Among the most valuable educational tools you can have are court case decisions. I subscribe to 4-5 attorney email newsletters that highlight important cases from around the country. One such newsletter is published as a daily blog by the Merlin Law Group which is a plaintiff’s law firm but I find that most of the time their posts are reasonably even-handed and they publish court decision that are held both for and against insureds. Recently, they blogged about a Katrina claim involving windstorm damage at a golf course:
“Golf Course Business Interruption Claims”
The case is:
Ormond Country Club v. James River Ins. Co., No. CIV.A. 06-11376, 2008 WL 859482 (E.D. La. Mar. 27, 2008)
One problem with reviewing decisions like this is that we do not have a copy of the Declarations page nor a full copy of the policy forms in question. Assuming ISO language (which the cited form language includes), business income coverage hinges on “direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Limit of insurance is shown in the Declarations.”
If the premises on the Declarations page consists of an address and that address is legally associated with the entire property, then it probably follows that the golf course is included as part of the premises. In addition, a business income limit was indicated…normally such a limit is not restricted to a particular building or type of property. If this is the case, then all that is needed to trigger coverage is (1) direct physical loss at the premises to (2) property by (3) a covered peril. Presumably windstorm is a covered peril for business income coverage.
The court seems to confuse “Covered Property,” a defined term, with the undefined term “property” that is in the insuring agreement for business income coverage. Using ISO forms as the model, the coverage form for direct damage to Covered Property (e.g., ISO CP 00 10) is a separate insurance contract from the business income coverage form (e.g., ISO CP 00 30). The business income form only requires direct damage by a covered peril to “property,” not necessarily “Covered Property.”
To illustrate, I’ve been involved in two golf course claims. In one, the golf course was shut down for several months due to windstorm damage to huge trees all over the golf course. Trees are “property” and damage to them by the covered peril of windstorm was sufficient to trigger business income coverage. It did not matter that trees were listed as Property Not Covered with a limited Coverage Extension for a handful of perils, none of which included windstorm. The policy provisions in the CP 00 10 Building and Personal Property Coverage Form had no bearing on the coverage provided by the CP 00 30 Business Income With Extra Expense form.
In the other claim, the golf course was shut down due to damage to the greens caused by high temperatures and dryness. The insurer cited exclusions for this in the policy, but the exclusions cited only applied to direct damage to personal property, not nonexcluded damage to real property under the business income form. Even though the green were not Covered Property under the property form, that language had no bearing on the business income form which contained its own insuring agreement.
So, without examining the Declarations page and policy forms in their entirety, it’s impossible to say for sure if this decision was incorrect. But it does seem clear that the court likely misunderstands that the business income coverage applies to damage to any kind of property whether it’s Covered Property or not. In addition, the cases cited by the court appear to have no real bearing on the governing issues of this case.
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Bill Wilson
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Thanks for sharpening my iron. To further my understanding I have read the BI ISO Form. Maybe I have an old version and this has been updated but this form says under A. Coverage 1. business income …”We will pay for the actual loss of business income…by direct physical loss of or damage to property at the premises…described in the Declarations and for which a Business Income Limit is shown in the Declarations. ”
1. You have to have physical damage to property named in the declarations. To be named It should be specifically described. Where are the trees or links described in the declarations. It is my understanding that in propriety insurance not scheduled not covered. Even a blanket limit requires a schedule of values.
2. The trigger is suspension. That word is defined as slowdown or cessation of your business activities.
3. Specialty golf course property forms now are in the market that probably bridge this gap by including coverage for the golf course links. that would meet the requirement of description on the policy declarations
4. High temperature and humidity are not covered causes of loss in an ISO form so this case appears to have been turned on these items were covered property described in the Dec Page and these two causes of loss included.
5. The case on the trees is intriguing. If the golf course was scheduled and a windstorm is the proximate cause of loss then trees are not covered but their falling onto the covered property would be covered not unlike you have in a HO policy. The tress were not covered but their damage to covered and described property is covered.
Just my iron and view.
This is the current policy language:
We will pay for the actual loss of Business Income you sustain due to the necessary “suspension” of your “operations” during the “period of restoration”. The “suspension” must be caused by direct physical loss of or damage to property at premises which are described in the Declarations and for which a Business Income Limit of Insurance is shown in the Declarations. The loss or damage must be caused by or result from a Covered Cause of Loss.
There must be damage to “property” (undefined and not restricted to the defined Covered Property in the CP 00 10) at “premises which are described” in the Declarations. For business income coverage, the premises must be described, not individual buildings. You can have a business income loss to undescribed buildings or nonbuildings.
One ski resort suffered a million dollar business income loss because of fire damage to a ski lift that was insured on an inland marine form. Business income is premises-based, not building or other structure based.
A courier service suffered a significant business income loss when their facility was hit by a tornado. It destroyed or damaged all of the vehicles on the premises but did not major damage to the main building. But, under the CP 00 30 form, there was damage to “property” (autos) that occurred on the premises described on the Dec. page.
The CP 10 30 Special Causes of Loss form does not exclude damage to real property from temperature changes or drought. Exclusion 2.d.(7) only applies to personal property:
The following causes of loss to personal property:
(a) Dampness or dryness of atmosphere;
(b) Changes in or extremes of temperature;
Exclusion 3. for weather conditions only applies if it contributes to one of the Exclusion 1. exclusions:
We will not pay for loss or damage caused by or resulting from any of the following, 3.a. through 3.c. But if an excluded cause of loss that is listed in 3.a. through 3.c. results in a Covered Cause of Loss, we will pay for the loss or damage caused by that Covered Cause of Loss.
a. Weather conditions. But this exclusion only applies if weather conditions contribute in any way with a cause or event excluded in Paragraph 1. above to produce the loss or damage.
At least that’s my story and I’m sticking to it!
To respond
1. You are right that you can have a business income claim covered on the premises where the property is not insured.
2. The gotcha is how you designate the premises on the declarations page and if the loss is caused by a covered cause of loss.
3. You are stretching to assume that if you name the country club and list the physical premises address that this automatically covers everything. Again you have to schedule a complete designated premises i..e. use wording in the declarations page that includes the entire premises and operations. ,
4. The next problem is you are not covering the golf course itself. You do have business income coverage if loss is not excluded as a cause of loss. That would seem to apply to the loss of use of the course from adverse weather events.
A fairway is not a building item so exclusion d7 would seem to be triggered as well. What is a fairway? Is it building or personal property? Or neither? I believe it is considered personal property in the open in an endorsed ISO policy.
5. Under the trees falling onto the fairway by wind that would appear to ahve coverage as an insured peril is the trigger of loss.
The tree falling situation is covered but the other one is excluded because a fairway and greens are considered personal property.
I agree that you have to describe the premises properly on the Declarations page. A legal street address may or may not be adequate. It’s certainly better to provide an address, along with a statement such as “…including golf course, etc., etc., etc.” or even a reference to the legal plat of land.
The critical thing is defining the “premises” so that there is an understanding of all parties as to the extent of those premises. If there is perceived to be some ambiguity at the time of loss as to what constitutes the premises, then mediation or the courts will have to come to a conclusion and we know, in cases of ambiguity, the courts more often side with the insured, especially when the contract does not define “premises.”
I’ve never heard of land, trees, grass, etc. being considered personal property unless perhaps it consists of timber or crops as stock in trade. Black’s Law Dictionary describes real property as “Land, and generally whatever is erected or growing or affixed to land.” It notes an exception for growing crops.
The “dryness” claim came through the Big “I” Virtual University’s “Ask an Expert” service. Of the 7 opinions on coverage, 6 responders said they didn’t see an exclusion that applied and 1 responder wanted more information before reaching a conclusion. But, the good thing from the insured’s perspective, is that the adjuster was persuaded to pay the claim and the damage was negotiated.
I totally agree with Bill’s assessment. The street address usually defines the golf course and all structures and fixtures on the land. For example 2604 Washington Rd, Augusta, GA 30904 is the street location for a course that will be seen on TV April 3-9. If there are other properties owned by the Named Insured then they would be added to the Declaration.
Structures can be any item that is man made and attached to the land, examples swimming pools, flag poles, etc. “All buildings are structures—but not all structures are buildings”. Fixtures can be God made—trees, grass, shrubs, etc. “All structures are fixtures, but not all fixtures are structures”. Notice how ISO’s CP 00 10 is worded (in part):
Building, meaning the building or structure described in the Declarations, including:
…
(2) Fixtures, including outdoor fixtures;