Dick Tutwiler of Tutwiler and Associates has written the guest blog post below. We welcome public adjusters, claims professionals and other insurance gurus to share interesting and informative articles for our blog readers. In this post, Mr. Tutwiler explains how an exclusion of coverage in a policy actually helped him to prove his clients were not under-insured as the carrier alleged and avoid penalties. This is a great post for a read on a relaxing Saturday since this claim takes place in the wonderful location of the Dutch Windward Island Chain of the Caribbean.

The devil is in the details when applying complex property insurance policy language to the facts of a loss. Let me explain by using one loss resulting from Hurricane Gonzalo in the Caribbean as an example. There was no dispute that a hurricane hit our client’s island resort damaging the hotel rooms, restaurant, a strip shopping mall, and a very large marina. Roofs were blown off, windows broken, awnings blown away, a large commercial ferry torn from its moorings and crashing into the docks, assorted other boats sunk or were driven into the shore. Yes, there was a lot of damage, requiring the scope and price to replace and repair to be determined. This process is always problematic but that is what we do, figure it out and then engage with the insurance company’s adjuster with the goal to settle the claim.

However, settling a claim is almost impossible if after the fact, the details of the policy coverage are unilaterally changed by the insurance carrier. We call this post loss underwriting. Here is how it’s playing out with one British insurance subsidiary based in the Cayman Islands. Post loss, they are claiming our client does not have enough insurance to value to be paid for their full loss. In the U.S., this is called Co-Insurance, which means you must carry insurance based on an agreed percentage to the value of the property insured to receive full payment for your loss. The reasoning for this is based on actuarial science that supports the proposition that most losses are partial and thus one may recover full cost to repair while only insuring for some lesser amount of the value. Another insured may pay a higher premium for the full insured value of their property and receive the full cost of repairs, while another insured may pay a lower premium to insure for half the cost but get the same payment by the insurance company for a partial loss if it falls within the coverage. Thus an inequity in underwriting that can be significant overtime. So co-insurance or a requirement to insure to some agreed value is required and if not, a penalty applies to the settlement.

In a lot of British forms, this requirement to insure to value is called the “Average Clause” which has the same requirement to insure to value in order to get a full payment for a loss. So in our present case, the insurance carrier is saying our client is 50% underinsured, so they will only get 50% of the damaged claimed! But how can this be, our client said they asked for full coverage?

Well, after months of back and forth the insurance company said the steel and concrete piles in the marina were insured property and a premium was not collected for their value. The response was that the broker was told that the piles were not to be covered as they had gone through a number of hurricanes including Hurricane Louis, a monster storm, with no damage to the piles. And besides, the policy had an endorsement that said the “docks, jetties, and piers” were excluded for coverage due to a “natural disaster,” which clearly Hurricane Gonzalo, a hurricane was.

So, on the one hand, the insured said the piles did not need to be covered as they were never going to be damaged, and on the other hand the insurance company said since the docks were covered for all risk except for “natural disaster,” the piles were still part of the “insured property” and thus needed to be thrown into the mix to determine the average clause penalty.

But wait! The policy clearly says the docks, jetties and piers are excluded from coverage due to a natural disaster. So in effect, they were not insured property like the resort buildings that were damaged by the hurricane. As an aside, the docks or walking surface were insured for all risk but not for a “natural disaster.” So my question to my counterpart in the Cayman Islands was: “how can you use the value of property not insured to apply a penalty to the property that is insured (resort buildings that were covered) for all risks including natural disaster?”

Well, this is where it really gets interesting.

The reply from the claim officials stated the items (docks jetties, piers) were in fact covered for a “natural disaster!” My response: “ok, if you say so, but you may want to read the broker’s notes and the policy endorsement that says otherwise.”

Then silence for a couple of days until I sent a follow-up email confirming, “do we in fact have coverage for docks, jetties and piers for the upcoming 2015 hurricane season that starts in 30 days?”

Then the other shoe drops.

Mr. Tutwiler, “we may have been reading from different hymn books. I am currently seeking confirmation about our documents and will be back in touch with you.” In adjuster speak, it means they will likely ring up London. “Hey London, we have an issue with one of your policies in the Caribbean. How would you like us to respond?”

As this now stands, we are waiting on the Cayman Island claim representatives and perhaps London who backed this insurance scheme to make a final coverage determination. While we are fairly certain we kicked the can back to them on the Average Clause, we still have issues regarding the scope and pricing of the loss. Right now, we have some points on the board and just need to bring it home for our client.

To follow how this claim progresses, be sure to visit Tutwiler and Associates blog, On Property, at