We have a term for those who sell insurance based upon personal opinion as opposed to skillful application of knowledge: Erors & Omissions defendants.
In a recent claims education class that I teach, I presented a case in which an insured was seeking coverage for a boathouse located on the end of a dock. The dock ran from the insured homeowner's property out into a major river, and the boathouse was actually a utility building the insured had constructed for storing fishing tackle and boating equipment.
The question before the class was whether a fire loss to the boathouse was covered under Coverage B of the insured's ISO Homeowners’ policy (HO 00 03 05 11). The student consensus was that such a loss would be covered. I then pointed out that under the policy form wording, not only is there no guarantee that the boathouse claim will be paid, but that, technically, it shouldn't be. The applicable wording from Coverage B in the HO 00 03 05 11 reads:
1. We cover other structures “on the residence premises” set apart from the dwelling by clear space. This includes structures connected to the dwelling by only a fence, utility line or similar connection.
Note the key phrase “on the residence premises.” So, in order for coverage to apply to a structure, it must be located on the residence premises. Where is this boathouse located? On the dock over the river. And who typically owns the land under a navigable waterway, such as a major river? The government. So technically, that boathouse is located on government property, not the insured's. Thus, there's no Coverage B protection.
Some would argue that the boathouse is actually located on the dock, which is attached to the insured's residence premises. While that appears to be a good argument, there is a flaw: The word “attached” only applies for structures “connected to the dwelling,” not simply attached to the “resident premises.” Arguing at least part of the dock is located on the premises ignores that the majority of it — more precisely, the posts that support it — is planted firmly in that government-owned riverbed. And Coverage B applies to structures “on the residence premises,” not “partly on.”
Note that even if we were to grant some ambiguity for the “attached” dock in our specific example, that argument would not create coverage if the dock is one of the many that is actually located on public or other private land, and the homeowner is merely granted access to it via an easement agreement.
You may disagree with this reasoning. Which is what brings us to the real problem. Remove this claim discussion and potential disagreement from a claims education classroom and plant it firmly in the real world. To an insured, the answer to all claims is simple: covered or not.
Let's say we have 100 agents in one room. In another, we have 100 owners of boathouses located at the ends of docks running out into a major river. Ask the group of trained insurance professionals about what appears to be a relatively simple claims situation, and you will get a variety of answers: “Sure.” “Not likely.” “Probably.” Now ask the room of insureds and you’ll get one answer 100 times: “Covered!”
Given this understandable claims disconnect between insured and insurance views, is it any wonder we face industry trust issues? How would you feel if you thought an answer to your dilemma was crystal clear, and the other party says “Welllll … .” Clearly it is in everyone's best interest not to leave potentially arguable coverage situations to the possible vagaries of policy form interpretation. Better to nail down the coverage prior to a claim than to find out at the worst possible time — the claim — what every experienced gambler already knows: Depending upon luck over skill is a sucker's bet.
Three solutions under ISO
The current ISO Homeowners’ program provides three methods to resolve our boathouse issue.
First, the declarations page. It includes an area to fully describe what you and the insured consider to be the “residence premises” for insurance purposes. While often thought of as the place for clearly describing a property's location if the mailing address is a post-office box or rural route, it is not limited to such use. A simple clarifying statement such as “including dock and attached boathouse” could work wonders. Now the insurance company is made aware that the structures exist and that the insured considers them to be part of the “residence premises” and thus covered by the policy. If the carrier issues the policy with the additional wording intact on the declarations page, then it in effect affirms that Coverage B applies to the dock and boathouse.
And what if the carrier objects to that declaration? Add the boathouse and dock to the Homeowners’ policy by using one of two applicable endorsements. The second solution is to bring the off-premises structures under the Coverage B policy limit with “Coverage—Other Structures Away From The Residence Premises (HO 04 91 05 11).” A third option is to specifically declare the boathouse (and dock, if desired), along with a specific limit of coverage for each, on “Specific Structures Away From the Residence Premises (HO 04 92 05 11).” Either endorsement might cost a few extra dollars but would be a worthwhile investment.
Chris Amrhein, AAI, is an insurance educator and speaker, and serves as the chief fun officer at Insuranceisfun.com. Opinions expressed in this article are his own.