We have a term for those who sell insurance based upon personalopinion as opposed to skillful application of knowledge: Erors& Omissions defendants.

In a recent claims education class that I teach, I presented acase in which an insured was seeking coverage for a boathouselocated on the end of a dock. The dock ran from the insuredhomeowner's property out into a major river, and the boathouse wasactually a utility building the insured had constructed for storingfishing tackle and boating equipment.

The question before the class was whether a fire loss to theboathouse was covered under Coverage B of the insured's ISOHomeowners' policy (HO 00 03 05 11). The student consensus was thatsuch a loss would be covered. I then pointed out that under thepolicy form wording, not only is there no guarantee that theboathouse claim will be paid, but that, technically, it shouldn'tbe. The applicable wording from Coverage B in the HO 00 03 05 11reads:

1. We cover other structures “onthe 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 orderfor coverage to apply to a structure, it must be located on theresidence premises. Where is this boathouse located? On the dockover the river. And who typically owns the land under a navigablewaterway, such as a major river? The government. So technically,that boathouse is located on government property, not theinsured's. Thus, there's no Coverage B protection.

Some would argue that the boathouse is actually located on thedock, which is attached to the insured's residence premises. Whilethat 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 leastpart of the dock is located on the premises ignores that themajority of it — more precisely, the posts that support it — isplanted firmly in that government-owned riverbed. And Coverage Bapplies to structures “on the residence premises,” not “partlyon.”

Note that even if we were to grant some ambiguity for the“attached” dock in our specific example, that argument would notcreate coverage if the dock is one of the many that is actuallylocated on public or other private land, and the homeowner ismerely granted access to it via an easement agreement.

You may disagree with this reasoning. Which is what brings us tothe real problem. Remove this claim discussion and potentialdisagreement from a claims education classroom and plant it firmlyin the real world. To an insured, the answer to all claims issimple: covered or not.

Let's say we have 100 agents in one room. In another, we have100 owners of boathouses located at the ends of docks running outinto a major river. Ask the group of trained insuranceprofessionals about what appears to be a relatively simple claimssituation, and you will get a variety of answers: “Sure.” “Notlikely.” “Probably.” Now ask the room of insureds and you'll getone answer 100 times: “Covered!”

Given this understandable claims disconnect between insured andinsurance views, is it any wonder we face industry trust issues?How would you feel if you thought an answer to your dilemma wascrystal clear, and the other party says “Welllll … .” Clearly it isin everyone's best interest not to leave potentially arguablecoverage situations to the possible vagaries of policy forminterpretation. Better to nail down the coverage prior to a claimthan to find out at the worst possible time — the claim — whatevery experienced gambler already knows: Depending upon luck overskill is a sucker's bet.

Three solutions under ISO

The current ISO Homeowners' program provides three methods toresolve our boathouse issue.

First, the declarations page. It includes an area to fullydescribe what you and the insured consider to be the “residencepremises” for insurance purposes. While often thought of as theplace for clearly describing a property's location if the mailingaddress is a post-office box or rural route, it is not limited tosuch use. A simple clarifying statement such as “including dock andattached boathouse” could work wonders. Now the insurance companyis made aware that the structures exist and that the insuredconsiders them to be part of the “residence premises” and thuscovered by the policy. If the carrier issues the policy with theadditional wording intact on the declarations page, then it ineffect affirms that Coverage B applies to the dock andboathouse.

And what if the carrier objects to that declaration? Add theboathouse and dock to the Homeowners' policy by using one of twoapplicable endorsements. The second solution is to bring theoff-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 tospecifically declare the boathouse (and dock, if desired), alongwith a specific limit of coverage for each, on “Specific StructuresAway From the Residence Premises (HO 04 92 05 11).” Either endorsement might costa 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 thisarticle are his own.