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

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.

What generally "happens," is the insurance company limits the period of restoration to the time that the business decision is made not to re-open or the business is sold. I then get a phone call asking if the insurer can do this. As usual, the best place to start such an analysis is to read the relevant policy language and then check an authoritative source. In this case, I will use IRMI.com, which everybody who claims to be a "professional" in insurance coverage and claims should subscribed to, along with the FC&S Bulletins.

The form CP 00 30 reads:

c. Resumption Of Operations

We will reduce the amount of your:

(1) Business Income loss, other than Extra Expense, to the extent you can resume your "operations," in whole or in part, by using damaged or undamaged property (including merchandise or stock) at the described premises or elsewhere.

(2) Extra Expense loss to the extent you can return "operations" to normal and discontinue such Extra Expense.

d. If you do not resume "operations," or do not resume "operations" as quickly as possible, we will pay based on the length of time it would have taken to resume "operations" as quickly as possible.

Demonstrating its value and proving why it should be subscribed to, the IRMI.com has a specific discussion of both issues:

Election Not To Resume Operations. Note that the resumption of operations provision does not require the insured to resume normal operations as soon as possible. Instead, it establishes that the insured's business income or extra expense loss will be calculated based on the amount of loss that would have been suffered if the insured had resumed normal operations as soon as possible. Thus, an insured who elects not to resume operations at all is entitled to a recovery for the business income that would have been earned or the necessary extra expenses incurred during the time it should reasonably have taken to resume normal operations. The same is true of an insured who does not resume operations as quickly as possible.

Sale of Property during Period of Restoration. In BA Props., Inc. v. Aetna Cas. & Sur. Co., 273 F. Supp. 2d 673 (D.V.I. 2003), Hurricane Marilyn damaged the insured's hotel in the U.S. Virgin Islands. While the hotel was undergoing repairs, the insured sold the facility. The insurer argued that the sale of the hotel during the period of restoration terminated the insured's right to receive further business income coverage. The court disagreed. The court held that the amount of the insured's business income loss was fixed as of the time of the hurricane to the amount of lost profits that would have been earned during the period of restoration. The court noted that the business income policy did not expressly require that the insured actually recommence business activities at the hotel as a prerequisite for coverage. If the insured decided to shut the hotel for good after the hurricane, the insurer would still have been obligated to pay the entire business income loss through the entire time it would have hypothetically taken to rebuild and reopen the hotel. Selling the hotel midway through the period of restoration was no different than belatedly deciding to shut it down. In either situation, the insurer was still obligated to pay out the rest of the business income loss. (emphasis added)

Sometimes, a catastrophe is the perfect time to close or sell a business. Commercial policyholders that make such difficult business decisions can still obtain significant business income benefits which many insurance adjusters may otherwise deny.

My experience is that many insurance company adjusters lack the thorough understanding of finance, business management, and accounting required to properly adjust commercial business income and extra expense claims. Most commercial adjusters never do, and lack the skill to do, the income and extra expense calculations themselves. Instead, usually after a delay, the business income claim is referred to insurance accounting firms that provide the analysis only of the numbers, without also having the business operational skills needed to properly determine the amounts owed.

I suggest that unless the commercial claims representative immediately explains the broad benefits potentially available and shows a willingness to fully pay for them, most commercial policyholders need to promptly retain professional help. Often, an insurance agent or broker has a much more thorough understanding of how the insurance product, through business income and extra expense benefits, can potentially save a business from closure. Still, at this most crucial time following a loss, many commercial policyholders have to wait months to get agreement or payment of these benefits. Closures as a result of these delays can be prevented by insurance companies understanding their products and getting money, the lifeblood of any business, back into the business as soon as possible.

The International Risk Management Institute (IRMI) offers a fantastic online resource for insurance information. Many consider it to be superior to the FC&S Bulletins. We subscribe to both, and I used it as a reference for this simple research project.

Regarding the purchase of insurance for pets, the IRMI notes:

Veterinary bills are increasing much faster than the overall rate of inflation. Part of this reason lies in the advancements of medical techniques and the increasing number of veterinarian specialists. These trends, however, come at a price. Performing a magnetic resonance imaging (MRI) exam on the spine of a cat can cost $1,300. Removing a tumor on a dog can cost $3,700, and implanting a pacemaker can cost $5,500. Even dealing with a dislocated ankle can cost upwards of $5,000. As a result, pet insurance sales are increasing rapidly. Should your clients purchase this coverage? If the answer to any of the questions below is yes, they should seriously consider purchasing this coverage.

• Are they willing to go into debt to provide health care for their pet?
• Do they consider the pet an integral member of the family?
• Are they on a fixed or limited income?
• Would they be willing to spend over $4,000 to save the pet in a life-threatening situation?

Finally, if they decide to purchase this protection, they should carefully compare the rates and policy provisions of at least three well-established pet insurers.

Some of my friends have pretty expensive pets. These exotic and expensive pets may need to be insured, wherever they are, under an inland marine form of coverage called a “Live Animal Floater.” I imagine some of the champions at Westminster had this type of coverage. It was humorously described by IRMI as follows:

It is not clear why this class specifies live animals. It would not make sense for individuals and families to insure most dead animals, although some that have been stuffed might qualify as fine arts.

Pets often provide great emotional value, but insurance covers only their financial value. Therefore, it is not common to insure ordinary household pets. However, some live animals owned by individuals or families have exceptional monetary value that makes insurance feasible. These include exotic pets or purebreds with special value as breeders. For these types of animals, pet insurance is available from some specialty insurers.

It should be noted that damages caused by pets are excluded under most forms of policies. These are listed as additional exclusions in the HO 3 standard form:

(6) Any of the following:

(a) Wear and tear, marring, deterioration;

(b) Mechanical breakdown, latent defect, inherent vice, or any quality in property that causes it to damage or destroy itself;

(c) Smog, rust or other corrosion, or dry rot;

(d) Smoke from agricultural smudging or industrial operations;

(e) Discharge, dispersal, seepage, migration, release or escape of pollutants unless the discharge, dispersal, seepage, migration, release or escape is itself caused by a Peril Insured Against named under Coverage C.

Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed;

(f) Settling, shrinking, bulging or expansion, including resultant cracking, of bulkheads, pavements, patios, footings, foundations, walls, floors, roofs or ceilings;

(g) Birds, vermin, rodents, or insects; or

(h) Animals owned or kept by an "insured"

 The IRMI had a very interesting discussion about this exclusion and a warning about the ability to collect:

Exclusion (6)(h) removes coverage for any losses due to animals owned or kept by an insured. There are those who would argue that by placing the exclusion of animal damage in this list, the policywriters intended to exclude only long-term damage done by the insured's animals. Those who argue this point would say that the principle of ejusdem generis applies and that all items in the list should be read in the same context, i.e. as damages occurring over a period of time.

To clarify, Black's Law Dictionary (5th ed.), says this about the principle of ejusdem generis: "Where general words follow an enumeration of persons or things, by words of a particular and specific meaning, such general words are to be held as applying only to persons or things of the same general kind or class as those specifically mentioned." In the case of this exclusion, the principle of ejusdem generis should be applied within paragraphs, but not between paragraphs.

The principle of ejusdem generis is properly applied to exclusions (6)(b) and (c) as follows.

(b) Mechanical breakdown [specific item], latent defect [specific item], inherent vice [specific item], or any quality in property that causes it to damage or destroy itself. Note that the fourth item represents a general expansion which would be limited under rule of ejusdem generis to other items like the ones listed in this paragraph (6)(b)(1) only.

(c) Smog [specific item], rust [specific item] or other corrosion. Again, the third item represents a general expansion which would be limited under rule of ejusdem generis to other items like the ones listed in this paragraph only.

Those who argue that the policy excludes only long-term damage by animals also cite the principle of noscitur a sociis. This principle requires a list of items that conceptually belong to the same family. Again, it applies within paragraphs, but not between paragraphs. For example, noscitur a sociis applies to (6)(a) as follows.

(a) Wear and tear, marring, deterioration—so that the term "marring" would be interpreted under the rule of noscitur a sociis in light of the surrounding items to include physical imperfections caused by gradual erosion.

There is no indication that the items listed in the various paragraphs of exclusion 6 were meant to be included in the same conceptual family. "Wear and tear" (6)(a) is a mechanical process and is not part of the same conceptual family as "animals owned or kept" in paragraph (6)(h).

Thus, exclusion (6)(h) should be read as eliminating coverage for all damage done by animals the insured owns or keeps. Such animals would include his or her own pets. The exclusion would also apply if the insured were keeping the neighbor's pet while the neighbor goes on vacation. However, any damage done to the home by a wild animal is covered, but damage done by birds, vermin, or rodents is not, because such losses are specified as not covered in (6)(g).

So, keep your dogs, cats, and other pets loved, happy, trained and, possibly, insured. Somehow, keep them from doing any damage to your home.