Last month, when presenting at the Windstorm Insurance Network’s 17th Annual Conference in Orlando, my panel discussed the Anatomy of an Insurance Policy. This basic course examined residential and commercial properties, and in both sessions we had lively discussions about some fundamentals. The members of WIND made the discussion much more captivating for a discussion getting down to brass tacks of policies.1

Part of our seminar discussed all-risk insurance policies versus named peril polices. Under the all-risk policy for a dwelling, the provision we discussed required direct physical damage to the property to be covered.. Of course, all-risk doesn’t mean that every single type of direct physical loss is going to be paid, because the insurance policy has devoted an entire portion of the policy to limiting and excluding coverage. The burden of proof of “the job” of the policyholder under this type of policy is to show its insurance company that a fortuitous loss happened during the policy period and then if the insurance company believes that the policy does not cover this type of damage, it has to prove that the peril or damages are excluded.

We have posted many other blogs about this topic including:

Today, I want to look back in time at an interesting case from Hurricane Floyd.2 By the time the storm forces of Hurricane Floyd hit Alexandria, Virginia, the impact was less brutal but an apartment complex that was under construction suffered damages. The court opinion says the buildings were “hammered” by Hurricane Floyd. The insurance company claimed that the apartment was already in a deteriorated condition and the building components damaged needed replacement prior to Floyds wrath. The trial court found in favor of coverage for Park Center Apartments, and the insurance company appealed.

Park Center Apartments’ policy was an all-risk policy and it covered physical losses to the covered property unless those losses were specifically excluded under the policy. Everyone agreed the hurricane was a fortuitous loss not excluded in the policy. However, the carrier denied paying for gypsum panels and made the point that the panels were already in bad shape before the storm. The gypsum panels were to be covered with exterior cladding and were not made to be exposed to the elements for extended periods but the storm hit before cladding was put on certain apartments. What makes it interesting is that before the hurricane, the original general contractor on the project had determined that certain gypsum panels on one of the buildings had been exposed to weather, they were deteriorated and would have to be replaced. The subcontractor had replaced many panels but stopped in the beginning of the summer, nearly three months before the hurricane. The project was halted and the general contracting company was replaced.

When the new contractor stepped in, the crews determined that the gypsum panels in place and exposed could be used and some minor repairs were all that were needed. Interestingly, the new contractor was hired just the day before the hurricane hit, damaging the buildings—including the gypsum sheeting.

The apartment filed an insurance claim requesting coverage for the damage to the trusses, the electrical switchgear, the plywood, the gypsum sheathing, and other components.

The insurance company denied the property damage claims with the allegation that the damages were excluded (because they were already in bad shape) or because they were not covered damages.

The trial court found coverage for the claimed damages and the appellate court confirmed with the reasoning below:

After careful review of this evidence, we have no doubt that the district court’s factual determination was not clearly erroneous. As the court pointed out, the 40 to 50 photographs revealing isolated damage to certain panels prior to Floyd are fairly insignificant in light of the over 17,000 panels that required replacement post-Floyd. Indeed, the post-Floyd photographs show the nearly complete destruction of almost all visible panels, whereas the damage in the pre-Floyd photographs can be found only after a careful, panel by panel search through the pictures. Additionally, as noted above, the district court placed more weight on the testimony of four witnesses who had personally inspected the gypsum panels than on the 30-day national standard. Far from being clearly erroneous, this treatment of the evidence strikes us as proper. Finally, the court pointed out the significant fact that Clark Construction, the new general contractor for the Project, had examined the gypsum sheathing and planned to use it, with minor repairs, until Floyd hit. Accordingly, the district court’s determination that most of the gypsum panels did not require replacement prior to Floyd was not clearly erroneous.

While the insurance company had the burden of proving the exclusion, it shows that the apartments put forth significant evidence to rebut the exclusion and the denial.

Park Center Apartments was entitled to be reimbursed for placing itself in the same position it was in prior to Floyd. You can read the complete opinion here.

It is critically important to read and review your policy when your property has suffered damage. But understanding coverage—on confusing forms that give you coverage, take it away in another section, and give back coverage in yet another form—is not simple. Luckily, people like policyholder lawyers and public insurance adjusters dedicate their practices to policy coverage analysis and to helping you.

Specific to homeowners, another great resource to breakdown the basics of the residential insurance policies is a guide published by United Policyholders: A Simplified Guide to Your Homeowners Policy. Public adjusters should print out this guide and provide it to homeowners to help give a glossary of explanation about property insurance issues. We often speak in code of ALE, O&L, EUO, ACV and RCV. United Policyholders’ helpful guide puts residential insurance specifics in plain English.

1 Special thanks to my WIND panel members David Shaw, Esq. and Kathleen Spinella., and a big thank you to everyone who attended our seminars. Hope to see you next year.
2 Park Center III Limited Partnership v. Pennsylvania Mfrs. Ass’n Ins. Co., 30 Fed. Appx. 64 (4th Cir. 2002).