Skip Ribbon Commands
Skip to main content

Ask An Expert Briefs

Big "I" Virtual University VUpoint Newsletter
REPRINT: March 13, 2020 Edition
Copyright  2020 by the Independent Insurance Agents & Brokers of America, Inc.

The Virtual University's Ask An Expert (AAE) service may be our best known member benefit. Daily we receive questions from members wanting help with denied claims, coverage and procedural issues, and agency management concerns. Our faculty includes some of the nation's foremost experts in the insurance industry. These volunteer faculty members generally charge for the time they give to our members. Think about that, the insight you get through our AAE service costs nonmembers THOUSANDS!

For the next two weeks, VUpoint subscribers have access to a few of these incredible insights right here. When the next edition of VUpoint is published, this AAE content go back into the members-only vault. And remember, beyond having access to all of our valuable Ask An Expert content, only members are allowed to ask the questions.


Coverage for Property Damage Caused by Wind

Is it typical for companies to exclude property damage to the interior of a building when the door is pushed open by wind? Our insured was hit by winds at or above 50 miles per hour causing a door to be pushed open. Snow drifted in, causing damage to the wood dance floor.

In reading the coverage form, it appears this would be covered only if the building or structure first sustained damage to the roof or walls from a covered cause of loss through which the rain, snow, sleet or ice, sand or dust enters for there to be coverage.

In this case, the door just blew open, is there coverage? 

Answers

This is in fact typical. I've seen it often. Speaks to moral or morale hazard. Why didn't they just close the door, if in fact it wasn't damaged?

==============================================================================

Yes, it's typical, this wording (or similar) is in most every commercial property policy in the marketplace.

Are you sure the lock/latch is not bent? Or the jam messed up? Wind is a covered peril, but you have to show it damaged the building then you get coverage for your claim.

If the door just blew open because it wasn't closed correctly or the lock wasn't working right there is no coverage and the carrier is correct, no damage to the building no coverage.

==============================================================================

Yes, it is typical, as noted in the policy wording, for the insurer to require actual damage to the building (i.e. the wind propels a branch through the window) before they pay for damage to the interior of a building. I don't think wind pushing a door open would constitute damage to the exterior of the building. Of course, if the wind blew the door open by damaging the mechanism that keeps the door shut or damage hinges, then it would seem to constitute damage to the exterior of the building.

==============================================================================

If the door simply opened without being damaged, that doesn't sound like it triggers coverage.

=============================================================================

Insurer is correct in its denial. There must be exterior damage. It would be impossible to distinguish between accidentally left open and blown open.

==============================================================================

As you stated there must be damage to the building before wind driven rain is covered for damage inside the building.

==============================================================================

The exclusion cited by the adjuster is not unusual and is in many policy forms. Did the lock on the door break allowing it to fly open or did the door jam give way? If so that should be classified as damage to the building.

==============================================================================

The wording is clear (surprising). Damage must occur. There would be numerous and questionable claim for coverage on lamps and other items being damaged by wind coming in through open windows/doors!

==============================================================================

That's why the language is in the policy so that when someone does not close the door so that the lock catches or leaves a window open when rain is expected. Now if the wind was so hard that it blew the lock or hinges apart; now we have damage to the building and should find coverage.



Named Insured Triggering Coverage

Does a Named insured need to be named in a claim/suit for coverage to be triggered on a policy for an additional insured? I am speaking of an ISO CGL policy with CG 20 10 and CG 20 37 AI forms attached specifically listing GC as an AI. 

Answers

No. The additional insured is an insured, and section IV.7. of the policy, Separation of Insureds, says in part that “this insurance applies (b) separately to each insured against whom claim is made or “suit" is brought."

=============================================================================

No, the named insured does not need to be named in a suit for additional insured coverage to apply. The requirement is only that the BI or PD must be caused, at least in part, by the acts or omissions of the named insured (or the acts or omissions of those acting on behalf of the named insured). But that does not mean that the named insured must be a named defendant in the complaint.

To determine the actual extent of coverage the additional insured is provided does depend heavily on the facts and circumstances of the case, however.

==============================================================================

Not necessarily, but the named insured must have some liability to trigger coverage for the AI on the current forms (no edition dates were provided in the question). If the insurer doesn't agree that the named insured is culpable in some way directly or vicariously, then that might require a formal charge. In most cases, a smart attorney will ALLEGE liability on the part of anyone connected to the work.

==============================================================================

No. Not necessarily. 

==============================================================================

No! All insureds are covered separately. But be careful of the additional insured edition date. Since July 2004, many additional insured endorsements DO REQUIRE that the named insured, or the people they are responsible for, be at least partly negligent for the loss.

=============================================================================

The Additional Insured has coverage for claims arising out of the activities of the Named Insured. Is the complaint for injury or damage arising out of the Named Insured's operations?

==============================================================================

Not necessarily.

==============================================================================

Depends on the edition of the form. If it's later than 2001 then the AI only has protection for liability arising “in whole or in part" from your insured's work. No protection for sole liability. That's why contracts often ask for a CG 20 10 11 85 or its equivalent. Of course, this is referring to ISO forms and your company forms might be different.

==============================================================================

Typically, no. However, the additional insured's coverage only will be to the extent described in the AI form.

==============================================================================

The additional insured has no rights under the contract until the First Named Insured advises the carrier of record that the policy may incur a claim. The First Named Insured must supply all relevant information allowing the carrier to make a determination of coverage and a reservation of rights during this investigation.

I recommend that each party review the terms and conditions of their respective policies along with contract information relevant to the aforementioned claim. 



Equipment Breakdown Coverage Denial

We have a food distributor client on a BOP which includes equipment breakdown. About 45 days ago, their storage facility had an ammonia leak. The insured turned in the claim but subsequently received a denial letter from the carrier because the insured did not provide a diagnosis from a certified refrigeration contractor. It turns out, the landlord, through their counsel, said there was no diagnosis done; the landlord simply chose to replace the refrigeration unit. The carrier is holding firm on their denial, but I am struggling with this denial because the insured, through no fault of their own, is caught with no food contamination coverage due to no proof of an "accident." I would appreciate feedback on this as I have always known equipment breakdown to be broad coverage and this seems very limited.

Answers

The carrier is within its rights to make sure that the loss arose from a covered incident, in this case an “accident" as defined in the policy. The burden of proof is on the insured to demonstrate that none of the exclusions (i.e., wear and tear, etc.) contributed or caused the loss. In my opinion, the carrier has appropriately denied the claim.

Is there no way that the landlord can demonstrate that the loss occurred as a result of an “accident," and was not simply a replacement of an otherwise worn-out refrigeration unit? Or, does your insured's rental agreement with the landlord address this situation where a failure to the refrigeration equipment causes a loss to your insured's property and where your insured would be reimbursed? If neither of these questions are a “yes," I am afraid that the claim denial is in order, barring a court's determination compelling the carrier to cover the alleged “accident."

=============================================================================

I can sympathize but without proof that an accident occurred there is no coverage trigger. The insured may want to contact an attorney. Since the landlord's actions caused a claims denial for the food that was stored in the leased equipment they may seek reimbursement from the landlord for the damaged food items. It could be a costly and lengthy issue which may damage an otherwise good relationship, but insurance policies are contracts. All policies require that a loss be "covered" before payment can be made. The landlord's actions, although innocent and possibly done to get the units up and running quickly, have caused the insured a financial loss.

==============================================================================

If I understand the situation correctly, the adjuster's beef is that he didn't get to inspect the equipment that caused the loss. Otherwise, the loss appears to be specifically covered, up to the policy's $50,000 limit for ammonia contamination. There's probably no way for a tenant to force the landlord to cooperate, but it seems odd that the tenant wouldn't have access to the freezer where the damage took place. Something seems to be missing here, and I would suggest an informal meeting with the adjuster to get to the real reason for the denial. Failing that, the insured needs to retain an attorney to wring the specific reason for denial out of the adjuster. His letter isn't specific.

==============================================================================

The denial letter seems accurate. Since the landlord would not (and the insured cannot) prove the cause of loss, it can't be determined as one of the five events which would be covered as defined by the policy. It's not a reflection of how broad the coverage is (which it is) but more so an enforcement of the terms and conditions.

==============================================================================

Proof is always required. The adjuster should have done the investigation. I'd ask to talk to the claims manager.

==============================================================================

With equipment breakdown coverage you have to save the part for the carrier to see otherwise there is no proof the loss was actually mechanical breakdown. Somewhere along the way it should have been communicated with the insured of the requirement to save the broken part and the insured should have communicated with the landlord of this need to prevent the unit from being taken away.

At this point you could see about getting a statement from the equipment technician or even calling them and see if they by chance still have the unit they removed which would allow the insurance carrier to view it.

==============================================================================

I would try an appeal to the claims manager. However, if there is no proof of loss as to WHY the equipment failed, I do not see much hope of recovery.

image 
​127 South Peyton Street
Alexandria VA 22314
​phone: 800.221.7917
fax: 703.683.7556
email: info@iiaba.net

Follow Us!

Empowering Trusted Choice®
Independent Insurance Agents.​