CGL Coverage for Undeclared Premises

The Big “I” Virtual University “Ask an Expert” service recently received the following inquiry: “The named insured is a corporation. The sole stockholder personally owns a piece of land on which the corporation parks its vehicles. A pedestrian tripped on the premises and is suing the insured corporation. The location of this land was not specifically scheduled as a location on the policy. The insurer of seven years is denying the claim on the basis of misrepresentation, that the insured didn’t declare the location. Is this correct?”

The carrier’s position is puzzling given that the corporation doesn’t own the land. That being the case, why would it declare premises it doesn’t own or use for business purposes? Must corporations now list property owned solely by their stockholders? How the corporation can be liable for the loss is another matter best left to the attorneys. At issue here is whether a defense is owed under the CGL policy.

Application information typically consists of representations, not warranties. The insured is covered for BI and PD anywhere in the “coverage territory.” Unless the claim rep can cite an exclusion that removes this broad coverage grant, it’s covered. The condition cited doesn’t do anything unless the insured is being accused of fraud, misrepresentation or concealment.

Generally speaking, premises are an underwriting and rating issue, not a coverage issue absent a designated premises exclusionary endorsement such as the CG 21 44. The “coverage territory” is all that matters. Have the adjuster point to a specific policy provision that removes coverage.

To read more opinions from the VU faculty, click here.

What Happens When an Auto is Recovered 30 Years Later?

The VU “Ask an Expert” service also received the following question: “The insured had a 1967 Chevy Corvette stolen 30 years ago. It was reported to the police and the insurer paid $2,500 for the claim. The car was recovered last October, completely stripped. The police called the insured and released the car to him. The insured sold the car to a friend who restores Corvettes. The insurer now wants the insured to reimburse it for $14,000, the current value of the car. The insured wants to reimburse the carrier the $2,500 paid 30 years ago. Who’s correct?”

The insured sold a car that wasn’t his to sell. Chances are, when the $2,500 theft loss was settled, the insured signed ownership over to the insurance company in the event the vehicle was ever recovered. If that’s the case, then the insured had no legal right to accept possession and sell the car.

The solution to this situation may involve an attorney and a CPA. It’s unlikely that $2,500 will settle the claim since $2,500 today is worth considerably less than it was 30 years ago. The question is whether the current $14,000 market value is the appropriate settlement for a completely stripped car or if restitution should be based on the time value of money, given the $2,500 original settlement.

For more information, click here.

Hail Damage and Defective Materials

A 10-year-old condo association building suffered hail damage during a storm. The adjuster claimed that there was minimal damage from the hail and that most of the damage was due to “defective shingles.” According to the shingle manufacturer, it is possible that the shingles are from a “bad” batch. The adjuster is citing the CP 10 30 exclusion that says, “We will not pay for…faulty, inadequate
or defective…workmanship, construction, materials, etc.”

Unfortunately, this is one of the most misunderstood exclusions in property forms. If the insured discovered his roof shingles were defective and wanted to be compensated under his insurance policy for that, he’d get nothing. That is what the exclusion is for—a loss of value due to defective design, construction, etc. In this case, we have actual damage by a covered peril.

Whether the roof covering is defective or not is immaterial —that’s why you have loss control inspections and underwriting departments. Caveat emptor: If you bind coverage on a building with an allegedly defective roof, that’s what you get.

For a complete analysis of this issue, click here.

Bill Wilson (bill.wilson@iiaba.net) is Big “I” director of the Virtual University, an online learning center for agents and brokers.