Deer Accidents, Crime Losses and Rekeyed Apartments

Yes to Direct, No to Indirect

An insured’s car was hit by a deer, causing damage to a tire which needs to be replaced. He has a 4-wheel drive vehicle and the manufacturer recommends that if there is more than 3/32 difference in tread wear it can cause damage to the drive train. The company will only pay for one tire (with depreciation) and has denied coverage for any undamaged tires based on the PAP language “we will pay for direct and accidental loss to your covered auto or any non owned auto.” The insured responded that he thought that the idea of coverage was to put him back into the position he was prior to the loss.

The company is correct. It’s like hail damage to aluminum siding or shingles—absent statutory or case law to the contrary, only the damaged components are covered, not indirect, consequential financial loss. The insured is citing a generality about insurance. But in order to restore you to your prior financial condition, the loss you want covered must be covered by the policy.

The reality is that the policy covers what the contract says it covers. First, the insuring agreement must be triggered, then there can’t be an exclusion that applies. In this case, the cost to replace any other tires isn’t covered because that expense isn’t triggered by the insuring agreement—it isn’t direct damage. It’s not a question of fairness because no part of auto physical damage premiums pay for consequential losses of this type. You can’t get what you don’t pay for.

Proving a Crime Loss: Covered?

A member agent asks, “One of our clients has had money stolen/embezzled from the firm. Is the reconstructive cost of proving the loss (a CPA specialist) covered in the claim amount? He is covered by the ISO crime loss sustained form.”

The answer to this question is short and sweet. The cost of proving the amount of loss and who did it is not included in the unendorsed ISO crime policy. The endorsement that adds some coverage for this is the CR 25 40—Include Expenses Incurred To Establish Amount Of Covered Loss. It can be added for Employee Theft and/or Computer Fraud where such expenses can be substantial.

A Lock Without a Key

A member agent asks, “I insure an apartment building on the current ISO CP 00 10. The insured’s office was burglarized and they took keys to all 18 apartments, so each had to be rekeyed. I have argued unsuccessfully (the claim was denied) that the locks were damaged as a result of the theft of the keys which essentially made the locks useless. I understand there was no direct physical loss to the locks but what good is a lock if the key has been stolen?”

Our consensus on similar claims has been, unfortunately, to agree with the insurer. “Direct physical loss” means just that. The cost to rekey the locks is a consequential loss. Many homeowners policies include an additional coverage for rekeying locks because it isn’t covered otherwise.

The best bet to make a case for coverage would be the “Duties In The Event Of Loss Or Damage” provision which says that you must “Take all reasonable steps to protect the Covered Property from further damage, and keep a record of your expenses necessary to protect the Covered Property, for consideration in the settlement of the claim.”

The argument would be that rekeying the locks was necessary to protect property from further damage. Without restricting the ability of the thieves to re-enter the premises and apartments repeatedly during the remainder of the term of the policy, theft and vandalism could continue unabated. One other possibility would be a claim based on the Extra Expenses coverage under a business income form. The problem with that could be the 72-hour waiting period and the “period or restoration.”

Bill Wilson is director of the Big “I” Virtual University, an online learning center for agents and brokers. Follow the Virtual University on Twitter.