An insurance agent is only required to obtain the insurance requested by the insured. The insurance agent does not guarantee that every claim the insured presents will be covered by the insurer.

In Glasser v. M&O Agencies Inc., an insured sued his agent because the policy he ordered was not in effect at the time of a loss. The agent's defense was that there was no coverage for the loss.

Repairs or renovations?

In March 2010, Elliott J. Glasser bought a large commercial property (called the McDowell Property) that was previously an automobile dealership. Glasser's employees began cleaning and making repairs, but Glasser did not lease the property or occupy it himself.

Glasser, through his insurance agent M&O Agencies, added the McDowell Property as a scheduled location on his existing commercial insurance policy from Cincinnati-based Great American Insurance Co., which covered the McDowell Property with property and liability insurance. In April 2010, and at the direction of an employee of Glasser's business, M&O Agencies instructed Great American to delete the property coverage for the McDowell Property.

On July 6, 2010, Glasser discovered theft and vandalism at the McDowell Property, and submitted a claim for the loss to Great American. The carrier denied the claim because the policy did not cover property damage at the McDowell Property, and the property had been vacant for more than 60 days before the loss, a vacancy exclusion term under the policy.

Glasser filed a lawsuit against M&O Agencies, alleging that it breached the agreement by failing to obtain appropriate insurance coverage for the McDowell Property, and negligently misrepresented that it had secured appropriate insurance coverage for Glasser's real properties.

M&O Agencies moved for summary judgment on the grounds that Glasser had produced no evidence that the policy would have covered the loss even if it had been in effect and that Glasser, therefore, could not prove that M&O Agencies' allegedly negligent conduct caused him any damage. In response, Glasser maintained that an exception to the vacancy exclusion for buildings under “renovation” applied because his employees had been readying the building to serve as his business headquarters. M&O Agencies argued, however, that Glasser's activities at the McDowell Property constituted routine maintenance and repair, not renovation.

The Arizona trial court granted summary judgment for Mahoney, ruling as a matter of law that there was insufficient evidence for a jury to find that the McDowell Property was under renovation at the time of the loss. The court determined that the evidence only supported an inference that the McDowell Property was being cleaned, repaired and maintained, and such acts, as a matter of law, did not constitute “renovation.” Glasser appealed.

Was there enough evidence?

The appeals court found a question of fact regarding whether the activities of Glasser's employees at the McDowell Property during the relevant time qualified as “renovation.” The evidence showed that two of Glasser's employees were at the McDowell Property every day after the purchase making changes and repairs to render the property acceptable as a business headquarters. If Great American and Glasser intended that the policy's renovation exception would apply only to substantial reconstruction activities, rather than minor repairs or cleaning, the court said, they were free to specify that meaning in the policy.

On appeal, Mahoney argued that courts from other jurisdictions have read similar policy language in conjunction with the overall purpose of a vacancy exclusion (to exclude coverage for those buildings that might invite liability and damage) and have refused to find an exception to a vacancy exclusion when the insured's activities at the property were not substantial and continuing.

Accordingly, even though the activities at the McDowell Property might not have been what is ordinarily envisioned by the word renovation, the Arizona Court of Appeal concluded that there was a question of fact under the policy whether the activities on the property were “renovations.” As a result, the court reversed the ruling for Mahoney on the grounds that, even if it had remained in effect, the policy would not have covered Glasser's loss because of the vacancy exclusion.

Factual issues almost always defeat summary judgment. The question of whether the exception to the exclusion applies is clearly factual, and that is why the summary judgment was reversed. The agent's error was to make a motion based on the exclusion rather than on the fact that the insured — through his employee — told the agent to cancel coverage for the building. Because the policy was not in effect there was no coverage, and that is why Great American wasn't sued.

Barry Zalma, Esq., CFE, is a California attorney, insurance consultant and expert witness specializing in insurance coverage, claims handling, bad faith and fraud. Contact him at zalma@zalma.com.

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Arizona appeals court weighs in on renovation policy exclusion

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