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.