On the Need to Get It Right

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I dont even need to write an introduction, paragraphtransitions, or summary to this one. Itand its pointspeaks foritself. Ill just give it to you like we went through it.

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“Dear FC&S,

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“Our insured has coverage under the CP 00 10 policy [thecommercial property policy] with the CP 10 10 [basic] Causes ofLoss form. At the time the policy was issued, the insured hadpurchased a commercial building that in fact was two buildingsseparated by a firewall. There were no openings or doors betweenthe two. The agent admitted he was aware of this.

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“The insured operated his business out of one building and usedthe neighboring building for storage. The neighboring building atone time was a movie theater with all the contents and equipmentstill in place.

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“A fire occurred in the theater and damaged not only thestructure but such items as the theater seats, curtain, motorizedarm, and other attached items used in the operation of a theaterbut not in the operation of the insured's primary business.

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“Our underwriter states that we only owe for the shell of thetheater building and not to replace such items as the seats andother theater-related items. Claims disagrees, saying that we oweto put the insured back in the condition prior to the loss, even ifthis is not the `business of the insured.

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“What is your opinion?

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“Signed

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Name withheld to protect the innocent”

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***

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“Dear Mr. Withheld,

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“We discussed your question among the analysts here yesterday.We're leaning toward agreeing with Claims, in that we think most ofthe property you list in your question would be covered.

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(I believe you have gotten past the issue of whether the secondbuilding is part of the premises. At first, I thought that waswhere you were going with your question, that the theater buildingmay not be covered premises. However, as you are questioning whatis covered, and not whether the loss is covered, I think we canproceed to the issue of coverage.)

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“The CP policy covers buildings, including fixtures andpermanently installed machinery and equipment. There is norequirement under buildings coverage that the property be such atype as would be used in the insured's operations. That covers theshell, and maybe some of the theater property that are fixtures orpermanently installed equipment.

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“As to business personal property, the policy covers furnitureand fixtures (that would be the theater seats, curtain, etc.) andmachinery and equipment. Anything that is furniture, fixtures,machinery and equipment would be afforded coverage.

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“I see where your underwriter is getting his theory aboutbusiness personal property. Provision b.(4) says that all otherpersonal property owned by you and used in your business isafforded coverage. This language is not part of b.(1) furniture andfixtures and b.(2) machinery and equipment. It is meant to coverthings like radios, tools, etc. that are owned by the insured andbrought to be used as part of the business. If a radio could besaid to not be used in the business, then there would be nocoverage for that item. But that does not affect coverage forfurniture, fixtures, etc.

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“So the issue comes down to valuation rather than coverage. Thevaluation of these items may pose some question, but we don't thinkthat coverage for these items is part of that question.

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“Regards,

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“Bruce Hillman, JD, Editorial Director

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Risk and Insurance Markets

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Professional Publishing Group

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The National Underwriter Company”

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***

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“Dear Mr. Hillman,

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“Thank you very much. I assume that you do feel there iscoverage for the building? I ask because of your comment in thefirst paragraph that is in parentheses.

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“Joe Withheld”

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***

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“Dear Joe,

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“That is probably a more complex question, and one that mayinvolve more legal than insurance coverage professional advice.

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“My initial thought is to look at the declarations page of thepolicy. What is the description of the insured premises and/orproperty?

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“You say there is a firewall between the properties, but is itunder one roofline? Is the policy written to cover 112 Main St.,but the insured's buildings are actually 112 and 114 (i.e., do theyhave separate addresses, such that the underwriter was onlycontemplating coverage on one and not two addresses)?

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“Is the square footage listed in the app equal to that of bothpremises? How is the property described in the application forinsurance?

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“What I'm getting at is the question of what premises is theunderwriter underwriting? Did the agent give enough information?Did the underwriter come back with the right questions?

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“You mention that the agent was aware of the situation. Did theappropriate information get to the underwriter? (I'm getting atwhether this is a loss covered by the insurance company, or theagent's E&O coverage?)

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“I guess I'm asking was everything done right?

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“How did a fully-equipped theater building (in operation ornot) get insured without anyone at the insurance company knowingwhat was in it?

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“Regards.

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“Bruce”

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***

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“Dear Bruce,

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“To your question, the answer is yes. The agent reports knowingthat it was for the entire building. There are separate roof lines,but the purchase was for both buildings with the appropriate squarefootage listed for both buildings.

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“To me it is a case where the insured went to the agent to getcoverage and the screw-up occurred between the agent andunderwriting on the appropriate amount of coverage and type.

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“Again, thanks for your help.

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“Joe”

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***

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“Dear Joe,

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“I completely agree with your assessment. That's the way we sawit.

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“Bruce”

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Bruce Hillman, JD, is Editorial Director of Risk andInsurance Markets for the Professional Publishing Group of TheNational Underwriter Company, in Erlanger, Ky. Questions andcomment are invited at [email protected].


Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, January 27, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved.Copyright in this article as anindependent work may be held by the author.


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