Covered Property is the Issue
December 3, 2012
This matter came before the U.S. District Court on the insurer's motion for summary judgment. The case is Discover Property & Casualty Insurance Company v. The Mitchell Company, 2011 WL 5037381.
Discover commenced a declaratory judgment action against The Mitchell Company seeking a declaration that coverage does not exist for damage or loss that Mitchell alleged for a theft loss of copper piping and fixtures. Mitchell claimed that in July 2006, persons unknown to Mitchell stole copper piping and fixtures from vacant apartments managed by Mitchell. The premises were insured under a commercial property policy issued by Discover.
Discover claimed that it is not obligated to cover the alleged theft because copper piping and fixtures at the apartment complex do not constitute covered property as defined by the policy. Specifically, the insurer argued that the piping and fixtures constituted “other real property” that Mitchell did not own during the policy period, and the policy defined real property as “buildings, structures, and other real property that the named insured owns”. Mitchell did not dispute that, as defined by the policy, the stolen property would be considered “other real property”, especially since Alabama law considered a chattel to be converted to real property and deemed a fixture when it becomes an accessory to and part and parcel of the realty by being physically annexed or affixed to the realty. Accordingly, the court found that as a matter of law, the articles at issue in this case were real property, as that term is employed in the policy.
Mitchell also conceded that it did not own the copper piping and fixtures. Nonetheless, Mitchell argued that the policy specifically covered the apartment complex that suffered the loss, that parol evidence regarding the parties' course of dealing demonstrates that the parties intended for the policy to cover real property that Mitchell did not own, and that the wording in the policy was so broad as to impermissibly render the coverage illusory. The court did not accept Mitchell's arguments.
The court said that the schedule of property listed on the policy dec page simply indicates where Mitchell was covered, not what was covered. As for what was covered, real property by definition required ownership by the named insured and the court found that Mitchell's lack of ownership excluded from coverage the real property at the apartment complex. The court found nothing ambiguous in the real property definition.
As for the argument that the coverage was illusory, the court said that narrow coverage is not illusory. When limitations or exclusions completely contradict the insuring provisions, insurance coverage becomes illusory, and that was not the case in this instance.
Because the plain, unambiguous language of the policy indicated that coverage of real property extended only to those “buildings, structures, and other real property” that Mitchell owned, and because Mitchell did not own the copper piping and fixtures at the apartment complex, the court decided that Discover was entitled to the declaration that it sought, disclaiming any obligation to cover the theft loss.
Editor's Note: In spite of the arguments put forth by the insured in this case, the U.S. District Court for the Southern District of Alabama relied on the unambiguous language in the property policy to find in favor of the insurer's denial of coverage. The property that was stolen (copper piping and fixtures) was real property as defined by Alabama law, and coverage for real property clearly depended on that property being owned by the named insured. The named insured managed the property and did not own it and so, the policy did not provide coverage.