Ask PIA

FEMA assistance, seawall damage and more

Coverage for bike-car accident

Q. While my insured was out riding his bike, he hit and damaged a car. Which policy pays: his automobile or his homeowners?

A. The homeowners policy pays for the damage he caused to the car. The standard homeowners policy’s liability exclusion applies only to damage arising in connection with motorized vehicles, so the use of his bike, being nonmotorized, is not excluded. But, if your insured had been injured, he could be compensated for his injuries under the personal injury protection coverage of his automobile policy.—Dan Corbin, CPCU, CIC, LUTC

Which law prevails?

Q. We have a personal auto client, a New Jersey resident, who was injured while driving a New Jersey-registered company car in New York state. Does the personal auto policy respond as primary coverage (because New Jersey personal injury protection coverage follows the insured), or does the company’s business auto policy respond as primary coverage (because New York PIP coverage follows the auto)?

A. To resolve issues involving conflict of laws, one must navigate through a complex branch of jurisprudence. The result may depend on which court has been petitioned, whether that court has jurisdiction, the criteria used by that court and the specific facts of the case. It appears that if a New Jersey court were to decide this matter (i.e., a petition was made to a New Jersey court, as opposed to a New York court), New Jersey law (N.J.S.A. 39:6A-4) would be applied and the personal auto policy you service would provide the personal injury protection benefits (see Cirelli v. Ohio Casualty Insurance Co., [72 N.J. 380, 371 A.2d 17 1977]).—Dan Corbin, CPCU, CIC, LUTC

FEMA’s HO declination requirement for disaster assistance

Q. My clients—whose house suffered only flood damage—are being required to get a declination of coverage from their homeowners insurer in order to collect FEMA disaster assistance. Why is this necessary?

A. FEMA states: “By law, we cannot provide money to individuals or households for losses that are covered by insurance.” But, that does not mean the existence of insurance will preclude payment of FEMA disaster assistance. Despite the homeowners having insurance, there may be extraordinary delays in payment by the insurer; limits may have been exhausted; needs may have been unmet by the insurance policies; or local housing may be unavailable. Given that the homeowners’ property might not get inspected right away, FEMA will need assurance that no portion of the direct damage or loss of use is covered by the homeowners policy. For example, there may be wind damage to the roof and flood damage to the lower part of the house. Before assistance can be offered, the loss first must be denied under the terms of the insurance policies in place on the house. Obviously, the claim processing and denial of flood damage losses by the homeowners insurer is a gross misuse of adjuster resources—especially when those resources are so scarce in the midst of a catastrophic event. Unfortunately, until FEMA finds a better way to administer these claims for assistance, producers will need to cooperate as best they can.

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Business interruption from power outage

Q. Because of a storm, my client lost power and he is unable to operate his business until it is restored. Will the Business Income Coverage be applicable to this loss?

A. According to the language of most business owners and commercial property policies, the failure of power (or any other utility service) being supplied to the insured premises is excluded if the failure occurs off the premises, regardless of cause. The cause might be a flood event, vehicle damage, an earthquake at the generating plant, a fire at the transformer, an explosion at the substation or transmission lines downed by wind. Fortunately, a solution exists with the Utility Services–Time Element (BP 04 57 or CP 15 45) endorsement, which may be offered by the insurer to provide business interruption coverage when property of the power supply company has been damaged from a covered cause of loss. An option in these forms can provide coverage for loss resulting from damage to overhead transmission lines, as well as other power company property. However, flood is not a covered cause of loss on the typical BOP or commercial property policy. If the power company suffered damage from wind, this endorsement should respond, but not if the cause was flooding. If coverage for the breakdown of a power company’s equipment is desired, an Equipment Breakdown Policy will be required.—Dan Corbin, CPCU, CIC, LUTC

Seawall damage

Q. During a heavy windstorm, a dock broke loose from another property and crashed into a seawall on our client’s property. The owner of the dock remains unknown. Our insured has a Dwelling Fire (DP 00 03) policy. The insurer has denied a claim for damage to the seawall under General Exclusions, Item 3. Water. The insurer’s claims manager and adjuster both take the position that this damage was an indirect result of tidal water and, therefore, would fall under this exclusion. We cannot see why this exclusion would apply for damage caused by the collision of the dock into the seawall. Doesn’t the exclusion refer to damage caused by the water itself?

A. The General Exclusions language of this policy states that the exclusions apply to “loss resulting directly or indirectly” from any of the excluded causes. The damage to the seawall is clearly an indirect result of one of the excluded causes, i.e., “water damage, meaning ... waves, tidal water ... whether or not driven by wind.” Because waves, driven by wind, broke loose the dock and carried it into your client’s seawall, the company appears on solid ground in denying this claim.—Dan Corbin, CPCU, CIC, LUTC