Earlier this week, Lanny Hair, CIC, ARM, AAI, RPLU, the Executive VP for the Big “I” of Arizona, sent me a link to a decision by the Texas Supreme Court about when a fence is Coverage A – Dwelling or Coverage B – Other Structures under a homeowners policy. I suggest you read this short synopsis of the case before continuing with this blog post.
While I believe the Supreme Court got it wrong and the Texas Court of Appeals got it right, it raised an issue that has never been resolved in my mind. Using the current ISO HO-3 policy as a model form, here is an excerpt that defines what property is included in Coverage A [emphasis added]:
The dwelling on the “residence premises” shown in the Declarations, including structures attached to the dwelling….
Here is an excerpt that defines what property is included in Coverage B [emphasis added]:
We cover other structures on the “residence premises” set apart from the dwelling by clear space. This includes structures connected to the dwelling by only a fence, utility line, or similar connection.
So, if you have a garage building that is separate from the dwelling but connected by a fence attached to both the dwelling and the garage building, this makes it clear that the garage building is a Coverage B structure because it’s only attached by a fence. But what is the fence itself?
In my backyard, there is a free-standing privacy fence on my property between me and my neighbor. It’s a Coverage B structure because it’s separated from our dwelling by clear space. However, what if we extend the fence and attach it to the side of the house. Is it now Coverage A because it’s a structure attached to the dwelling (like a TV antenna, satellite dish, shutter, solar panel, etc.) or is it still Coverage B because it’s connected by a fence, in this case the fence itself being a fence?
This lead to an evening flurry of emails among four members of the “G5,” a black-ops group of really, really nerdy insurance nerds that I belong to. Three members of the G5 believe attachment to the dwelling makes the fence part of Coverage A (as found by the Texas Supreme Court in the aforementioned case) but, playing Devil’s Advocate, I took the position that the fence is a structure connected to the dwelling by only a fence…itself. This was one observation I made in our email exchanges:
Assume the wooden privacy fence between me and my neighbor is on their property and attached to their house at one end. If you go all the way down the yard between our properties, the wooden fence ends and attached to it is a very expensive ornamental wrought iron fence that goes around the back of their yard along the lake and up the other side of their property.
Is the iron fence a separate structure that is separated from their house by clear space except for the wooden fence connecting it with the house so that it is Coverage B (while the wooden fence is Coverage A)? Or is it all one fence connected to the dwelling and covered under Coverage A?
How many valuation programs will include the value of that fence in Coverage A? My guess is none. I bet every agent, home inspector/valuator, and adjuster in America consider the fence to be Coverage B.
I think it can be argued either way and the point of the blog post I’m writing is to establish, like you would for a swimming pool or other adjacent structure, whether it’s Coverage A or B.
A similar situation arises when you have a swimming pool connected to a dwelling by a water line. If the pool is otherwise unattached to the dwelling, it would be a Coverage B exposure because it is separated by a “utility line.” Likewise, for any electrical connections to the dwelling. But what is the utility line itself…Coverage A because it’s attached to the dwelling or Coverage B because it’s attached by itself, a utility line?
After a sleepless night, one of the dissenting G5 members emailed me the next morning and was hedging his position a little (but unwilling to concede!). This dilemma reminded him of the situation of where a riding lawn mower is covered on a named perils basis under Coverage C. The riding mower is damaged by running into a tree or overturning into a ditch. The consensus opinion is that the damage to the mower is covered under the “vehicle” peril. In other words, the riding mower is both property and peril. At this point, your head should be getting foggy or nearing explosion. So what do you think? Feel free to Comment below.
I don’t believe there’s necessarily a right or wrong answer here for the fence conundrum and, in most situations, it really doesn’t matter much whether it’s Coverage A or B, but it did in the Texas case because the Coverage B limit was exhausted and there was plenty of Coverage A left for over $70,000 in fencing value. The moral of the story is that it’s probably a good idea when you have situations like this to establish up front whether expensive “other structures” are Coverage A or B by agreement with the underwriter in defining the dwelling to include the fencing or increasing Coverage B.
P.S. Another interesting thing about this court case is the issue of insurance-to-value. IF this extensive and expensive fencing is part of Coverage A as the Texas Supreme Court opines, then will the trial court consider whether the dwelling (including the fencing) is insured for less than 80% of its value and recovery is reduced to a percentage of the value or ACV? Without knowing all of the particulars (including whether this was actually an ISO, Texas, or proprietary form), we can’t say.
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You are really slowing down my sales process here, Bill. Great article, I love reading all of them. They truly get your brain moving.
Now, we don’t want that! Hopefully we’re also slowing down the E&O process and improving loss ratios.
Guess I missed the G5 commando party on this. Interesting case. Again based upon my wildfire experiences, I would offer the following comments:
1. What does “attached” mean? If the fence was truly anchored to the dwelling, it is probably attached, but most are not attached but abut the structure very closely.
2. Are driveways attached to the structure? Again, it depends on how you look at the issue. My driveway is not really attached to my structure by continuous concrete from the garage. Rather, there is an expansion joint between the garage and driveway so technically it abuts my dwelling.
3. At he end of the day, I would opine it really depends on where there is additional coverage limits available as in this instance. In the wildfires, there was no Cov A left so we searched for other “coverage buckets” to tap. In most instances, the garages were part of residences, so a lot of Cov B remained. Most companies worked creatively with their customers to help fill their under- insurance and rebuild gap.
Yah is was interesting. I’d say the fence is all one fence. The style just happened to change a little bit along the way.
great article. it will help others who are looking for this information.
I live in Florida and was hit by Ian with 155mph winds for over an hour. Here the instructions for putting up a fence is to put the posts 3 feet in the ground if not using concrete and 2 feet if using concrete. With the Hurricanes I had my wood fence posts put in concrete. I lost two panels and a couple of posts snapped but most of the wind damage happened to panels. If I had attached it to the building, I would have had damage to my home as well. My insurance does not want to pay for the fence because it was not attached. The chainlink fence was damage due to falling debris but it is also in cement and is still standing. It is not attached to the building as we have severe storms and lightening often will strike a metal fence. How does this play out?
I have to follow the counties rules for installing fencing. What can I do?
It depends on what your policy does or doesn’t cover. In speaking to an insurance guru I know in Florida, some policies cover damage to detached fences while others don’t. The insurance market in Florida is among the worst in the country…lots of limitations and exclusions in some policies and insurers who are marginally capitalized. The best course of action is to get an independent agent at http://www.TrustedChoice.com and have them procure the best coverage available.