Coverage Corner

THE ‘ENTIRETY OF CONTRACT’ PRINCIPLE

By Bill Wilson, CPCU, ARM, AIM, AAM

In my column in the February issue (IABforME.com/Primary-Agent), I introduced the “RTFP! Principle” where “RTFP!” means “Read the … Policy!” No coverage question can be answered and no claim can be adjusted without reviewing the insurance contract language. Hearsay and “I’ve always heard that…” coverage analysis just doesn’t cut it. And relying on it can imperil your E&O coverage.

A related principle in insurance coverage analysis is what I refer to as “entirety of contract,” and it’s based on that general principle of contract law. In the case of insurance policies, what I’m referring to is, if you want to determine coverage as conclusively as possible, you must review the entire policy.

For example, a claim may appear to be uncovered when reviewing one section of a policy, yet if the analysis continues, coverage may be found in another part of the policy. To illustrate what I mean by that, given that many of your customers are now moving from snow blowers to riding mowers, let’s examine this principle in an actual claim that I consulted on a few years ago.

A homeowner’s brother-in-law was helping him clean up some storm damage when a large limb fell from a tree and damaged the brotherin-law’s lawn tractor that he had been using to haul other large tree limbs to the street. The brotherin-law felt that the homeowners’ 2011 ISO HO 00 03 policy should pay for his damage.

Since there was no discernable negligence on the part of the homeowner, the adjuster on his policy found no Section II liability coverage. In addition, under the “nofault” Section II coverage known as “Damage To Property Of Others,” the adjuster found no coverage because the damage had to be “caused by” an insured under the policy:

We will pay at replacement cost up to $500 per occurrence for property damage to property of others caused by an insured.

The adjuster absolutely was correct about there being no Section II coverage. However, he had not bothered to examine the Section I property damage coverages that might be available. Under Section I Coverage C, it says:

We cover personal property owned or used by an ‘insured’ while it is anywhere in the world. At your request, we will cover personal property owned by others while the property is on the part of the ‘residence premises’ occupied by an ‘insured.’

There was an exclusion that applied to damage to motor vehicles, but the following exception was made:

We do cover vehicles or conveyances not subject to motor vehicle registration which are … Used to service an ‘insured’s’ residence….

Under these Section I policy provisions, for coverage to apply there is no requirement that the property be owned, operated, or used by an insured. The only requirement for coverage is that the riding mower be owned by others, on the insured’s premises, used to service the residence if an unregistered vehicle, and coverage is requested by the insured for the damage to the other person’s property because of a covered peril (in this case a falling object under the Coverage C broad named perils).

All too often, the presumption is that Section I property coverage only applies to damage to property owned or used by an insured, but a more thorough and thoughtful reading of the actual policy language says otherwise.

The more specific lesson with this claim is, just because an adjuster correctly cites exclusionary language in one part of the policy, that doesn’t mean that the loss is excluded if coverage can be found in another part of the policy. So, the moral of this story is a variation on the “RTFP!” principle, in this case “RTEP!” … “Read the Entire Policy!”

Postscript: If the brother-in-law has coverage for his own mower under his own homeowners’ policy, there could be an “Other Insurance” issue, but it depends on whether his policy has coverage. For example, if he also has a 2011 ISO HO 00 03, he may have coverage, but not if he has a 2000 ISO HO 00 03. “What?!,” you say. I’ll explain in my next column. To be continued….

Bill Wilson, CPCU, ARM, AIM, AAM is the founder and CEO of InsuranceCommentary.com and the author of seven books, including “When Words Collide…Resolving Insurance Coverage and Claims Disputes.” He can be reached at Bill@InsuranceCommentary.com.