Because policy interpretation can play such a large role in coverage, every insured needs to be armed and informed with as much information as possible. One way to decode the policy is to use various shades of highlighters to link policy provisions. Read through and highlight the policy to see when coverage is provided, limited, and excluded. For example, with a Florida residential policy and orange highlighter, one can read the policy for all provisions that might relate to sinkhole. Related provisions could include policy provisions relating to earth movement, endorsements forms detailing coverage for sinkhole, sections relating to catastrophic ground cover collapse, the neutral evaluation process, and the definition sections. Next, read all the highlighted orange sections and jot down your list of questions about your sinkhole coverage or lack of coverage. Repeat the process, using the different shades of highlighters, for other perils. In the end, even a savvy insured will likely have a series of questions. There is still the opportunity to seek answers to your concerns if you act now, before a court does the answering for you.
In the recent case of Certain Interested Underwriters at Lloyd’s London v. PITU, Inc.,1 the appellate court declared the policy’s $25,000.00 water loss limitation was the sole recovery, even though the insured suffered nearly a million in damages. This opinion is hot off the presses and will not be final until after the re-hearing period, but the opinion is available here. In PITU, the Third District Court of Appeal explained why it reversed the trial court decision which sided with the policyholder and did not applying the limiting endorsement.
The facts of the case may be familiar to public adjusters who deal with these claims on a regular basis. While the policy was in effect, a water pipe located in one of the upper stories burst. Due to the size and nature of the loss, extensive damage occurred, causing damages to both the home and contents. The insured made a $40,236.00 claim for personal property and $907,325.65 claim for the dwelling. Lloyds estimated the damages to be $673,378.28 but applied an endorsement limiting the loss to only $25,000.00.
When the insureds sued Lloyd’s they argued they paid extra for the endorsement to cover other types of water damage that would normally be expressly excluded under the policy, but that the subject loss was covered under the all risk policy because it was not the type of loss designed to be classified under the $25,000.00 limitation. The court agreed with the policyholders stating "I don’t think the limitation [endorsement] applies to the water damage complained of here." Summary judgment was entered in favor of Pitu.
On appeal, the Third DCA wrote that the policy must be read as a whole and because the endorsement is unambiguous they declared the loss is limited.
The endorsement reads:
Water Damage Aggregate Limitation
…it is hereby understood and agreed that such insurance as is afforded by the policy, loss(es) paid arising out of, or caused by water damage, shall be subject to a maximum amount of $25,000.00 during the policy term.
This was a situation where the insured could have benefited from studying the policy. A quick review of the declaration page might have only indicate that the home was insured for more than a million dollars, and omitted the crucial limitations contained within the policy. To evaluate the limitations, an insured needs a complete copy of the policy and the endurance to scrutinize the policy and ask questions.