Although I retired from the Big “I” in December, I still serve as a volunteer faculty member on the Virtual University. This is a claim denial received recently and why I believe the denial was in error. It also provides an object lesson, by comparing commercial property and homeowners forms, for why it is so important to carefully read the policy language.

 

A major windstorm caused damage to the roof of a commercial business when large branches from nearby trees feel on the roof. The insurer paid for the cost to repair the roof. However, there were several large tree limbs that were damaged but had not fallen from the trees. These limbs threatened further damage to the insured building were they to fall. The insured had the storm-damaged limbs removed by a tree service but the insurer refused to pay for this on the basis that, since the limbs had not actually fallen, this would be considered “preventative maintenance.” Is this covered? Well, here’s what the policy in question, the ISO CP 00 10 10 12, says:

Duties In The Event Of Loss Or Damage
You must see that the following are done in the event of loss or damage to Covered Property…
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….

This is a good example of a carrier using a rationale to deny a covered expense based on nonexistent insurance contract language. The term “preventative maintenance” appears nowhere in this policy form, though we understand what the insurer is saying. For example, I notice that damaged tree limbs could fall on my roof, so I have them removed before a loss occurs. That’s not covered by the policy form because no loss has yet occurred. However, that’s not what happened here.

In this case, there has been a loss and the insured seeks to prevent further damage. In fact, the insurance contract language REQUIRES what the insured did as long as it’s reasonable and necessary. Note that the policy language above has three conditions for coverage: (1) there must be damage to Covered Property, (2) reasonable steps must be taken to protect Covered Property from further damage, and (3) a record of necessary expenses ot protect Covered Property must be kept. The only thing at issue is whether the expenses were reasonable and necessary, not whether they are otherwise covered.

Now, compare the ISO CP 00 10 10 12 language to the ISO HO 00 03 05 11 homeowners policy:

Reasonable Repairs
We will pay the reasonable cost incurred by you for the necessary measures taken solely to protect covered property that is damaged by a Peril Insured Against from further damage.
If the measures taken involve repair to other damaged property, we will only pay if that property is covered under this policy and the damage is caused by a Peril Insured Against….

The first sentence in this policy language is very similar to that in the CP 00 10. However, the second sentence imposes a restriction not in the CP 00 10. It says that the cost incurred to repair other damaged property (in this case, the trees) is only covered if that property (the trees) is covered under the policy AND the damage is caused by a covered peril. The ISO HO policy does not cover windstorm damage to trees, so there is no additional coverage for the cost to remove the damaged branches in the trees.

This illustrates how carefully you must read the policy in order to determine what it does or does not cover. RTFP!

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Bill Wilson

Founder at InsuranceCommentary.com
One of the premier insurance educators in America on form, coverage, and technical issues; Founder and director of the Big “I” Virtual University; Retired Assoc. VP of Education and Research from Independent Insurance Agents & Brokers of America. Reprint Request Information

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