DETERMINING COVERAGE IN PROPERTY INSURANCE POLICIES - New Appleman on Insurance Law Library Edition, Chapter 42

By John Garaffa, Kathy Maus and Julie Simonsen

This chapter addresses the issues that can govern whether the loss or damage to particular property falls within the coverage provided by an insurance contract.  As in a news story, the critical questions affecting coverage for loss or damage to property under an insurance policy are "who," "what," "where," "when," and "how." When addressing a claim for indemnity for the loss or damage to property, counsel will need to determine whether the claimant is a person or entity whose loss is covered under the terms and conditions of the policy at issue.  In a first-party property insurance matter, the issue of whether a claimant has standing to assert a right to benefits under the policy can be complicated.   The claimant can include the named insured in the policy, an additional insured, (either by name or description), a mortgagee or its successor, persons or entities who believe they fall within the policy definition of "insured" or "additional insured," persons or entities who believe they are entitled to benefits as third-party beneficiaries or as assignees or successor entities to the named insured.  Claimants can also be principals in an insured entity that has been dissolved during the policy period. 

Counsel must also identify the property that is the subject of the claim to determine if the policy at issue provides coverage for damage or loss to that property.   Counsel for the insurer and the claimant will need to identify where and when the damage occurred.  If the coverage within the policy is limited to damage at particular locations, they will need to determine if the damage occurred there.  They will also have to determine if the loss occurred within the policy period or, in the case of a "claims-made" policy, whether the loss was reported during the period specified under the policy.  Lastly, counsel for the insurer and the claimant will need to identify the cause of the loss to determine if damage or loss from that peril is covered under the terms and conditions of the policy. 

Cross Reference: The distinctions between claims-made policies and occasion-based policies are discussed in Section 16.07 above. Causation issues are discussed in Chapter 44 below.

This chapter addresses these "how," "what " and "where" questions of coverage by examining the typical perils that give rise to claims for loss or damage and the limitations on coverage that may be posed by the insurance policy and by the property itself. 

Though not the subject of this chapter, practitioners should take care in determining whether the nature of the loss, or the structure of policies issued to provide coverage for the insured property, implicate multiple policies, insurers or policy periods.  Thus, in the case of a property loss or damage occurring over time, the "trigger" for coverage may be the discovery of the loss or, in the alternative, when the insured should have known of the loss, among other trigger possibilities.  Once the trigger of coverage is clear, counsel can identify primary and excess policies that may potentially provide coverage for the loss and provide notice of the loss to insurers whose policies are implicated.   Where the trigger of coverage is unclear, the determination of the applicable policy period and policies may also be unclear.  The insured may then have to provide notice of the loss to all insurers that issued potentially applicable policies.

Cross References: For discussions on policies implicating multiple insurers, see Section 47.12 below; on various triggers of coverage, see Section 47.01 below; and on Excess Insurance Policies, see Chapter 24 above.

Note that what appears to be a single loss may in fact be multiple covered losses occurring during different policy periods and, potentially, insured by different insurers.  Practitioners framing the presentation of the loss need to consider the available limits during potential policy periods and in layered coverage in conjunction with the total estimated loss.  In addition, choice of law and the breadth of coverage under each policy and during potential policy periods may have a dramatic impact on coverage. 

Cross Reference: For discussion of choice of law principles and issues, see Chapter 6 above.

Apart from the loss itself, practitioners need to remember that an insured's performance of its duties after loss may curtail coverage that would have existed had the insured performed differently.  For example, under most property policies, the insured has a duty to mitigate the loss.  This may involve acting quickly to retain remediation companies, experts for assistance, or, where permitted by law, a public adjustor at the outset of the loss to assist with the adjustment process on behalf of the insured. 

Cross References: For further discussions of the insured's duty to preserve and protect insured property, see Section 20.06 above and Section 47.11 below.

Section 42.01 of this chapter addresses the most common "named perils" that are found in commercial property policies.  The earliest commercial property policies provided coverage for fire and lightning damage to structures and the business personal property that was contained within the structure.  Later policies added perils such as windstorm and hail, damage caused by the weight of ice, snow or sleet, freezing, volcanic eruption and events within the property such as explosions and leaks from sprinkler systems.  As the scope of property policies was expanded, damage caused by perils such as vandalism, theft and even riot or civil commotion were added to provide greater protection to property owners.

While the list of named perils has increased over time, litigation by resourceful counsel attempting to bring damage or loss within the perils covered by policies has served to further define those perils.  Sometimes that litigation has resulted in holdings that have broadened the scope of a named peril beyond what might have been the common understanding and literal meaning of the actual terms used in the policy.  For example, the peril of "fire" is now understood to include damage that occurs through efforts to extinguish the fire.   This section will examine the impact of litigation on the scope of the most common perils in order to give the practitioner a better understanding of the coverage provided by named peril policies.

Section 42.02 addresses the concept of "non-excluded" perils.  Early commercial policies, such as those providing limited coverage for named perils such as fire and lightning, have largely given way to so called "all-risk" policies - policies that provide coverage for all loss or damage unless specifically excluded by the terms and conditions of the policy and endorsements.  Under such insurance contracts, the insured need only establish that damage or loss occurred to covered property within the specified policy period and the insurer will then bear the burden of proving that the actual cause of loss is excluded.

Cross Reference: For discussions on exclusions in property insurance policies, see Chapter 43 below.

Coverage determinations under "all-risk" policies involve a close examination of policy exclusions for particular perils.   However, the fact that some of the loss or damage claimed by an insured was caused by an excluded cause of loss will not necessarily result in a determination that there is no coverage.  Depending on the policy language, there can be coverage of loss or damage caused by a covered peril that ensues from damage caused by an excluded cause of loss.  In addition, in situations where two or more causes of loss are present, only one of which is covered, there may nonetheless be coverage for the entire loss under the efficient proximate cause or concurrent causation doctrines.   Thus, in such multi-peril claims, the relationship between a covered and excluded cause of loss will be critical to the determination of coverage.

Cross Reference: The relationship between covered and excluded causes of loss is further discussed in Chapter 44 below.

Apart from whether a particular peril is excluded under the terms and conditions of a policy, the parties must first address the more fundamental questions underlying the claim by an insured.  The first requirement is that the loss be fortuitous.  For example, loss or damage known to an insured prior to entering the insurance contract would generally not be "fortuitous" as its "occurrence" was a certainty at the time the policy was issued.  Closely related to fortuity is the requirement that the loss be "accidental." Generally, policies of insurance are intended to cover the risk that accidental damage or loss will occur.  Thus, loss and damage intentionally caused by an insured would generally not be covered because such a loss is not accidental.

Cross Reference: The requirements for insurance coverage that the loss be fortuitous and accidental is discussed in Chapter 1 above.

Coverage provided by "all-risk" policies is further proscribed by the nature of the loss or damage itself.  Thus, the typical policy will require that the loss or damage result from "direct physical damage" to covered property.  Absent such damage, there is no "occurrence" that gives rise to coverage. 

Section 42.03 of this chapter focuses on the issue of whether a claim concerns property whose loss or damage falls within the terms and conditions of the policy.  Both real and personal property can be described with particularity within the policy itself.  For example, a policy may state that it provides coverage for the residence at a particular address or a vehicle identified by make, model, year, vehicle identification number, and license number.  The policy may instead provide that there is coverage for real or personal property identified on a schedule provided to the insurer.  A particular item of property can be insured up to a specified limit listed in the policy, subject to a blanket limit for all real or personal property insured, or both.  

For real property, even if a particular structure is identified as insured property, portions of the structure may not be covered.  For example, coverage for certain improvements may hinge on whether they were made by the insured or a tenant.  Similarly, while the policy may identify coverage for real property by address, coverage for land or plantings at the address may not be covered. 

Coverage for loss or damage to personal property will typically be subject to specific restrictions.  Certain property, such as vehicles, contraband, and building supplies may be excluded from coverage.  Other items such as furs, jewelry, precious metals, and currency may be excluded unless identified on a schedule submitted by the insured or subject to specified limits on the dollar amount of coverage apart from the overall limit on losses for personal property as a class.

Lastly, Section 42.04 addresses claims for the "loss of use" occasioned by damage to personal property.  By its terms, a policy providing coverage for damage to personal property may also provide indemnity for costs incurred to conduct business while business personal property is repaired or replaced.  However, coverage for loss of use is dependent on a determination that there is coverage for the loss or damage to property itself and will typically be limited by necessity and time.  Section 42.04 will explore the ways the courts have resolved these issues to provide the practitioner with a guide towards how coverage in these particular cases has been resolved.

Cross Reference: For further discussion of business interruption (time element) insurance, see Chapter 46 below.

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John Garaffa, Kathy Maus and Julie Simonsen

John V. Garaffa is a partner in the Tampa, Florida office of Butler Pappas Weihmuller Katz Craig LLP specializing in the analysis and defense of first-party property insurance coverage matters and the defense of construction defect claims.  Mr. Garaffa has represented clients throughout the eastern and southeastern United States.  He has litigated both significant residential property disputes and commercial property disputes where the amounts at issue were in the hundreds of millions of dollars.  Mr. Garaffa has been cited by the Louisiana Supreme Court as an expert on the application of state valued policy laws to property losses in Gulf Coast States.  He has served as a panelist and speaker at numerous seminars on insurance coverage issues. He has published many articles in both state and national publications on the topics of bad faith, first-party coverage, discovery and state valued policy laws.   Mr. Garaffa is licensed in the state courts of Florida and Minnesota, the three Federal District Courts in Florida, the Eleventh Circuit Court of Appeals, the U.S. Court of Appeals for the Armed Forces and the U.S. Court of Appeals for Veterans Claims.  His professional memberships include DRI and the American Bar Association where he has been a Vice Chair of the Property Insurance Law Committee, Tort Trial and Insurance Practice Section.  

Kathy J. Maus is the Managing Partner of the Tallahassee Office of Butler Pappas Weihmuller Katz Craig LLP and is active in the firm's bad faith, casualty and first- and third-party liability defense and insurance coverage practices.   Ms. Maus has represented clients throughout the eastern and southeastern United States, litigating first- and third-party commercial insurance disputes as well as multi-million dollar extracontractual and liability claims.  Ms. Maus has served as a panelist and speaker at numerous seminars on issues ranging from insurance coverage litigation, extracontractual exposure, casualty defense litigation and ethical concerns in the industry.  She has also authored numerous articles for publication on bad faith, first- and third-party insurance coverage matters and nursing home issues.  Ms. Maus is licensed in the State of Florida and in each of Florida's three Federal District Courts within the Eleventh Circuit. She is also licensed in the Eleventh Circuit Court of Appeals and the United States Supreme Court.  Her professional memberships include DRI (past member of the Board of Directors and she serves on various committees), International Association of Defense Counsel, Florida Defense Lawyers Association, Tallahassee Bar Association current President, and Tallahassee Women Lawyers (where she served as President).  She is a former member of the Florida Bar Voluntary Bar Liaison Committee and served as Chair of the 2004 Voluntary Bar Leaders Conference. 

Julie A. Simonsen is an associate in the Tampa, Florida office of Butler Pappas Weihmuller Katz Craig LLP.    Ms. Simonsen's practice has been concentrated in the area of third-party defense and the analysis of first-party coverage issues, representing both individuals and commercial entities.  She has published on the topic of evidence in the Federation of Defense and Corporate Counsel Quarterly.  Ms. Simonsen is licensed in the State of Florida and the Federal District Court for the Middle District of Florida.  She is a member of the Hillsborough County Bar Association and the Florida Defense Lawyers Association. 

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