March 22, 2010

The ISO Floor Dealer Form, CM 00 52, has an exclusion that is very confusing. It states that, “acts or decisions, including the failure to act or decide, of any person, group, organization or governmental body” is excluded. How does this work? Is this used to exclude D&O-type losses?

I’ve tried to explain to our insured and have not succeeded in even explaining to myself.

Missouri Subscriber

The acts or decisions exclusion in this form is found in the majority of ISO property coverage forms. It is intended to prevent coverage for excluded damage that can be traced back to an “act or decision.” For example, an auto dealer decided to park autos in an area next to a stream, which then floods. Assume that flood is an excluded cause of loss. The insured may try to argue that the cause of the loss to the flooded vehicles was the “decision” to park the cars in that location, not solely the flood.

This argument was used many years ago when a dam burst, causing a flood. The case was made that the “decision” not to release water from the dam caused the loss, and not flood. The exclusion subsequently was added to most property policies. Without the exclusion the same sort of argument might be made for earth movement and other types of loss.