Profit and Overhead When Insureds Repair Their Own Damage
Your insured is a contractor. He wants to repair insured damage to his own building to ensure that the job is done right. Or, let’s say he negligently causes damage to a customer’s property that is covered by his CGL policy and wants to make repairs himself. Is the insurer obligated to pay an amount that includes profit and overhead for the work done by its insured?
In two claims submitted to IIABA’s “Ask an Expert” service, the adjusters refused to pay for profit and overhead in one direct damage claim and profit in a liability claim. One cited a violation of the principle of indemnity because the insured would profit from the loss. The other simply stated that paying for these components was against public policy. Neither could cite a policy provision.
However, most courts have ruled that a contractual provision can supersede such principles if the outcome is positive to society. From the standpoint of minimizing the likelihood of potential fraud, the adjusters’ positions are understandable. However, from a contractual standpoint, there is nothing in most commercial property or CGL forms that prohibits the payment of profit and overhead. In fact, if these components are not paid, you can make a case that the insured suffered a loss in the form of an opportunity cost because his time could have been spent on another job that generated a profit.
To peruse the opinions of the VU faculty and learn more about the opportunity cost concept, read the entire article here.
Insurable Interest in Personal Property
Speaking of the principle of indemnity, a critical element of indemnity is that an insured can only collect for a loss in an amount equal to his or her insurable interest in the property. That gives rise to the question, “What constitutes insurable interest?” For example, in the case of an engagement ring, who does or does not have an insurable interest in it?
The most common means of having insurable interest is through ownership, but that’s not required as a condition of coverage for property scheduled by endorsement on a homeowners policy. There are many ways in which insurable interest can exist. Probably the easiest way to create insurable interest for the person in possession of the ring is to make the bride-to-be’s use of the ring conditional; i.e., if someone proposes with a ring he bought, he still owns it and it doesn’t become his fiancée’s property until they are married. Until that time, he has an insurable interest and there should be coverage under his policy.
Likewise, from the standpoint of the bride-to-be, she has a use interest in it which can be insured. That interest is, in one way, similar to that of improvements and betterments installed by a tenant; the tenant may not legally own the I&Bs once installed, but she has an insurable use interest in them. So similarly, the groom-to-be can establish an insurable interest contractually by conditioning possession on marriage. The bride-to-be can establish an insurable interest simply by possession and use.
For more information, including the view of courts around the country, read the full story here.
Covering Claims by Domestic Employees
Suppose you hire someone on a full-time, part-time or even one-time basis to do some work at or on your home—housekeeping, painting, roofing, yard work, etc. If that person (employee or independent contractor) is injured, or if that person injures someone else, and you’re sued, are you covered under your homeowners policy?
If the loss involves the use of a motor vehicle, are you covered by your auto policy and/or their auto policy? And what about workers compensation?
Read the article here.
Bill Wilson (firstname.lastname@example.org) is director of the Big “I” Virtual University, an online learning center for agents and brokers. Follow the Virtual University on Twitter at Twitter.com/BigIVU.