Real claim. A dentist’s office computer system was hit by ransomware that encrypted all of his customer files (personal information, xrays, insurance information, accounting records, etc.), including backups. The dentist experienced a significant business income and extra expense and accounts receivable loss.

The adjuster’s voluminous denial letter cited almost every exclusion in the policy, from “wear and tear” and “mechanical breakdown” to “faulty workmanship,” none of which stood up to challenge. Finally, the adjuster conceded coverage and was prepared to pay the claim.

However, the agent knew that there was no “direct physical loss” as required by the policy’s insuring agreement, being aware of relevant case law that affirmed that.

Should the agent provide this information to the adjuster?

A similar dilemma…

A building contractor assembled a carport and left for the weekend, promising to return Monday morning for some final adjustments, mainly adding a couple of bolts. During a weekend storm, the carport flew away causing a lot of damage. The adjuster wouldn’t pay for damage to the carport under the contractor’s CGL, citing several exclusions, including:

“Property damage” to “your product” arising out of it or any part of it.

However, “your product” is defined as “Any goods or products, other than real property, manufactured, sold, handled, distributed or disposed of by….” So, the agent argued that the carport, now affixed to the land, was real property, so the product exclusion did not apply.

The adjuster then cited the following exclusion:

“Property damage” to…That particular part of any property that must be restored, repaired or replaced because “your work” was incorrectly performed on it…this exclusion does not apply to “property damage” included in the “products-completed operations hazard”.

The agent pointed out that the “products-completed operations hazard” said that “…Work that may need service, maintenance, correction, repair or replacement, but which is otherwise complete, will be treated as completed,” arguing that this was a completed operations claim and the exclusion, therefore, didn’t apply.

At this point, the adjuster conceded that the claim was covered and was prepared to cut the check.

However, the agent knew that a so far unmentioned exclusion applied:

“Property damage” to “your work” arising out of it or any part of it and included in the “products-completed operations hazard”…

Does the agent bring this to the adjuster’s attention or let him pay the claim?

March is Ethics Awareness Month. How would you handle these two ethical dilemmas? What would Ace Insura, Claims Detective, do?

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Bill Wilson

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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