for Judy Guice because we have experienced the same frustration. Possibly, this type of pointed argument will be more successful. For a non-lawyer social media web site, Slabbed has done an excellent job portraying the emotional frustrations advocates and policyholders are living through in the Katrina litigation. I will reenergize my efforts in our remaining cases and become more active in coordinating efforts among policyholder attorneys along the Mississippi Gulf Coast to do my best to ensure that those lingering matters also achieve justice and consideration.

I simply do not have time to read Slabbed everyday. Yet, I have no hesitation in suggesting that many can learn a great deal from the posts. The ideas are exceedingly original. I am certain that those in the insurance industry dislike Slabbed because it does have a tendency to demonize the industry and those supporting their status quo. Imagine if all your best friends, neighbors, and family had to endure financial ruin caused by insurance not paying following a devastating catastrophe like Hurricane Katrina. I imagine your rhetoric towards insurers and their agents would not be very complimentory either.

I then made an announcement that went something like this:

"The people standing up are some of the most important professionals to your business, your employees and you. A catastrophe can substantially affect even the most successful business and create a financial catastrophe for the business owner and his or her employees.

You do not read your insurance policies. Even if you did, you would probably not understand  all the terms and the resulting legal implications. Neither are you aware of the various coverages available in the marketplace and how they could protect you in the event of a catastrophe. .

When your business was not as profitable, it did not matter as much whether you were properly insured. You had less to lose and fewer employees and their families depending on your business. Physical destruction of property and the resulting loss of revenue, coupled with expenses, can devastate any business. Having the "peace of mind" that you have selected the right insurance agent becomes very significant to you, your family and your employees and their families--even your banker and other businesses have an interest in the survival of your business.

Most likely, the insurance you buy is purchased on the recommendation of your insurance agent. A good agent will educate a business owner on the types coverage available and coverage necessary for your business to survive a catastrophe.

Trained, dedicated, and professional insurance agents play the most significant roll of any type of individual in preparing you for a loss. If you do not have the right type of insurance or enough of it, you are jeopardizing yourself and your employees.

If I could give you one piece of advice, I would suggest you contact one of the people standing or call your insurance agent and have him or her review and explain your business coverage as soon as possible. Insurance agents provide security when you need it the most. You should contact yours now, before it is too late."

As you can imagine, the insurance agents in the audience liked the speech. I truly love insurance agents. Without their product, I would not have the peace of mind in knowing that my family, my business, my employees and their families will survive financially if a catastrophe hits.

On a lighter note, as I noted during the presentation, my insurance defense colleagues and I are beholden to those insurance agents. If they didn’t sell policies, there would be no work for us.

Insurance transactions and coverages are easily mixed up, not purchased properly, or not purchased in sufficient amounts. The results of that can be financially devastating. If I had to give any of my corporate, commercial, governmental and condominium clients only one piece of advice as we make our way through the hurricane season, I would simply say "get a good agent into your office, go over your entire business operation, and ask for help getting all the protection you need and can afford. You, and everybody hitching their star to your financial wagon, will sleep better for it."

Underwriters sought declaratory judgment in the U.S. District Court for the Southern District of Texas, arguing it had no duty to indemnify the Laws' claim based on the theft exclusion in the policy. The Laws counter-sued, seeking declaratory judgment that their claim was covered under the vandalism exception to the theft exclusion. The District Court granted the Laws' motion, finding coverage under the ingress/egress exception to the theft exclusion, and awarded the Laws $177,150.00. The Fifth Circuit Court of Appeals reversed.

On appeal, the Laws' argued that the damage was covered by the vandalism provision of the policy as well as the ingress/egress exception. The Court of Appeals looked to Texas law to decide the issue. Under Texas law, the Court was required to interpret the contract in a manner that gives effect to every provision and to the "intention of the parties as expressed in the instrument." Words not defined are to be understood "according to their plain and ordinary meaning. Any ambiguity is construed in favor of the insured.

The policy defined vandalism as "willful and malicious damage to, or destruction of, the described property," but specifically excluded damage caused by or resulting from theft. The policy did, however, provide an exception for the theft exclusion if the loss was caused by "the breaking in or exiting of burglars."

Focusing on the policy's language defining vandalism, "willful and malicious" (emphasis added), the Court concluded that the interpretation of the provisions turned on the purpose for which the damage was done. The Court then reasoned that vandalism was damage done for no purpose other than to destroy property. Thus, incidental damage done in furtherance of a thievery was not vandalism. Because the damage to the air-conditioning units was done to steal the copper coils, it was not done solely to damage the property, and was not covered under the vandalism provision.

The Court then turned to the policy's "breaking in or exiting" exception to the theft exclusion. Again, the Court found no ambiguity and interpreted the policy's language according to its plain meaning. In Texas, “breaking in” is commonly understood by Texas courts as burglary. Texas Penal Code Ann. § 30.02 (2008) provides, in pertinent part, that a "burglar" is one who, without the owner's consent,

"(1) enters a habitation, or a building (or any portion of a building) not then open to the public with intent to commit a felony, theft, or an assault; . . . (3) enters a building or habitation and commits or attempts to commit a felony, theft, or an assault."

The Court rejected the Law’s argument that the air conditioning units’ casings were fixtures, and since fixtures were covered under the policy, the damage to the casings was covered. The Court concluded that the plain meaning of the policy's "breaking in or exiting" language was intended to cover damage by burglars gaining entry into the interior of the building. Because the damage did not occur while the thieves entered or exited the building itself, the thieves were not burglars. Thus, unfortunately for the Laws, the Court concluded that the parties did not intend to extend the policy's "breaking in or exiting" exception "to include damage caused by rooftop thieves to freestanding air-conditioning units." Accordingly, the Court reversed the district court's judgment and held that the air-conditioning unit damage was not covered under the policy.

You can read the full opinion by clicking here.

The seminar topics and speakers are:

Topic: “Appraisal - Appraising Large Losses”
Presenters: W. Wesley Baldwin of The Baldwin Company and Jonathan Wilkofsky, Esq. of Wilkofsky, Friedman, Karel & Cummins

Topic: “Builder's Risk Program and Coverages” (part 1)
Presenters: Samuel Bergman of Rolyn Companies, Inc.; Stephen R. Figlin, SPPA of Stephen R. Figlin & Associates, Inc., and Peter Kahn of Matson, Driscoll & Damico

Topic: “Builder's Risk Program, Coverages and Adjustments” (part 2)
Presenters: Samuel Bergman of Rolyn Companies, Inc.; Stephen R. Figlin, SPPA of Stephen R. Figlin & Associates, Inc., and Peter Kahn of Matson, Driscoll & Damico

Topic: “Introduction to Building Code Coverage” (part 1)
Presenters: Mark Friedman, Esq. of Wilkofsky, Friedman, Karel & Cummins, and Fred Yutkowitz, Esq. of Fairview-Licht Company, LLC

Topic: “Building Code Coverage Requirements for Repairs” (part 2)
Presenters: Mark Friedman, Esq. of Wilkofsky, Friedman, Karel & Cummins, and Fred Yutkowitz of Fairview-Licht Company, LLC

Topic: “Business Income - Primary Analysis and Authentication”
Presenters: Brad White & Max Flynn of Meaden & Moore, and Hayes Walker, III of Rollins Accounting & Inventory Services

Topic: “Business Income & Extra Expense - Measuring Small Losses” (BI part 1)
Presenters: Don Dragony, CPA of Alex N. Sill Company; Paul McGowan, Jr., CPA, CVA of Matson, Driscoll & Damico, and Ronald Papa, SPPA, of National Fire Adjustment Company, Inc.

Topic: “Business Income & Extra Expense - Extended BI Coverages, Application and Calculation” (BI part 2)
Presenters: Don Dragony, CPA of Alex N. Sill Company; Paul McGowan, Jr., CPA, CVA of Matson, Driscoll & Damico, and Ronald Papa, SPPA, of National Fire Adjustment Company, Inc.

Topic: “Business Income & Extra Expense - Manufacturing Losses” (BI part 3)
Presenters: Don Dragony, CPA of Alex N. Sill Company; Paul McGowan, Jr., CPA, CVA of Matson, Driscoll & Damico, and Ronald Papa, SPPA, of National Fire Adjustment Company, Inc.

Topic: “Commercial Property Forms and Endorsements”
Presenters: Dennis Perlberg, Esq. of Perlberg & Speyer, LLP, and David Karel, Esq. of Wilkofsky, Friedman, Karel & Cummins

Topic: “Deposition ABC's - Preparation is Key to Survival”
Presenters: Mary Kestenbaum Fortson, Esq. of Merlin Law Group and William F. Burke, Esq. of Adler, Pollock & Sheehan

Topic: “Ethics”
Presenters: Nicole S. Figlin, SPPA of Stephen R. Figlin & Associates and W. Richard Burr SPPA of Young Adjustment, Inc.

Topic: “Homeowners Coverages”
Presenters: Randy Goodman, SPPA of Goodman-Gable-Gould/AI and Joel Gumbiner, Esq. of Gumbiner & Eskridge, LLP

Topic: “Insured's Cooperation and Duties - How to Prevent a Problem”
Presenter: Robert P. Rutter, Esq. of Rutter & Russin, LLP

Topic: “Science of Roof Damage Claims”
Presenters: William F. Merlin, Esq. of Merlin Law Group and Timothy Marshall of AT Designs, Inc.

Topic: “Subrogation Opportunities Do's and Don'ts”
Presenter: Jean Niven, Esq. of Merlin Law Group

Topic: “The Adjuster as an Expert Witness”
 Presenters: Dave Pettinato, Esq. of Merlin Law Group and Jonathan Wilkofsky, Esq. of Wilkofsky, Friedman, Karel & Cummins

Topic: “Vacancy and Occupancy Defenses - Its Many Faces”
Presenters: Tina Nicholson, Esq. of Merlin Law Group and Ronald Reitz, CPPA of Quality Claims Management, Inc. 

Dr. Therese M. Vaughan, CEO of the National Association of Insurance Commissioners, will give the keynote address. Dr. Vaughan was Iowa State Insurance Commissioner from 1994 through 2004 and also the Robb B. Kelley Distinguished Professor of Insurance and Actuarial Science at Drake University.

This conference is open to the entire insurance community. Insurance company adjusters, brokers, agents, attorneys, accountants, and public adjusters are invited. I expect the First Party Claims Conference will be an excellent resource and provide practical tools and answers to a variety of insurance related matters. If you adjust roof claims, you simply cannot afford to miss that presentation with its all-star speakers.

Information on the education program (topics & speakers), exhibitor/sponsor opportunities, conference registration, and hotel accommodations is available at www.firstpartyclaims.com

While following up on Saturday's Post, "Fireworks are Loved by Americans--and Insurance Companies Seeking Not to Pay Fourth of July Fires," where I quoted Barry Zalma at length for the proposition that insurance companies often advertise one product but sell another, I came across a related article on the LexisNexis Insurance Law Center written by Stempel. His article, March Madness Makes It "Official: State Farm Embraces the Reasonable Expectations Doctrine and Rejects Linguistic Literalism, is a must read for those trying to prove that even the industry leader recognizes what it advertises is not what it sells. This is the point I was trying to make in my post, "Is the State Farm Policy Really Worth Anything?"

I felt the following paragraphs best sum up Stempel's points:

"...State Farm's television advertising has moved from warm-and-fuzzy image polishing to consistently more concrete promises that the company will provide insurance that meets the policyholder's reasonable expectations and will give the policyholder treatment that goes beyond mere fairness or accommodation. Although the company's marketing mavens probably never set foot in court or attended law school, they have in effect embraced the reasonable expectations concept as well as the standard of good faith and fair dealing that requires an insurer to give equal or better consideration of the policyholder's interests rather than favoring the insurer's interests. The company has now made these commitments to the world at large. It logically should have a hard time should it make contrary arguments in court.

...

...the State Farm ads go beyond the company in that they lay down a gauntlet for the entire insurance industry, one that suggests that insurers should not say one thing to market their products and then say inconsistent things when trying to avoid providing coverage or paying a claim. At the very least, lawyers, judges, and juries should not let them get away with it. Beyond this, it seems that insurers themselves recognize that they are not selling mere words on parchment. They are selling risk management products designed to accomplish a particular purpose. In light of this reality, one might expect to see at least a little restraint among insurers in their attempts to take a hyper-literal approach to policy text (particularly exclusions that are supposed to be strictly construed against insurers) when it serves their purpose. For example, perhaps State Farm may not want to push the envelope so much in arguing that the anti-concurrent causation clause in its policies allows it to escape a considerable amount of responsibility for hurricane-related damage to policyholder property."

I hope the jurists and their clerks faced with deciding insurance coverage cases read Stempel's article and contemplate how the insurance industry is using the "letter of the contract" to defeat the promise they sell.

Another great lesson from one of our country's finest teachers of insurance law. I suggest every attorney have two books of Stempel's in their library: Litigation Road: The Story of Campbell v. State Farm (West 2008), and Stempel on Insurance Contracts, Third Edition (Aspen Publishers).

At page Q&A-1521, the editors had the following coverage discussion:

"What ISO policy exclusion under an HO3, if any, applies to a product defect? We have seen a couple of instances in Louisiana where the insureds are sustaining damage as a result of defective drywall made in China. This was used following Katrina to replenish shortages of drywall supplies."

The answer is very telling and provides hope to policyholders with these problems:

"The ISO HO 03 excludes loss to coverages A & B caused by faulty materials used in repair, construction renovation or remodeling. (See page 12 of the 10 00 policy.) Any ensuing loss as a result of the faulty drywall would be covered, for example if the drywall caused corrosion damage to wires or pipes."

This analysis is helpful, but each policy has to be examined carefully. As recently indicated in my post, “Is the State Farm Policy Worth Anything?” and my reply to Sandy Burnette's comment, “The Dirty Secret of Exclusions Some Major Insurance Companies Like State Farem, Allstate, Nationwide and Even USAA, Do Not Want You to Think About,” every policy has a little different language that can be significant.