Waiver Does Not Create Coverage

 

January 23, 2017

In a case where the insured alleged that he had coverage because an employee of the insured waived all policy defenses when he told the insured that his claim was covered, the he district court granted summary judgment in favor of insurer/defendant MemberSelect, stating that coverage cannot be created by waiver. The case is Budny v. MemberSelect Ins. Co., No. 16-1189,2017 WL 104964 (Iowa Ct. App. Jan. 11, 2017).

 

In August 2014, Budny purchased homeowners insurance, and was given the option to purchase several add-on provisions. He purchased additional coverage through two add-ons, Personal Property Replacement Cost and Protection Plus Homeowners Package. He did not purchase extra water or flooding damage coverage. Budny's insurance covers accidental discharge or overflow of water or steam, but does not cover loss under several exclusions. Adding a rider (optional add-on provision) would have provided the inclusion of some of the exclusions specifically listed.

 

In November of 2015 the sewage backed up into the basement of Budny's home causing water damage. Budny reported the water damage to his insurance agent who allegedly told Budny that the loss was covered. The agent denied making this representation. Allegedly, according to the agent's representation that the loss was covered, Budny hired a restoration service to clean and restore his basement. The insurance company denied the claim citing the exclusions paragraph of his homeowners form.

 

Budny claims that policy defenses were waived when his agent told Budny that the claim was voluntary. A waiver is the “voluntary or intentional relinquishment of a known right” the elements being (1) the existence of a right (2) actual or constructive knowledge of the right and (3) an intention to relinquish the right.

 

The court decided that whether the agent represented to Budny that the claim would be covered is disputed, but is not material. Because the agent lacked the authority to waive the clear precepts of the policy. There was a provision in the policy that stated “No change or waiver may be effected in this policy except by endorsement issued by us.” The court decided that the statements of the agent cannot create liability for coverage that is not provided under the policy.

 

Editor's Note: Although a verbal statement by an insurance agent that affirms coverage may sound reassuring to the mind of the insured, it is good to err on the side of caution. Insurance is purchased for many reasons, and endorsements and add-ons are provided in order to procure the specific insurance coverage that the insured desires for their insurable items. Failing to purchase an add-on or endorsement should not result in more liability for the insurer. The liability should fall where it belongs, on the shoulders of the under-insured.