The owner of a used auto sales business in St. Petersburg, Florida, was recently involved in an insurance coverage dispute.1 The owner was issued a “garage policy” which contained a form titled “Additional Conditions and Exclusions,” which was included with the quote the owner initially obtained from the insurance company the month before. This form explicitly stated that the insurance company would not pay for loss due to theft of an auto or any portion of an auto if:

a. The lot where the “autos” are located is not protected (all entrances, exits, or openings, and the entire perimeter surrounded by fences with gates or heavy chains and locks); or
b. The building where the “autos” are located is not protected with locked and secured openings.

Before issuance of the policy, the insurance company inspected the owner’s property and it was apparent that the lot was unprotected. However, the next day, the insurance company issued a policy to the owner which contained the above exclusion. After this date, one of the vehicles was stolen from the owner’s unprotected lot. The owner filed a claim for coverage under the policy and the insurance company, in denying coverage, claimed that the theft was excluded from coverage because the vehicle was stolen from an “unprotected” lot.

The issue before the court was whether it was proper for the insurance company to enforce the exclusion when it was aware at the time it issued the policy that the lot was unprotected. Here, the appeals court held that the insurance company did not engage in inequitable conduct by adding the exclusion to the policy the day before it issued the policy, and therefore the policy was not rendered illusory because the exclusion appeared in the insurance company’s initial quote to the owner and the policy provided coverage for risks other than theft:2

"There is a fundamental difference, however, between an enforceable exclusion that pertains to a particular kind of loss but leaves other coverage intact, and an exclusion that completely contradicts a grant of coverage. Colony Ins. Co. v. Total Contracting & Roofing, Inc., 2011 WL 4962351 (S.D. Fla. 2011) [23 Fla. L. Weekly Fed. D397a]. In order for coverage to be considered illusory, an exclusion must entirely contradict the insuring provisions. . . . the policy exclusion in the instant case, like that in Colony Ins. Co., does not entirely contradict the insuring provisions. All exclusions, by definition, exclude something from coverage, and to that extent will always contradict some aspect of a general liability insurance policy. The protected lot policy exclusion only excludes coverage of theft from an unprotected lot. The policy provides coverage for a myriad of other risks, including liability, personal injury protection, medical payments, uninsured motorist, and property damage. Refusing to insure all risk does not render an insurance policy illusory."

Therefore, the court held that the unprotected lot policy exclusion was clear, unambiguous, and did not completely eviscerate coverage or contradict other terms of the policy. This case serves as an example of why it is critical for policyholders to be familiar with the terms and exclusions of their particular policies and to pay close attention to initial quotes from an insurance company which contain such exclusions.

1 Shutt Enterprises, Inc. v. Century Surety Co., Case No. 13-0043-AP-88B, 21 Fla. L. Weekly Supp. 734a (Fla. Circuit Court, 6th Judicial Circuit – Appellate May 5, 2014).
2 Id.