An elderly widow’s car engine seized after she picked up her vehicle from a collision center. Another repair shop determined that the collision center had not replaced the coolant in the engine after repairing the radiator.

She contacted the collision center and discovered it had filed for bankruptcy, was closed and had no insurance. Her personal auto insurer denied the claim, stating it was a “mechanical problem.”

Was the insurer’s denial correct?

Damage arising from factors such as wear and tear, rust, corrosion, deterioration, latent defect, settling, cracking and mechanical breakdown is not considered a fortuitous loss. Property wears out over time with use and equipment breaks down as a normal consequence of use.

But in this case, the damage is a fortuitous loss from the standpoint of the insured. It should be covered, unless there is a separate exclusion for faulty workmanship or something similar.

According to the International Risk Management Institute, “The excluded perils in this group are characterized either by their predictable or expected occurrence, or by gradual, routine, or frequent occurrence. They are either the normal, unavoidable consequence of use of the property in question or detectable and preventable with proper maintenance.”

With regard to mechanical breakdown, IRMI says: “Damage to equipment from an external cause is not excluded by the mechanical breakdown exclusion. Instead, the mechanical breakdown exclusion applies only to loss caused by an internal defect in the equipment.”

IRMI's interpretation is supported by the 1988 court case, Caldwell v. Transportation Ins. Co., 234 Va. 639, 364 S.E.2d 1: “[E]xclusion of losses caused by structural or mechanical breakdown or failure is restricted to losses arising from internal or inherent deficiency or defect, rather than from any external cause.” (1988)

In addition, if the ISO personal auto policy was used, the insurer would likely reference this exclusion:

2. Damage due and confined to:
a. Wear and tear;
b. Freezing;
c. Mechanical or electrical breakdown or failure; or
d. Road damage to tires.
This Exclusion (2.) does not apply if the damage results from the total theft of "your covered auto" or any "non-owned auto."

Even if this exclusion applied—and it doesn’t because the loss did not arise from true mechanical breakdown as interpreted by coverage experts and the courts—the ISO language likely limits the exclusion to damage “confined to” the radiator, not the resulting engine damage.

The Big “I” Virtual University encourages agencies to access IRMI reference materials at irmi.com.

Bill Wilson is director of the Big “I” Virtual University.