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

In an article published by IRMI on “Business Interruption Claims for the Hospitality Industry—Is Your Hotel Protected?,” Michael Spear and Christopher Brophy explore certain issues that are typical in the hospitality industry and deserve careful consideration in anticipation of a catastrophic loss.

The hospitality industry has experienced tough times in recent years. Occupancy and average daily rates have declined in many markets across the country, and owners and operators have scrambled to cut costs. Although there has been a reprieve of major insured property losses—such as those experienced from Hurricanes Katrina, Rita, Ike, and Gustav, which hit the Gulf Coast states, and Hurricanes Frances, Jeanne, Ivan, Charlie and Wilma, which hit Florida—the risk of losses from hurricanes, earthquakes, flooding, fire, and other perils clearly remains.

Losses from the Gulf oil spill will be extensive—with a possible time horizon of a decade or more—and will test the mettle not only of BP and other defendants, but of insurers as well. The recent loss suffered by the Opryland Hotel from the flooding in Nashville further reminds owners and operators of the need to be properly prepared and insured.

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Lost Rooms Revenues

The two primary factors that influence lost rooms revenues are occupancy percentage and average daily rate (ADR). There are a number of factors to consider in business interruption losses regarding each of the following areas.

• What occupancy and ADR did the hotel expect to realize during the period of indemnity had the loss not occurred?

• Are the projected occupancy and ADR supported by occupancy trends in the specific market? This information may be available from authoritative sources, such as Smith Travel Research, which tracks and reports occupancy and ADR for a competitive set of hotels in the geographic area.

• Can the hotel document canceled reservations "on the books," including conferences, events, and other reservations? (If bookings prior to the loss are higher than bookings a year ago, that may indicate that the trend would have continued in the coming year.)

One issue facing many policyholders, and hotels are no exception, is an often misconstrued wording in an insurance policy that addresses "loss of market." For example, suppose that a resort hotel is on an island, and the entire island is wiped out by a hurricane. Can an insurer contend that the hotel has no insured loss since there was a complete loss of market (i.e., no tourists are coming to the island any more)?

Many other factors should be considered in preparing a claim and developing revenue projections. Consider the following examples that raise interesting questions.

• A hotel is stuck in a deep local recession. The hotel prepares a rolling forecast that reflects a continued pessimistic look of the economy. Then, suppose the hotel suffers a fire that requires 2 years to rebuild. If the economy recovers during that time, is the insured hotel stuck with preparing a business interruption claim based on the original forecasts?

• A hotel is damaged by a hurricane, which also destroys the competitor's hotel next door. Can the business interruption claim projections reflect the uptick the hotel would have received if the hotel was not damaged while the competitor's hotel was destroyed?

• An island hotel is damaged by a hurricane, and the airport is also damaged, resulting in a reduced number of flights to the island. How should the claim reflect the losses resulting from the airport damage versus the hotel damage?

• A hotel/casino suffers a fire that damages half of the rooms. The casino is not damaged. Does the policy provide coverage for the loss of casino revenue?

• A hotel is adjacent to an independently owned casino that suffers a fire, and the hotel is undamaged. The casino owner decides to rebuild the casino twice the size of the old, and it will take much longer to rebuild. Assuming the hotel has contingent business interruption coverage (that covers an interruption of business due to damage or destruction of the casino), how will the loss be measured? (On the one hand, the hotel will lose revenues while the casino is being rebuilt—including the additional time required to expand the size—but on the other hand, the hotel may benefit by having a larger casino when it does reopen.)

• The risk manager for a large Real Estate Investment Trust that owns hundreds of hotels operated under the same brand receives notice from the General Manager of one location that the property has significant bedbug infestation. The property is closed for 3 months for cleanup and repairs, and other hotels suffer losses due to the negative publicity for the brand. Does the insurance policy respond to these losses? If so, how are they measured?

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Hotel owners and operators are well served to address these critical issues in advance. A well-thought out risk strategy that includes input from the hotel's risk manager, insurance broker, a forensic accountant specializing in insurance claims, and a respected insurance coverage attorney can make a significant difference at a time when the coverage is most needed. 

If you need specific advice regarding the issues presented in the IRMI article, contact an experienced policyholder advocate.

For example, in American Medical Imaging Corp., v. St. Paul Fire and Marine Ins. Co., 949 F.2d 690 (3rd Cir. 1991), the court allowed recovery even though business continued at less than normal level rather than requiring a total cessation of the business operations.

In American Medical Imaging, the insured’s business was damaged by fire. The insured immediately rented space at an alternative site and relocated the next day to a place with substantially fewer telephone lines, which were essential for the business’ operations. The insured did not return to its headquarters for approximately six weeks.

St. Paul denied the claim, citing the fact that no suspension of business occurred, and a lawsuit followed. American Medical lost at the trial level, but prevailed on appeal. Under a provision similar to the one cited above, the court ruled in favor of American Medical:

Under the district court's construction of the policy, the insured would have no motivation to mitigate its losses. Continuing in business at any level would bar recovery because the insured would be carrying on the same kind of activities that occurred at the covered location. We decline to accept the suggestion that this was the intent of the parties. Indeed, other provisions of the policy bear witness to a contrary intent. For example, the policy imposes on the insured an affirmative duty to mitigate its losses:

If you can reduce your loss by resuming operations at the covered location or elsewhere by using damaged or undamaged property ... you agree to do so.

Under the district court's reading, this provision would have imposed upon AMIC a duty, the performance of which would have forfeited its right to recover under the policy. We are confident that such an anomalous result was not intended and choose to read the policy terms regarding St. Paul's duty to indemnify as consistent with AMIC's duty to mitigate.

As pointed out in Total Cessation v. Partial Cessation – Understanding Business Interruption Claims – Part 37, Vincent Morgan’s article in CAT Claims: Insurance Coverage for Natural and Man-Made Disasters, explains that while the “total cessation” approach may have some logic, it also has significant shortcomings:

1. Failing to accurately address the realities of large businesses that operate worldwide on a “round the clock” basis that would never cease operations
2. Creating perverse incentives for insureds to enhance their insurance recovery by not taking all possible steps to maintain partial operations, increasing the loss and decreasing economic output; and
3. Creating inconsistent obligations for insureds because of the corresponding duty to mitigate, leaving an insured that can mitigate a loss by maintaining partial operational capabilities without coverage due to the lack of total cessation.

An interesting article published by IRMI titled, When Does Business Interruption Insurance Coverage Stop?, by Jay M. Levin, also elaborates on the issue.

"Necessary Suspension" Includes Awaiting Equipment Repair

This same issue was raised very recently in federal court in Pennsylvania. In iCue Corp. v. USF&G, Civil Action No. 07-1871 (E.D. Pa.), iCue was in the business of broadcasting mass e-mail and facsimile business communications using highly specialized, proprietary computer equipment. iCue would send communications only to recipients who consented in advance to receiving them, as opposed to broadcasting spam. A covered power surge and ensuing power outage struck iCue's offices, causing more than $200,000 in covered damage to the computer equipment.

USF&G determined that the power outage lasted approximately 7 1/2 days. When power was restored, iCue was able to limp along at a significantly reduced capacity while waiting for USF&G to adjust and pay for the loss to the equipment. USF&G ultimately paid for the physical loss or damage, but took the position that BI coverage was available only for the 7 1/2 days power was out and that BI coverage terminated as soon as iCue resumed any operations.

The parties filed cross-motions for summary judgment on the meaning of "suspension" of operations. The court granted iCue's motion and denied USF&G's motion in a 3-page order. In the footnotes to the order, the court held that "necessary suspension" should not be construed to require a total cessation of business operations. Instead, the court held that the policyholder need show only a necessary reduction of its operations. The court, therefore, granted summary judgment that "necessary suspension" included the time when iCue was limping along while awaiting repair and replacement of its equipment.

The lesson for risk managers is that some policies specifically provide coverage for partial suspension of operations and, given positions being advocated by at least some insurers, a risk manager would be well advised to try to obtain coverage, including an express definition of "suspension" that covers both total and partial cessation of operations. If the policy does not contain specific coverage for partial suspensions, the risk manager should ask what position the insurer will take in the event of a covered loss. If the insurer will take the position that BI coverage terminates as soon as the insured resumes partial operations, either an endorsement should be obtained or a new insurer sought.

A major expense for any organization is employee payroll and benefits (if directly related to payroll and paid by the organization: FICA payments, union dues, and workers compensation premiums) and one that must be reviewed and understood prior to loss as to the extent, if any, that should be continued during the period of restoration. An organization can decide to treat all payroll and benefits as a continuing expense and not remove it from the worksheet and thereby include all within the limit insured. Some organizations may decide that it can lay off certain employees that are not critical for the organization's recovery during the period of restoration. Each organization is different in terms of employee skills, local job markets (low or high unemployment), and cost to retain new employees when prior ones are not available for rehire.

The typical approach for most organizations is to decide what class(es) of employees should be paid during the period of restoration and which ones should not. Most insurers use the term "ordinary payroll" to define that which may be excluded totally or paid for a specific period of time (90 days, 180 days, etc.) by the named insured. Ordinary payroll is a term defined by ISO in form CP 15 10 06 07 as "payroll expenses for all your employees except: officers; executives; department managers; employees under contract; and additional Exemptions, shown in the Schedule as: Job Classifications; or employees." It is possible that certain employees by name or class may fall within the definition of "ordinary payroll" but the organization deems their contribution to be needed during the period of restoration. An exemption to the broad definition of "ordinary payroll" can be used in order to continue payroll and benefits for these key employees. ISO Form CP 15 04 06 07 Discretionary Payroll Expense is used for this purpose.

I find that an example from the National Underwriter FC&S Bulletins is always helpful in understanding the practical application of certain policy endorsements:

Business Income and Ordinary Payroll

Q

A client I handle purchased business income coverage through ISO form CP 00 30. Endorsement CP 15 10 was attached to limit coverage for ordinary payroll to six months. This insured suffered a covered loss and was partially shut down for nine months. I believe he should be allowed to recover ordinary payroll expenses during the entire nine months because the company was only partially shut down.

The insurance company has disallowed ordinary payroll expenses past the six-month time frame. Is that correct?

Ohio Subscriber

A

The standard business income form CP 00 30 provides coverage for the actual loss of business income during the "period of restoration" which, in this case, would be nine months. The form defines business income as net income that would have been earned or incurred had the loss not happened and continuing normal operating expenses incurred, including payroll. Endorsement CP 15 10 limits coverage for ordinary payroll to the period stated on the endorsement.

Since this insured limited ordinary payroll coverage with the endorsement to six months, only the amount accrued during the six-month period of the shutdown can be included in the loss settlement.

Also illustrative is the trial court’s ruling in Consolidated Companies, Inc. v. Lexington Ins. Co., 2009 WL 211751 (E.D. La. 2009). Although this opinion was vacated and remanded by an appellate court on other grounds, the trial court was affirmed on the accounting principles involving the calculation of net profits to the exclusion of ordinary payroll in a case where the business partially resumed operations to minimize its business losses:

Lexington contends that the jury award of $7,071,120 in lost profits as part of the business-interruption claim improperly compensates Conco for its ordinary payroll, which is not covered under the policy. Lexington argues that Conco's computation of its claim for lost profits, by subtracting its actual profit in the aftermath of Hurricane Katrina of $279,006 from the profit it would have otherwise earned is an “end-run” around the exclusion for ordinary payroll. Specifically, Lexington argues that, by deducting $12,900,000 of ordinary payroll in calculating actual net profit, which Conco then subtracted from “but for” profit to compute damages, Conco increased its lost-profit recovery by $12,900,000. Lexington argues that the amount of Conco's net profit after resuming operations must be calculated independently of the amount Conco spent on ordinary payroll. When net profit is calculated this way, argues Lexington, Conco suffered no covered “actual loss” under the policy.

There is no provision in the policy under the “Resumption of Operations” provision that, in calculating the actual profit or loss sustained by the insured during the period of restoration, the net profit prevented from being earned be reduced by ordinary payroll paid during the resumption period. Conco generated over $205,000,000 in revenue when it resumed operations and spent $12,900,000 of that revenue on ordinary payroll. In determining the net profit earned of $279,006, ordinary payroll was properly deducted from the revenue generated during the resumption of operations.

I found the following tips to be insightful for any claim, large or small:

Define the Problem

Problems with property and business interruption claims usually fall into five categories, as follows.

1. Technical disagreement on coverage

2. Valuation and accounting disagreements

3. Questions about the scope of damage

4. Lack of information

5. Personality problems

You will need to define where the problem falls with your own claims team before you move forward with a plan.

Research

Find out more about the issues at hand. Have other companies dealt with the same issues? Have you contacted their risk managers? What experience have you or other clients had with this adjuster? What other claims have they adjusted? Are they well-respected in the field? Are there other corporate clients that you can talk to about their successes or failures in working with the adjuster? What is the adjuster’s experience level? The loss may be too complex for the adjuster to handle. Is your claim consistent with the terms and conditions of the policy? Check with your broker or attorney on coverage issues.

Schedule

Suggest implementing an agreed-upon loss adjustment schedule. Determine what information either party will exchange and when the exchange will occur. “Obtain agreement from the adjuster’s team and your own management team as to the overall goals, priorities and sequence of events and meetings.”

Disclose

Inform your adjuster of your perception of the loss adjustment process in a small meeting. Be specific and mention areas that you find challenging, and suggest some ways to overcome these obstacles. Let the adjuster know that you are responsible for reporting to your management on the claim’s progress. Ask the adjuster for advice on how to resolve items in the claim. Inform the adjuster that you can only allocate a certain amount of time to this project before corporate will ask you to hand over the claim to another group (legal) in your company.

Match Talent

Do you, as the policyholder, have your own qualified claims professional or claims consultant on your team? Nothing can replace time in the field and years of experience in adjusting losses. Your adjuster may relate better to a qualified claims professional with adjustment experience.

Also, check your accounting and engineering expertise. Have you hired your own claim accountant that is independent from the insurance company and its representatives? “Understanding everyone’s role in a business interruption claim is a good starting point to begin to manage expectations.”

Put it in Writing

Request that the adjuster put the issues at hand in writing. A letter may heighten the level of seriousness and ensure that the other side is convinced enough by their position that they will put it in writing. You can also detail out your position in writing to ensure the adjuster and the insurance company know exactly what it is.

Attorneys at the Gate

Insert attorneys into the process. They can assist with negotiations or invoke some method of alternative dispute resolution such as appraisal or mediation. Be sure to select attorneys that specialize in insurance coverage.

Of course, there are many other ways of tackling problems during the claims process. Policyholders should always consider hiring insurance counsel during the early stages of the claim in order to exert more control over the claims process. As with any other problem in life, the key to success is to put yourself in the shoes of your opponent and come up with creative ways resolve your disputes. 

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.