Since this is a rather long article, I’m limiting this week’s blog posting to just this one article, along with a link in a separate post to a Seth Godin article with a book promo. Tune in next week when I return to a full slate of blog posts, including a MAJOR certificate of insurance decision by the Washington Supreme Court that should scare agents and insurers far worse than anything you’ll encounter on Halloween tomorrow night.
Litigation success in coverage disputes following claim denials is often based on which party can make the most compelling case for or against coverage. Bob Smith was a legendary educator for the Florida Association of Insurance Agents. Bob had a saying when it came to arguing coverage:
“If you can’t argue the form, argue logic; if you can’t argue logic, argue the form.”
Where policy language is clear and unambiguous, it usually rules, regardless of whether it makes practical sense or not. There are some exceptions to this general rule, ranging from illusory coverage, policyholder reasonable expectations, violations of public policy, and other legal or contractual doctrines to, frankly, bad judicial decisions derived from incompetent counsel or expert witnesses.
The Hot Tub Claim
For example, due to an unusually severe winter temperature drop, an outdoor hot tub’s plumbing line and pump froze. The homeowners policy excluded the freezing of a plumbing system component but made two exceptions, one being that the exclusion didn’t apply if reasonable care was used to maintain heat in the dwelling, which the insured did.
From a logic standpoint, maintaining heat inside the dwelling has nothing to do with protecting an outdoor plumbing component from freezing. Unfortunately for the insurer, whomever drafted that policy language didn’t consider that possibility. The policy clearly and unambiguously covered damage to any plumbing system component as long as reasonable care was exercised to maintain heat in the dwelling.
Language trumps logic. The insured wins.
The Outdoor Theft Claim
This premise works both ways and can be favorable or disadvantageous to the policyholder. For example, a business had property stolen from a fenced yard on the premises. The building itself was protected by a burglar alarm system and the premium credit granted for the system was applied in exchange for the attachment of a protective safeguards endorsement to the property policy requiring that the alarm system be maintained and functional at all times.
Following the theft of yard property, the adjuster learned that the alarm system was, in fact, not functioning at the time of the loss and denied the claim. It made no difference that, from a logic standpoint, a functional alarm system on the building and not the yard would have done absolutely nothing to prevent the loss. The language in the warranty form was clear and unambiguous.
Language trumps logic. The insurer wins.
And, while an appeal to the adjuster based largely onlogic and not language sometimes works to get a claim paid, especially when policy language is arguably arguable, the strongest argument combines BOTH language and logic. For example, consider the following claim scenarios.
The Boulder Claim
A boulder rolled down a hillside and damaged a structure. (If you ever saw the Chris Farley and David Spade movie “Black Sheep,” you can visualize this.) In another instance, a boulder rolled down a hill, hit a rock ledge and, becoming airborne, flew through the air and through the roof of a building. These are both claims I consulted on that were resolved without litigation.
In both cases, the adjuster denied the claims, citing the “earth movement” exclusions in each policy. Neither “earth movement,” “earth,” nor “movement” were defined in the policy. So, does a giant rolling or falling rock (aka, a boulder) constitutes “earth movement”? I argued that it doesn’t by making a compelling case using logic and reason in interpreting that undefined policy language.
One argument was that, in the case of the airborne boulder, the policy covered “falling objects,” such that if the damage was caused by a nongeological object, there would inarguably be coverage. Here, I’m attempting to make a case almost purely on logic.
For both claims, I researched a number of dictionary definitions of “earth,” including:
…the soft, granular or crumbly part of land; soil; ground; the substance on the land surface of the earth, for example clay or sand, in which plants grow; the softer, friable part of land; soil, especially productive soil
These definitions appeared to view “earth” as a plural term to the extent that “earth” is composed of multiple soil and land particles, not a single stone object. None of them implied that a boulder or lone large rock was “earth.” Part of “earth,” perhaps, but not “earth” in and of itself.
I applied the semantic ambiguity interpretive principle of noscitur a sociis (L. “it is known by its associates”) to the exclusion itself. The exclusion referred to earth movement, including earthquake, landslide, mudslide, mudflow, subsidence, sinkhole collapse, and any other earth movement including earth sinking, rising or shifting. None of these events are generally recognized to involve the rolling or falling of a lone rock. They all involve movement of sizeable expanses of earth, soil, and/or rocks (plural) and not single, solitary geological objects.
Again, implying logic, I asked the adjuster, if a policy covers vandalism and a vandal throws a rock through a plate glass window, would that normally be covered? The answer was, of course it’s covered. So, why isn’t that rock (aka “tiny boulder”) “earth” and it’s propelling through the air “movement,” thus triggering the “earth movement” exclusion? That answer is that makes no logical sense and is certainly not likely the intent of the “earth movement” exclusion as historically viewed as a catastrophic type of exclusion.
Likewise, what about damage caused by a sandstorm or dust storm. Is that not “earth movement” and excluded? Of course not, it’s windstorm damage and covered by most property policies. Much of the damage from a tornado or hurricane is often not just wind damage but rather includes damage caused by objects propelled by the wind. Is damage caused by “earth” distinguished from damage caused by nongeological objects? Of course not. Logic alone dictates otherwise.
Resolving a coverage dispute, with or without litigation, is an exercise in applying the scales of justice. Whoever “wins” the argument is the one with the most compelling case, based on accumulating points based on both language and logic to tilt the scales in one direction.
An interesting footnote to the boulder claims. Not long after resolving one of these claims, I came across a federal court case and a state court case that both found that earth movement exclusions applied to exclude losses under homeowners policies. This raises the question of whether more compelling arguments might have swayed the courts to different decisions. We’ll never know the answer to that but it does illustrate that, if you’re seeking coverage, it might be better to argue your case in front of a more reasonable adjuster rather than a judge.