What happens when a claim is denied based on an exclusion in an open perils policy that doesn’t exist in a named perils policy that includes a named peril that would appear to cover the loss? In other words, is it possible that an ‘inferior’ named perils policy provides more coverage than an open perils policy?
This is an issue I explore in my book “When Words Collide: Resolving Insurance Coverage and Claims Disputes.” In addition, last week I posted this article which also examines the issue:
“Just Because It’s Not Covered Doesn’t Mean It’s Not Covered”
Below is another example of an actual denied claim that was resolved in the insured’s favor by applying the principles outlined in the book.
The Denied Claim
An insured was painting a stairwell when the paint bucket fell down the stairs, splattering paint all over the walls, carpeting, etc. The adjuster denied the claim under the insured’s HO 00 03 Homeowners Special Form, citing the “pollution” exclusion.
The Resolution
Here are the points we made, applying logic and language, to convince the adjuster to pay the claim:
- We pointed out the fact that the company’s entire book of homeowners business involved exposure units drenched in a “pollutant” and asked if the claim would have been denied if the property was defaced by Kool Aid instead of paint.
- The textbook for CPCU 2 says, “The following building losses have been covered under ‘all-risks’ forms, and would presumably also be covered under the current HO-3…A bucket of paint spilled on oak flooring and seeped into the floor joints.” We also provided a Rough Notes publication that cited nine claims examples involving paint spills paid under an HO-3.
- An article in Insurance Advocate cited several court cases, one (A-1 Sandblasting & Steamcleaning Co. v. Baiden, Ore. Sup. Ct., 1981) that determined that paint “in common understanding” is not thought to be an irritant, contaminant or a pollutant, ruling that the exclusion was not “so clear as to cause a reasonable person in the position of the [policyholder] to believe that paint was one of the substances referred to in the exclusion….” In the language of most common pollution exclusions, the pollutant must act as irritant or contaminant to trigger the exclusion.
- If coverage had been provided under an HO-2 and the paint damage was caused by vandals, the HO-2 would cover the claim, but (applying the adjuster’s logic) the HO-3 wouldn’t because the “pollution” exclusion does not exist in the named perils HO-2 form. Should a superior, more costly form provide less coverage than the inferior form?
- To support the above premise, we provided a copy of the filing memorandum from a 1991 ISO Homeowners countrywide forms filing that said, “Under Coverages A and B, cracking of pavements, patios, etc. is now excluded if the cracking results from the settling, shrinking, bulging or expansion of pavements, patios, etc. This change is being made to avoid having the Special Coverage forms provide lesser coverage than what is provided under a Named Perils form….” [emphasis added]
- We pointed out the fact that the 40-page fax sent by the insurer’s home office claims department to the agent with excerpts from a reference manual (expressing the opinion that such losses were excluded) included court case citations that have found coverage under the form in addition to cases upholding the exclusion.
I have used that next to last point, referencing the 1991 ISO HO filing, probably dozens of times to get claim denials reversed on the premise that a named perils policy should not provide superior coverage to the more expensive and generally broader open perils policy.
Photo by paulos__ 
Bill Wilson
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Will no doubt this claims adjuster probably was a graduate from one of the universities that offer insurance and risk management is the Core curriculum it is interesting that they decided that paint was a pollutant that’s very interesting in that paint has to be approved by the EPA as a non polluted before it can be sold
Wow, thanks for sharing. This is good stuff and I’m filing this away for future reference. Thanks for sharing your wisdom, Bill.
Hello Bill. This is great information. Do you have a link or are you somehow able to share the 1991 filing? I believe it could be very helpful to actually have the memorandum to refer to. Thank you.
No, at one time I had a massive paper copy of the filing, but it’s long gone. All I have is an excerpt from the change. You might check with the Boston Insurance Library (www.insurancelibrary.org) to see if they have it in their archives.