Pools and Contents Coverage

Swimming Pools and the Homeowners Policy
Since Memorial Day is when many people across the country open their pools for swimming season, it’s a good time to raise an issue regarding above-ground pools, an issue that often comes up. Does such a pool fall under Coverage B—Other Structures or Coverage C—Personal Property under an HO-3 form?

This is an important question from a valuation, limits and perils basis. The fact of the matter is that the HO policy does not define “structure” or “personal property.” As such, situational information that may vary from one insured to another must be used, particularly regarding how they view the permanence of the property and what their reasonable expectations for coverage are.

For that matter, there is nothing in the policy that says there has to be an “either/or” categorization. An above-ground pool can be both personal property and an “other structure,” though you might have to choose between the two relative to coverage (perils) and valuation.

For a complete discussion of this issue by the Virtual University faculty, including a link to a special episode of ACE Insura, Claims Detective, read the full article.

Swimming Pools and the CGL Policy
For agencies that insure any pool contractors, now is the time of year when pools are being built or prepped for the summer season. Spring is also a rainy time of year in many areas and excessive rainfall can lead to a condition that affects in-ground pools that have been at least partially drained for the winter.

Assume your insured is a pool contractor. If he damages the pool’s liner, causing a leak, does his CGL cover him? What if he needs to drain the pool for maintenance and it pops out of the ground overnight following a heavy rain—does his CGL cover him? The exclusion most often cited is the one for PD to “that particular part.”

According to several court cases, the purpose of this and other “workmanship” exclusions is to negate coverage for work performed in a negligent, incorrect or incompetent manner. Can a case be made that for the “pop-up” claim, the work was not performed in a shoddy way and that the damage was the result of the heavy rains?

In the case of Bulen v. West Bend Mut. Ins. Co., 125 Wis. 2d 259, 265, 371 N.W.2d 392, 395 (Wis. Ct. App. 1985), the court said, “The policy in question…does not cover an accident of faulty workmanship but rather faulty workmanship which causes an accident.”

So, it could be said that, even if the contractor was negligent in draining the pool before heavy rain storms (though it’s questionable how that’s necessarily and irrefutably foreseeable), the loss arose out of the heavy rains, not the operations of the contractor.

For a more complete analysis, including contradictory court cases and VU faculty opinion, go to the VU website.

When Residents Have No Contents Coverage (and Worse)
The named insureds have separate HO-3 policies on two homes. One is occupied by their daughter as her primary residence, but she is not a named insured. The daughter’s residence was burglarized and the daughter made a claim for loss of her personal property. The company denied the claim under her parents’ HO-3 because she is not a resident of their household, even though she is a relative. Is this correct?

Unfortunately, the answer is probably yes. This situation is exceedingly common. Often the agency does not know about these revised living arrangements. Most likely, there is no real increase in risk, yet the circumstances may result in a coverage gap. In this case, the VU faculty finds one for the tenant.

However, it is quite possible that the homeowners themselves have no coverage on the dwelling. As this was a Maryland risk, in Shepard v. Keystone Ins. Co. 743 F.Supp. 429, 432-33 (D. Md. 1990), the court held that there was no coverage on the dwelling because the named insured(s) didn’t reside there anymore.

To learn more about this potentially catastrophic exposure, including links to several related articles, visit the VU.

Bill Wilson (bill.wilson@iiaba.net) 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.